Oil Taxes, Gas Supplies on Minds of Energy Heads

By Anatoly Medetsky

The St. Petersburg Times

Published: June 9, 2009 (Issue # 1481)

Alexander Belenky / The St. Petersburg Times Vekselberg (l), pictured here with Chubais, said TNK-BP was considering a plan to increase investment as oil prices climb.

International energy executives raised concerns about high oil taxes and gas supplies to Europe at a meeting with President Dmitry Medvedev on the sidelines of the St. Petersburg International Economic Forum on Friday.

Medvedev, in his opening speech, promoted his recent energy-security proposals at the event, also attended by chiefs of top Russian energy producers.

The closed-door meeting was the first of three with business leaders during the three-day forum.

Russia needs to develop new remote fields to stay a leading oil producer, a goal that would be easier to achieve if the government cuts taxes to encourage investment, said Royal Dutch Shell chief Jeroen van der Veer in comments published on the Kremlin web site.

Medvedev responded by saying oil tax reductions would be put back on the agenda once the crisis subsides. The government has already granted tax breaks to the industry and has promised additional measures, including the removal of export duties on new east Siberian fields.

Jean-Fransois Cirelli, president of GDF Suez, said the company wanted stability in the transit of gas through Ukraine, which became a major concern for European consumers after a standoff in January led to widespread supply disruptions across the continent.

“A search for some global decision is needed here,” he said. “We, on our level, are ready to assist in the resolution of this issue in cooperation with the other European companies.”

Paolo Scaroni, chief of Italy’s Eni, said he would help. “We will naturally be ready to make a contribution, do whatever is necessary because our business to sell gas would be endangered,” he said. “People are concerned about energy-supply security and are looking for other sources.” Medvedev said he would be grateful if the European gas companies prodded European Union bureaucrats to consider Russian ideas for reliable energy deliveries, including a proposed EU loan to help Ukraine build up its gas storage in the summer to ensure smooth winter deliveries.

“We strongly expect that you will stimulate the European institutions to pay greater attention to these problems,” he said. In his introductory speech, Medvedev also touted his idea of adopting a new set of rules, instead of the current European Energy Charter, to govern the supply of oil, gas and other energy resources on the continent.

The meeting came after an earlier panel discussion on the price of oil. During that session, TNK-BP shareholder Viktor Vekselberg said the company was considering a plan to increase its investment by 13 percent to $3.4 billion this year as the oil price climbs back to a level that producers consider fair.

The increase would make TNK-BP the first oil producer in Russia to revise its spending upward after the declining global economy made a hefty dent in the industry’s profits last fall. Vekselberg said TNK-BP was stable in the current price environment and looking at the option to invest $400 million in oil field development.

“We are quite optimistic as of today,” he told the audience of Russian and international oil executives, including chiefs of ExxonMobil, BP, Shell and Rosneft.

TNK-BP, Russia’s third-largest producer, was in the midst of a heated shareholder battle during the forum last year, with 50/50 owners BP and a consortium of four billionaires fighting over management and strategy. The sides have since resolved their dispute but are still looking for a new, permanent CEO.

Participants in the session also discussed future oil prices and took two votes to determine what they thought was a “fair” price, following a sharp drop from last summer’s record of nearly $150 per barrel. A moderator asked the audience — excluding the heads of energy companies, but including Medvedev, president of the world’s second-largest oil producer — to use a remote control-like device by their seats to select a price range.

The largest number of votes fell in the $70-$80 range. Urals, the main Russian export blend, is nearing $70 after falling below $35 in December. Deputy Prime Minister Igor Sechin, who oversees the sector and is chairman of Rosneft, said earlier at the same session that Russia viewed $75 as a fair price.

BP chief Tony Hayward appeared confident that demand for energy would pick up again before long as more people migrate from rural areas to cities in Asia and global population grows. “The future has not been canceled,” he said. “It’s been delayed by a year or two.”