Feb 2012
Shelton Petroleum benefits from reduced production tax in Russia

The Russian Ministry of Finance has confirmed in a letter to Shelton Petroleum that the recently introduced reduction in production tax for greenfields with reserves not exceeding 35 million barrels can be applied to the total oil reserve base on the company’s Rustamovskoye field. As a result, profitability per barrel is expected to increase by approximately USD 10 per barrel. 

As announced previously, the tax legislation in Russia has been amended to include a reduced production tax for greenfields with reserves not exceeding 35 million barrels. The objective is to provide incentives to small and medium oil exploration and production companies to increase investments. A greenfield is defined as a field where cumulative production does not exceed five percent of total registered reserves.

The Russian Ministry of Finance has recently informed Shelton Petroleum that the tax reduction can be applied to total registered reserves on Rustamovskoye (approximately 11 million barrels according to the Russian Reserve Committee) if the company’s cumulative production does not exceed five per cent of registered reserves as of 31 December 2011. Shelton Petroleum fulfills this prerequisite.

“The confirmation from the Ministry of Finance that the tax reduction coefficient can be applied to the total reserve base, and not only the first five per cent of production, is very positive. The cash flow potential of the field has increased significantly”, says Robert Karlsson, CEO of Shelton Petroleum.

The production tax for fields that do not qualify for the reduction is expected to amount to approximately USD 23 per barrel in January 2012. Shelton Petroleum will be able to apply a coefficient reducing the tax by 44%, or approximately USD 10 per barrel at the current world market price. Russia is in a process of step by step lowering the tax burden within the upstream sector. During fall of 2011, the export tax was reduced by approximately USD 4 per barrel.

In July 2011, Shelton Petroleum announced a development program for the Rustamovskoye field. The recent tax amendments will enhance the field’s cash flow potential significantly. The company has taken several new steps in this program, such as connecting the pad to the local electricity grid, since the publishing of the latest interim report. Furthermore, a new pumping design is being tested to optimize flows from the two producing wells. This work will be finalized before drilling will be commenced. As previously announced, given the debt crisis in Europe and the turbulence on the global financial markets, Shelton Petroleum will implement the development program at a pace where the company balances investments against its finances.

For more information, please contact:

Robert Karlsson, CEO, Shelton Petroleum, tel +46 709 565141 robert.karlsson@sheltonpetroleum.com


About Shelton Petroleum

Shelton Petroleum is a Swedish company focused on exploring and developing concessions in Russia and the resource-rich basins of Ukraine. The company holds three licenses in the Volga-Urals area and has commenced production on the Rustamovskoye field after a successful exploration program. In Ukraine, Shelton Petroleum’s wholly owned subsidiary has a joint venture with Ukrnafta and Chornomornaftogaz, two leading Ukrainian oil and gas companies. Shelton Petroleum is pursuing an integrated business model and holds an equity stake in Baltic Oil Terminals PLC. The Shelton Petroleum share is traded on the NGM stock exchange under the under the symbol SHEL B.