Anton Siluanov, the Finance Minister of the Russian Federation, stated that his governmental department was looking over various tax incentives for companies working in the Russian natural resources sector. Minister Siluanov is generally satisfied with the list of existing tax breaks. While he emphasized that a review of tax breaks will take place, no major tax hikes are expected.

Tax breaks for such taxes as the NRET (natural resources extraction tax) are designed to increase exploration and extraction in areas with difficult access. Minister Siluanov noted that tax breaks must encourage, incentivize, and motivate those who pay taxes.

The Finance Ministry issued a budget strategy until the year 2030, where it outlined certain tax increases for companies operating in the natural resources sector. Therefore, the prevalence of tax breaks in the Russian energy sector is likely to diminish. The estimates of budgetary revenue from eliminating tax breaks will be determined in the 2015-2017 federal budgets.

Separately, Alexander Novak, the Russian Energy Minister, announced that the profitability of offshore oil production in Russia increased by 20 percent due to the elimination of the export duty and the lowering of the NRET rates for the oil companies. Some other taxes were reduced or eliminated for offshore shelf oil producers.

The elimination and the reduction of taxes certainly raised the interest of domestic and global energy majors in developing the Russian continental shelf. ExxonMobil, Shell, and Statoil are already producing oil on the Russian shelf, according to Minister Novak.

Conventional production of oil in Russia is still cheaper than shale production, and re quires less clean-up efforts during and after extraction.

According to Minister Novak, Russia is concentrating on producing more oil from existing fields, rather than developing new ones. At the same time, recovery rates in Russia today are among the lowest of the world’s oil producing countries. Saudi Arabia, Norway, and the U.S. have higher rates of oil recovery than does Russia. Saudi Arabia recovers 23 percent of oil, while Russia’s recovery rate is estimated at 20 percent.

One way to increase recovery rates is to develop difficult oil reserves by taking advantage of the tax breaks in existence. Also, horizontal drilling and other methods will allow Russian companies to increase oil recovery.