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Sergey Glazunov - on the prospects of the industry and the first million of the daily gas production

In an interview, Sergey Glazunov, Smart Energy CEO, told about which key solutions and technologies allowed the company to enhance production, what the market expects with regard to regulatory and legislative policies, as well as about the future vision of the drilling program and the first results of the new drilling. 

How do you evaluate the results of the Group’s work in 2018? What was the reason for you to achieve gas production growth and reach the daily production rate of 1 MMCM of natural gas in March 2019?

By the end of 2018, we enhanced gas production by 31%, gas condensate production - by 40%. Liquefied gas production increased by 50% accordingly. Successful application of optimal technological and management approaches in drilling and the implementation of overhaul projects allowed us to increase the number of producing wells.

In 2018, we put into operation two new wells in the Kharkiv region - No. 28 at the Ostroverkhovskoe and No. 10 at the Vasyshchevskoe fields, successfully completed the overhaul and resumed operation of wells No. 12 and No. 6 at the Sviridovskoe field in the Poltava region.

In 2017, we also implemented a number of projects. First of all, it comes to the drilling of well No. 109 at the Mekhedovsko-Golotovshchinskoe field in the Poltava region. In addition, the well No. 2 was launched at the Sviridovskoe field after repair work. The successful implementation of these projects, as well as the re-entry of the well No. 1 at the Ostroverkhovskoe field this year allowed us to reach 1 MMCM of gas per day.

How do you evaluate the results of cooperation with the state Ukrgazvydobuvannya?

A year ago, Smart Energy Group supported the initiative of the state-owned company Ukrgazdobycha to restore the stock of abandoned and suspended wells that are located in subsoil areas other companies have special permits for. We saw the potential to restore the well No. 1 located within the Ostroverkhovskoe field in the Kharkiv region. Our companies signed the relevant cooperation agreement. We successfully completed the overhaul at this well, which allowed us to obtain an industrial inflow of hydrocarbons. At this stage, I consider such cooperation quite successful. It is beneficial not only to us, but also to the state. After all, in addition to increasing gas production, we also pay additional royalty payments for hydrocarbons produced to both state and local budgets.

According to the results of the first quarter of 2019, Regal Petroleum, in particular at its fields in Kharkiv and Poltava regions, largely increased the volume of daily hydrocarbon production. What do you think will keep the upward trend in production for Smart Energy and private gas production sector of Ukraine as a whole?

This should be encouraged by the reforms in the oil and gas industry. In addition, the situation largely depends on market conditions and the ability of service companies to meet the request of gas producers.

Has the law on royalty decentralization affected the interaction with local communities?

Decentralization of royalty payments is certainly a positive decision. These are extra funds that go directly to local budgets and can be used for specific regional projects. The region, district, specific village independently determine how to dispose of them. This is the case of those regions where gas production is carried out. For hydrocarbons produced in 2018 companies of the Smart Energy Group transferred UAH 37 million to local budgets. Accordingly, the more gas is produced in a particular territory, the more money the community receives for its development. In this regard, we expect that they, as well as gas companies, will be interested in seismic survey and drilling new wells. In districts of the Poltava region, where we operate, this understanding is present. The situation in the Kharkiv region is somewhat different. Ukraine’s energy independence has “opponents” that deliberately misinform the local population and turn them against the gas companies.  But we are always open for a constructive dialogue with all the parties concerned and expect to come to mutual understanding.

Lowering the royalty for drilling new wells - how do you think when it will be possible to evaluate the results of this initiative? How many new wells are expected to be drilled by the Group of Companies in 2019?

We expect to start drilling of 4 wells in 2019. One of them - №119 at the Mekhedovsko-Golotovshchinskoe field in the Poltava region - is currently already being drilled at present. For comparison, last year we implemented two projects: one was completed last year, another one - this year. I would rather say that only now, during the second year after the introduction of the law on a 12% incentive royalty for new wells, we, like other gas companies, are starting to actually “deploy” our production programs. We also have certain ambitious plans for the coming years to be implemented also thanks to changes in tax policy.  

What legislative changes, in your opinion, could further conduce to the development of the company and the Ukrainian gas industry in general? Which of the initiatives that have already been implemented are in need of the improvement?

Last year, online auctions were launched, a number of deregulation improvements were adopted, geological information was disclosed, new tariffs for the GTS entry were approved, changes were adopted to ensure the extractive industry transparency. These are definitely important steps that facilitate the growth of production volumes and the achievement of Ukraine’s independence, but we still have work to be done. First of all, these are further steps to deregulate and update sectoral legislation, liberalize the turnover of geological information through the creation of a data-room, develop a new Subsoil Code and much more.

What do you see as the main prospects of the Smart Energy Group in 2019 and what are the main risks?  

In 2019, we expect to successfully implement a number of new projects and maintain the upward trend in production volumes. Our production grew by 40% over the past three years. We intend to further be in progress, thereby helping the country to get rid of gas import dependence. And this is quite possible granted further implementation of consistent reforms in the oil and gas industry and the lack of unreasonable irresponsible actions by inspecting or controlling bodies in relation to the companies of the Smart Energy Group.


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