Putin may give Lukoil a taste of Arctic oil reserves

After bestowing big tax breaks on state-owned energy companies for developing Russia’s offshore Arctic oil and gas reserves, Vladimir Putin threw a crumb of hope to the country’s independent drillers. 

Putin promises that he’ll cap extraction taxes at 5% of the value of oil pulled out of the Arctic and that export charges will be eliminated outright.

If he follows through, that gives companies with access to Arctic projects a huge financial incentive and may even make these difficult-to-develop resources competitive on an after-tax cost basis.

A little-known truth of the Russian energy boom is that most of every barrel of crude that travels to the West or to Asia actually belongs to the Kremlin.

Moscow charges roughly 21% of the market price of oil extracted from its territory. On top of that, domestic oil sales accrue an 18% value-added tax while export duties clock in above 50%.

On top of that, Russian companies pay 20% on their profits.

Add it up, and every barrel of oil that local producers can extract from the frozen sea looks more than three times as attractive as anything they can pull out of Russia’s aging mainland fields — assuming, of course, that they have the technological expertise to drill in those extreme conditions.

Russian state companies have already found dance partners to handle that problem. Rosneft (thinly traded here as RNFTF, quote) is working with ExxonMobil (XOM, quote) after its relationship with BP (quote) evaporated last summer.

On the gas side, Gazprom (OGZPY, quote) has France’s Total (TOT, quote) and the North Sea drilling experts of Norway’s Statoil (STO, quote) in its court.

In theory, there’s maybe 700 billion barrels of oil up there under the Russian side of the ice, so there’s plenty of crude to go around.

However, in practice, the Arctic has been reserved for Rosneft and Gazprom, forcing independent operators like Lukoil (LUKOY, quote) to beg Moscow for a taste or else simply look far afield.

Today Putin said he’s asked the government to consider how to “more efficiently invite and use the possibilities” of Russian independents like LUKOY in the Arctic.

It’s nowhere near a firm approval, but it’s evidence that the state-only rules for one of the biggest unexplored oil fields left on the planet are thawing.

LUKOY is up 1.5% this afternoon on the news, slightly outperforming most of its peers in the global oil group. If we make a convincing move above $62.26 in the near future, look for the rally to get a bit of technical momentum on its side — we’re nudging up on the 50-day line again here for the first time in weeks.