• UKRGAZVYDOBUVANNYA (UGV)

    UGV is the largest gas production company in Ukraine and second largest in the production of oil and condensate. In 2015 the company's share in amounted to 73% in gas production and 21% in crude oil and condensate extraction in Ukraine.

    At the beginning of 2016, the company's operational assets comprised of 2 482 gas wells and 194 oil wells. UGV owns 81 drilling rigs, including two units in the ATO area.

    Extraction of crude oil and condensateThere are presently 140 hydrocarbon fields under development. These are located in Kharkiv, Poltava, Sumy, Donetsk, Dnipropetrovsk, Luhansk, Lviv, Ivano-Frankivsk, Volyn, Chernivtsi and Zakarpattya regions (for more information on gas production segment of UGV, see Gas Production). 

    UGV's largest refinery facility is the Shebelynsky Refinery. In addition, the company has the following refinery capacities: LPG producing Yuliyivska and Tymofiivska facilities for the advanced extraction of hydrocarbons; the Bazylivschyna plant producing LPG and stabilized gas condensate; the Yabluniv division producing LPG and dry gas; and the Orhovytska plant which produces bitumen.

    UGV is the largest producer of LPG (a mixture of propane and butane) in Ukraine. In 2015, the company produced 172 thousand tons of LPG, an 8% reduction compared to 2014. UGV also produced 177 thousand tons of gasoline (13.6% less than in 2014), and 108 thousand tons of diesel fuel (8.5% less than in 2014). The production decline in these products was primarily caused by the drop in extraction of key raw materials.

    UGV covers nearly 5% of the total demand for petroleum products and nearly 17% of the total LPG demand in Ukraine. The company has a network of 18 filling stations in the Kharkiv region. In 2015, this network sold 5% of the petroleum products produced by UGV. The remaining petroleum products were sold by the company at public auctions or through direct contracts. Between June 2015 and March 2016, oil products produced by UGV are to be sold through its retail network of filling stations, at public auctions, or through tenders to exclusively supply Ukraine's Ministry of Defense, Interior Ministry, Security Service, Foreign Intelligence Service and other government agencies responsible for military operations, or as prescribed by decrees of the Cabinet of Ministers of Ukraine.


    UKRNAFTA

    Naftogaz is the majority shareholder of Ukrnafta and owns a 50%+1 share in its authorized capital. On 22 July 2015 at the General Meeting of Shareholders, British citizen Mark Rollins was elected as chairman of the executive board of Ukrnafta. The decision was supported by 99.97% of shareholders present at the meeting. Mark Rollins assumed his duties in late September 2015.

    Ukrnafta is one of the largest oil and gas companies in the country. The company accounts for approximately 68% of the total oil and condensate output and 8% of natural gas output.
    Ukrnafta operates 58 drilling rigs. The company operates in Poltava, Chernihiv, Sumy, Kharkiv, Dnipropetrovsk, Lviv, Ivano-Frankivsk and Chernivtsi regions. The company's initial recoverable reserves are 84% depleted in oil and 71% in gas.

    Ukrnafta deposits


    MAJOR RESULTS OF 2015

    Replacement of management

    The regaining of control and replacement of Ukrnafta's executive board was a major process in 2015. On 26 November 2015 the company's supervisory board dismissed all board members. The next meeting of the supervisory board in December approved the new management structure and employment terms for new executive board members, including people with international experience in the private sector.

    Dividend payment

    In 2015, Ukrnafta has paid out dividends for 2011-2014 to the majority shareholder. UAH 2.41 billion was paid to the state budget.
    Despite the difficult economic situation in Ukraine and the sharp drop in world oil prices in 2015, Ukrnafta featured among the top ten largest taxpayers in Ukraine, paying over UAH 5.3 billion in taxes and royalties.

     

    Oil and gas output

    In 2015, extraction of oil and condensate by Ukrnafta decreased by 11.5% compared to 2014 and amounted to 1 671 thousand tons. The company produced 1,5 bcm of gas, 13.5% less than in 2014. The decline in production was caused by the natural depletion of wells and the prolonged lack of investment into upgrading production facilities.

    Indicator

    Processing

    As required by law, Ukrnafta sells extracted oil and condensate at auctions. The only refinery that currently operates in Ukraine is the Kremenchuk refinery which belongs to the Ukrtatnafta group (43% of shares in the group are owned by Naftogaz).
    Ukrnafta also processes oil condensate in three of its own processing facilities: Kachaniv, Hnidyntsivskyi and Dolynskyi. In 2015, the company produced 154 thousand tons of liquefied petroleum gas, 5.3% less than in 2014.

    Sales

    The company owns one of the largest networks of gas stations in Ukraine, comprising over 500 stations in most parts of the country. The share of sales through the network of Ukrnafta stations in 2015 was 17.3% in gasoline and diesel fuel and 9.6% of total LPG sales in Ukraine. Ukrnafta sells LPG of its own production and purchases gasoline and diesel fuel from external suppliers.

    PLANS FOR 2016

    In 2015, Ukrnafta failed to pay off tax debts to the state budget and debts to its minority shareholders. On the other hand, while the management replacement was in progress, the company suffered a sharp increase in receivables and prepayments for oil products in excess of UAH 9 billion. The independent auditor has provided a qualified opinion on Ukrnafta's consolidated financial statements for 2015, indicating concerns of the recognition and measurement of this sum as of 31 December 2015.

    These transactions have deprived Ukrnafta of its working capital and put the company into an extremely difficult position. Another challenge for Ukrnafta is the unresolved issue between Naftogaz and the company regarding 10.1 bcm of gas produced in 2006-2011. According to the legislation in force at the time, Ukrnafta was obliged to sell all marketable gas to Naftogaz at a price fixed by the national regulator NEURC to cover the needs of households. Since 2005, the previous management of Ukrnafta had avoided executing sales contracts with Naftogaz in relation to this gas, citing its refusal to accept the low prices set by NEURC. Naftogaz has repeatedly expressed its readiness to cover UAH 3.75 billion which corresponds to the gas value in the prices set by the regulator in the relevant periods. This amount is reflected as a liability in the stand-alone financial statements of Naftogaz.

    To address the issues mentioned above, the new management of Ukrnafta approached the supervisory board in 2016 with a proposal to initiate the process of a pre-judicial recovery. The recovery plan involves the coordination of tax debt repayment as well as repayment of debts to other creditors. The recovery plan envisages that the accumulation of fines, penalties, and interest payments on this historic debt will be stopped for the period of implementation of the debt repayment plan. Ukrnafta's supervisory board has instructed the management to discuss the recovery plan with the State Fiscal Service of Ukraine, the company's main creditor. Pre-judicial recovery is expected to enable the company to continue its operations.

     

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