Russia Surgut warns of oil output fall due to taxes

MOSCOW, April 29 (Reuters) - Russia's No. 4 oil firm, Surgut (SNGS.MM), whose output is falling after a decade of growth, may lose a third of production long term if the government does not alleviate its tax burden, the company's general director said.

"If nothing is changed, we will continue to work and earn profits but will start producing 40 million instead of 60 million tonnes per year," Vladimir Bogdanov, one of Russia's most elusive businessmen, told Kommersant daily in an interview published on Tuesday.

Bogdanov joins the chorus of other Russian oil executives who say the tax cut of around $4 billion a year proposed by the Finance Ministry from 2009 is not enough to support development of new regions and revive production growth.

Russian oil output has been stagnant since the beginning of the year after a decade of growth partly due to Surgut, which says its production may fall as much as 7 percent in the short term.

Bogdanov said he believed the mineral extraction tax should be set as a percentage of revenues instead of the current system where it fluctuates with global oil prices. It should be higher for export crude and lower for domestic supplies, he said.

He also said more tax breaks should be given to East Siberia, a region with a difficult geological structure on which Russia in general and Surgut in particular rely for future production growth.

East Siberia's undeveloped oilfields have the potential to replace West Siberia as Russia's core oil production region, although projects are being delayed by high capital costs.

Apart from the most pessimistic output scenario, Surgut had forecast several different scenarios to 2020, the first of which envisages its annual crude output steady at 65 million tonnes.

"The others are an increase to 74 million, 85 million and 100 million tonnes. The result will depend on many factors -- the tax system, the price of oil, materials and technology."

Bogdanov also said his firm had created facilities to stockpile up to 1 million tonnes of crude and was artificially capping production at the best wells in West Siberia with output capacity of 1.5 million tonnes per year.

He said the moves were making Surgut a more efficient company but did not elaborate.

Russia has never artificially capped output as it says it does not view itself a swing producer like some OPEC nations.

Bogdanov said Surgut's capital expenditure would rise to 100 billion roubles ($4.2 billion) this year from 92 billion in 2007.

"It is only a forecast and most likely we will have to raise the sum because metals, construction materials and services prices are rising," he said.

Surgut earned a net profit of 19 billion roubles ($805.1 million) in the first quarter of 2008, up from 8 billion in the same period last year, Bogdanov said. The company only reports profits to Russian Accounting Standards. (Reporting by Dmitry Zhdannikov; Editing by Louise Ireland)