The realisations from Imperials main Siberian assets are low as the stringent Russian tax regime leaves it with little returns. Moreover, Imperial has seen production plummet over the last few years as the fields have failed to meet its earlier production potential estimated when OVL acquired the company for $2.1 billion in 2009. OVL has been seeking tax concessions from the Russian government for sometime now with no avail.
Under the new tax regime applicable from September 2013, Russia will apply a zero rate of MET to Bazhenov, while other tight oil reservoirs will attract relief of between 20% and 80% on the standard rate of MET. MET is based on a complex formula but currently around 21-22% of the sale price of a barrel of oil exported goes into state coffers. Imperial Energys interests comprise 14 blocks with a total licensed area in Tomsk region standing at approximately 12,696 square kilometres.
Sources say that of Imperials current acreages in Russia, only a small oilfield in Maiskoye meet the criteria for availing the tax benefits. Only oilfields with a certain level of permeability, oil thickness, production and depletion levels are permitted to avail the MET exemption.
Imperial's Siberian fields hold shale formations called Bazhenov shale in the Tomsk region of western Siberia. OVL's realisations from Imperial's oilfield currently stands at around $20 a barrel at $100 per barrel oil price as it also pays other taxes like export duty. We have found some Bazhenov shale formations in our acreages but we do not have the technical expertise to work on such formations. We have now signed a technology partnership agreement with US company Liberty Resources to explore the Bazhenov shale formations. If we produce oil from these formations we can seek tax concessions in future, said an OVL official. If Imperial finds oil in the Bazhenov formations, OVL is willing to offer Liberty a 30% stake in Imperial.
A large share of Russia's shale reserves are said to lie in the Bazhenov area, which is one of the world's largest formations found in West Siberia. According to estimates, the Bazhenov shale, extending over 2.3 million square kilometres, holds over 100 billion barrels of recoverable oil. The Bazhenov layer, which underlies Siberias existing oilfields, has even drawn in in major international players like Shell as its similar to the Bakken shale in the US, which heralded the shale boom in that country.
The Comptroller and Auditor General has pulled up OVL for the Imperial acquisition when the company failed to produce the initially targeted numbers. The Imperial project was assessed as viable with average production forecast at 35,000 barrels of oil per day (bopd) for 2009, and to be enhanced up to 80,000 bopd by 2011. The company has revised the expected target downwards twice, first to 45,000 bopd and then to 35,000 bopd. Production is down to around 15,000 bopd currently.
In 2012-13, OVL's overall production stood at 7.26 million tonnes of oil and oil equivalent (mtoe), compared with 8.75 mtoe in 2011-12. OVL's production contributes about 15% of parent ONGCs output; it is expected to contribute 45% by 2030. OVL has stakes in 32 oil and gas projects in 16 countries.