The strategy of reaching a production performance of 20 BCM of gas by 2020 remains unchanged. Nevertheless, the management of Ukrgazdobycha PJSC has to take into account the reality of the company’s environment. This, above all, comes to the situation with granting licenses and the need of simplifying the licensing procedures. All these factors forced the company to adjust targets-2018. Instead of previously announced 16.5 BCM of gas, now Ukrgazdobycha says about 15.9 BCM.
Last year’s 15.3 BCM of natural gas became the highest mark for the last 24 years. This record performance became possible due to the overachievement of target at existing fields. While new fields were out of commission.
The bill No. 3038 adopted last year on royalty decentralization, as well as the bill No. 3096-д adopted in the first reading on simplifying the certain aspects of the oil and gas industry still allow producers not to lose hope to reach the targets.
ABOUT LICENSES AND REGIONAL COUNCILS
In general, the situation with the approval of new and renewal of previously issued licenses for the development of fields is currently one of the most difficult for the industry. Last year, only a single auction was held, while in countries where the extractive industry is of priority, such auctions amount to several dozen per year. For example, in Norway their number was 56 last year. In neighboring Romania, the government’s strategy to sell 5 to 10 license plots to investors within several years allowed for the country’s gas self-production by 2019.
At the same time, the delay in renewal of special permits for Ukrnafta PJSC last year led to a shortfall of 500 MMCM of gas, which is a significant loss for the imports-dependent country.
Obtaining a license to explore the oil and gas bearing area does not guarantee the successful commencement of commercial production. According to Alexander Romanyuk, the first deputy head of the Board – the chief operating officer of Ukrgazvobycha PJSC, on average, only 5 to 6 plots out of 60 can become fields. Therefore, there is no reason to «hold back» the sale of licensed areas, since only exploration operations can last more than a year.
At the same time, the issue of approval of special permits by some regional councils is a separate matter. As representatives of Ukrgazdobycha PJSC reported during the final press conference, a number of plots that were denied to renew the licenses by the Poltava Regional Council can be put up for sale. As the company noted, in this case the potential licensee will have to face claims by Ukrgazdobycha due to the fact that the company’s earlier investments in these areas were about one billion UAH.
ABOUT PRODUCTION IN WESTERN REGION
Ukrgazdobycha PJSC expects to increase production in this once promising oil and gas region. During the year the company intends to conduct exploratory drilling at six fields of its subdivision Lvivgazdobycha. It may take seven years to double production volume. In 2016, the branch produced 692.87 MMCM of gas, 379.5 tons of gas condensate and 1.21 thousand tons of oil. Due to the specificity of the occurrence of hydrocarbons, Ukrgazdobycha reviews the possibility of carrying out 3D seismic survey to search for productive horizons that occur below the already explored. According to the representatives of Ukrgazdobycha, Polish companies that are acquainted with operation in similar geological conditions and use mechanized production are interested in cooperation in the development of deposits in Western region.
ABOUT COOPERATION WITH WESTERN INVESTORS AND THE RESOURCE BASE
If it comes to such form of cooperation as Joint Activity Agreements, the attractiveness of such cooperation for investors is doubtful because of the high percentage of the royalty rate. In turn, the state faces risk of transferring the license to the investor without guaranteeing its effective use. In Oleg Prokhorenko’s opinion, the head of the Board of Ukrgazdobycha PJSC, those forms of contracts have greater prospects that provide for not transferring the license to the investor, but only an increase in production paid.
Investors, definitely, are interested in cooperation with Ukraine. American partners can hardly be offered more attractive conditions than those existing in their country after corporation tax cuts from 35 to 21%. Despite this, small and medium-sized US companies see certain prospects in cooperation with Ukraine.
Another important aspect in production development strategy is the replenishment of the fleet of drilling rigs. At the moment, most of the drilling equipment is involved by Ukrgazdobycha. The industry still experiences the lack of quality services, so the respective demand will be higher in the near future. This should be encouraged by both the strategy of the public company to increase drilling operations and the incentive royalty for new wells to be drilled from January 1, 2018.
ABOUT UKRGAZDOBYCHA’S PLANS
Except for increasing drilling volume on the mainland, Ukrgazdobycha expects to resume offshore production. The company applied for five licenses at the Black Sea and one license - at the Sea of Azov. According to experts, the resources of these areas are 80 to 300 BCM. These are quite promising areas, as they are north of the areas being developed on the Romanian side, and this is a shallow shelf, about 50 to 70 meters.
The company already suggested the government to start working in this direction. In return, Ukrgazdobycha can intensify offshore drilling through its own human and material resources. Ukrgazdobycha has every chance to revitalize this market by involving services.
The company’s another task for the near future is the development of tight sandstones, the so-called tight gas. According to Oleg Prokhorenko, this will not only enhance production, but also increase the estimated reserves, which in turn will affect the prospects of working in Ukraine for the next 20 to 30 years and open a new breath for the entire industry.
