percent due to the elimination of the export duty by the Energy Ministry, as well as the lowering of the NRET (natural resource extraction tax) for hard-to-access reserves.

Alexander Novak, the Russian Energy Minister, commented during a U.S.-Russia Business Council meeting in Washington that the steps his agency took render the Russian oil industry more competitive and ensure extraordinary profitability results.

Tax reductions and other incentives make offshore oil production interesting for various Russian and foreign companies. ExxonMobil, Shell, and Statoil are among the foreign majors already developing the Russian continental shelf and producing oil.

According to Mr. Novak, Russia is not concentrating on shale oil right now, as greater emphasis is placed on increasing recovery rates at conventional oilfields.

Minister Novak noted that the profitability of shale oil production and the attendant environmental damage are issues that have not been fully studied. It will take significant investments to create a safe infrastructure and re-cultivate old oilfields. The conventional production of oil and gas in Russia does not require major investments, and thus appears to be more lucrative. Although Gazprom is now conducting experimental gas production on two shale wells, it too determined that conventional production is more profitable, according to Mr. Novak.

Minister Novak also said that the priority is to increase recovery from existing fields and to create a better infrastructure as a safer and cheaper alternative.

Meanwhile, the rates for oil recovery remain low in Russia. The development of difficult resources by means of horizontal drilling will likely solve this problem. In a very basic sense, tax breaks are enacted to stimulate efficiency trends.