UPDATE 2-Putin pledges tax breaks to revive Russian oil growth

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By Denis Dyomkin

UST LUGA, Russia, May 14 (Reuters) - Prime Minister Vladimir Putin said on Wednesday Russia would grant tax breaks to new oil provinces to revive output growth at the world's No.2 oil exporter and add over a tenth to current output levels by 2015.

The Russian stock market , dominated heavily by oil stocks, rose 2.84 percent on the news to its all time high with the MICEX oil and gas index .MCXOG jumping 5.14 and No.4 oil firm Surgutneftegaz (SNGS.MM) soaring almost 11 percent.

Putin said Russia should grant tax breaks for a period of up to seven years to firms developing offshore fields, the Yamal peninsula and the northern Timan-Pechora province. Currently such breaks exist only for East Siberia.

"It is necessary to introduce tax breaks for companies exploring and developing new deposits. Seven years is a reasonable term," Putin said while visiting Baltic Sea oil export ports of Primorsk and Ust Luga.

Oil is the backbone of the Russian economy and Putin chose it as the key topic of his first trip as a prime minister since he stepped down as president last week.

He also called on the parliament to urgently reduce mineral extraction tax on oil, give bigger tax incentives to develop depleted fields and increase processing of light products.

Russian oil companies have long urged the government to change the tax system, which has not been amended for several years despite rising costs and inflation, to encourage producers to invest in new regions to support falling production.

Russia's oil output grew by just 2 percent in 2007 and has moved into negative territory in the first quarter of this year after large spikes earlier this decade, which allowed Russia to exceed production levels at the world's top oil nation, Saudi Arabia, during some months.

OIL RALLY

Slower production growth in Russia, the main source of incremental crude for the world outside OPEC in the past years, has been often cited as one of the reasons behind the oil price rally amid growing global demand for energy.

Putin said he expected Russian oil output to rise by 67 million tonnes (1.3 million bpd), or 13.6 percent, by 2015. Russia produced 491.481 million tonnes (9.9 million barrels per day) last year. In April, production stood at 9.72 million bpd.

Putin appointed this week one of his closest allies, Igor Sechin - seen as one of the main architects of the partial renationalisation of the Russian energy industry - as his deputy in charge of the oil industry.

Sechin, seen as one of Russia's most influential and secretive officials, told Interfax news agency on Wednesday he was upbeat about the oil output growth prospects this year despite gloomy forecasts by the previous government.