What was the last year for you?
Record-breaking decline in hydrocarbon prices, the COVID-19 pandemic and the 2020 global economic crisis were a real shock for the oil and gas industry not only in Ukraine but worldwide. The world's largest companies suffered multibillion-dollar losses, canceled planned investments, froze promising projects and cut a large number of their employees.
Unfortunately, events in the Ukrainian gas industry developed according to the similar scenario. All market participants optimized their investment projects and now look to the future with great caution. The unpleasant fact is that this year the number of active drilling rigs in Ukraine, which were involved in production, saw about 70% fall. This will accordingly affect the volume of gas production in the country, which will be lower than in 2019.
What, in your opinion, should be done first to restore the industry and successfully move forward in the new environment?
During the year, gas producers repeatedly stated that the industry requires government support and incentives to continue investing. Without this, we should not expect drilling new wells and developing new fields.
Back in the spring, the Association of Gas Producers of Ukraine appealed to the President of Ukraine, the government and people's deputies to immediately develop and implement a package of incentives to help the industry. It comes to, first of all, fiscal measures, which are the basis for investors’ decision-making. This is the extension of the period of invariability of taxation of hydrocarbon recovery from new wells until 2030; introduction of stimulating royalty rate to restore preserved and abandoned wells, as well as stimulation of recovery of unconventional hydrocarbon deposits while developing a transparent method of their determination. In addition, it is also necessary to introduce a stimulating royalty rate for oil and condensate production by analogy with the incentive regime for natural gas production.
These are priority steps that should be a signal of support for the industry by the state. They will help stabilize the situation in gas production and will minimize the current crisis situation.
What do you consider the main achievement of the year? (Personal/your company’s)
The signing of production sharing agreements will be the brightest event of 2020 and early 2021. This will be a great achievement for the domestic oil and gas industry.
Let me recall that in 2019 Ukraine held the largest wave of oil and gas auctions with 12 onshore sites. The winners of these auctions were committed to invest at least USD 500 million in the first 5 years, and under the optimistic scenario the amount could reach USD 1.5 billion.
Negotiations between the state and investors on agreeing on the texts of agreements on 8 oil and gas fields have been going on for more than a year. It has been a rather complex and long process, as the current legislation has a number of gaps that need to be improved. In recent months, we saw significant progress in agreeing on draft production sharing agreements and look forward to their final signing before 12 January 2021.
This event will be the key to raising large investments in the sector and the basis for increasing oil and gas production in the country.
What advice would you give to your colleagues? What will help businesses better adapt to changes?
Ukraine has significant resource potential, which must be effectively implemented by combining the best domestic and international experience. Joint efforts of business and the government can help achieve the strategic goal of increasing gas production in Ukraine.
What are your goals for next year?
Next year will be difficult. We need to work even harder and implement reforms that will allow the industry to develop. Given the new realities of low hydrocarbon prices in the coming years, the depletion of oil and gas fields in Ukraine, in order to support the budget-generating sector, it is necessary to comprehensively revise the tax rates for hydrocarbon recovery in the country and unify them with the European averages. In addition, the entire oil and gas industry is waiting for the update of the Subsoil Code, which will be the only codified document in the field of subsoil use.
