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Global Credit Research - 18 Dec 2013
London, 18 December 2013 -- The onerous tax burden, lack of investor-friendly legislation and the risk of unpredictable government actions and interference are amongst the factors that will continue to constrain foreign direct investment (FDI) in the oil and gas sector in Russia, says Moody's Investors Service in a Special Comment report on the sector published today.
The new report, entitled "Regulatory and Tax Constraints Will Limit Future Foreign Direct Investment in the Russian Oil and Gas Sector", is now available on www.moodys.com. Moody's subscribers can access this report via the link provided at the end of this press release.
"Although Russia is less reliant on oil and gas revenues than Azerbaijan and to a similar extent as Kazakhstan and is taking steps to ease taxation to stimulate investment upstream, it still imposes stricter controls and a heavier tax burden on companies operating in its oil and gas sector," says Julia Pribytkova, a Vice President - Senior Analyst in Moody's Corporate Finance Group and author of the report.
FDI is important because Russia needs to develop resources in remote areas as its traditional oil and gas production areas are maturing.
"To maintain, if not grow, production levels Russia will need to explore significantly harder-to-extract reserves than those in its traditional basins. This will require a step-up in capital expenditure and technical expertise, supported by a sustainably favourable tax regime and risk-sharing mechanisms with global partners," adds Ms. Pribytkova. However, in Moody's view, creating such benign conditions will be hard to achieve given the Russian government's desire to raise more cash to finance the country's projected budget deficit and the current barriers to entry for foreign players, such as limits on ownership.
Socioeconomic factors may prompt Russia to increase taxes on the oil and gas sector in the future. This is because the Russian government is increasing spending to meet soaring social costs at a time when revenues from other sectors of the economy are falling. The oil price required to balance Russia's budget is high -- at above $100 per barrel (bbl) -- so if prices were to fall below this level for a prolonged period it could potentially prompt the Russian government to raise taxes on the sector.
Moody's would expect the Kazakh and Azeri oil and gas sectors to be better positioned to grow production and maintain their financial robustness even if oil and gas prices fall. This is because the oil price required to balance their budgets is significantly lower than in Russia and their hydrocarbon industries will continue to benefit from relatively benign tax and regulatory regimes that are more attractive to foreign investors.
The operating and financial performance of both private and state-owned Russian oil and gas companies could suffer if the government makes changes to the taxation system and/or to the regulatory environment that make the sector less attractive to foreign investors. Among the companies that could be affected are OAO LUKOIL (Baa2 stable), OAO Novatek (Baa3 stable), RussNeft (Ba3 negative), Bashneft (Ba2 stable), Tatneft OAO (Baa3 stable), OJSC Gazprom (Baa1 stable), Gazprom Neft JSC (Baa2 stable) and OJSC Oil Company Rosneft (Baa1 stable). This is because co-operation with global majors is particularly important for the development of hard-to-recover reserves, which in addition to financial support, will require the exploration skills and technological expertise possessed by international majors.
Subscribers can access this report via this link www.moodys.com/viewresearchdoc.aspx?docid=PBC_161306
NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: London +44-20-7772-5456, New York +1-212-553-0376, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com
Julia Pribytkova
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Limited, Russian Branch
7th floor, Four Winds Plaza
21 1st Tverskaya-Yamskaya St.
Moscow 125047
Russia
Telephone: +7 495 228 6060
Facsimile: +7 495 228 6091
Victoria Maisuradze
Associate Managing Director
Corporate Finance Group
Telephone: +7 495 228 6060
Facsimile: +7 495 228 6091
David Staples
MD - Corporate Finance
Corporate Finance Group
Telephone: 00971 4237 9536
Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
www.moodys.com/research/...T.mc_id=NLTITLE_YYYYMMDD_PR_289498
Global Credit Research - 18 Dec 2013
London, 18 December 2013 -- The onerous tax burden, lack of investor-friendly legislation and the risk of unpredictable government actions and interference are amongst the factors that will continue to constrain foreign direct investment (FDI) in the oil and gas sector in Russia, says Moody's Investors Service in a Special Comment report on the sector published today.
The new report, entitled "Regulatory and Tax Constraints Will Limit Future Foreign Direct Investment in the Russian Oil and Gas Sector", is now available on www.moodys.com. Moody's subscribers can access this report via the link provided at the end of this press release.
"Although Russia is less reliant on oil and gas revenues than Azerbaijan and to a similar extent as Kazakhstan and is taking steps to ease taxation to stimulate investment upstream, it still imposes stricter controls and a heavier tax burden on companies operating in its oil and gas sector," says Julia Pribytkova, a Vice President - Senior Analyst in Moody's Corporate Finance Group and author of the report.
FDI is important because Russia needs to develop resources in remote areas as its traditional oil and gas production areas are maturing.
"To maintain, if not grow, production levels Russia will need to explore significantly harder-to-extract reserves than those in its traditional basins. This will require a step-up in capital expenditure and technical expertise, supported by a sustainably favourable tax regime and risk-sharing mechanisms with global partners," adds Ms. Pribytkova. However, in Moody's view, creating such benign conditions will be hard to achieve given the Russian government's desire to raise more cash to finance the country's projected budget deficit and the current barriers to entry for foreign players, such as limits on ownership.
Socioeconomic factors may prompt Russia to increase taxes on the oil and gas sector in the future. This is because the Russian government is increasing spending to meet soaring social costs at a time when revenues from other sectors of the economy are falling. The oil price required to balance Russia's budget is high -- at above $100 per barrel (bbl) -- so if prices were to fall below this level for a prolonged period it could potentially prompt the Russian government to raise taxes on the sector.
Moody's would expect the Kazakh and Azeri oil and gas sectors to be better positioned to grow production and maintain their financial robustness even if oil and gas prices fall. This is because the oil price required to balance their budgets is significantly lower than in Russia and their hydrocarbon industries will continue to benefit from relatively benign tax and regulatory regimes that are more attractive to foreign investors.
The operating and financial performance of both private and state-owned Russian oil and gas companies could suffer if the government makes changes to the taxation system and/or to the regulatory environment that make the sector less attractive to foreign investors. Among the companies that could be affected are OAO LUKOIL (Baa2 stable), OAO Novatek (Baa3 stable), RussNeft (Ba3 negative), Bashneft (Ba2 stable), Tatneft OAO (Baa3 stable), OJSC Gazprom (Baa1 stable), Gazprom Neft JSC (Baa2 stable) and OJSC Oil Company Rosneft (Baa1 stable). This is because co-operation with global majors is particularly important for the development of hard-to-recover reserves, which in addition to financial support, will require the exploration skills and technological expertise possessed by international majors.
Subscribers can access this report via this link www.moodys.com/viewresearchdoc.aspx?docid=PBC_161306
NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: London +44-20-7772-5456, New York +1-212-553-0376, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com
Julia Pribytkova
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Limited, Russian Branch
7th floor, Four Winds Plaza
21 1st Tverskaya-Yamskaya St.
Moscow 125047
Russia
Telephone: +7 495 228 6060
Facsimile: +7 495 228 6091
Victoria Maisuradze
Associate Managing Director
Corporate Finance Group
Telephone: +7 495 228 6060
Facsimile: +7 495 228 6091
David Staples
MD - Corporate Finance
Corporate Finance Group
Telephone: 00971 4237 9536
Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
www.moodys.com/research/...T.mc_id=NLTITLE_YYYYMMDD_PR_289498
