Ukraine's oil giant Ukrnafta forecasts 15% drop in output in 2017
Ukraine's largest oil producer, Ukrnafta, forecasts a decline in crude oil production by 15% in 2017 in connection with high royalties and the unsolved problem of the company's tax debts.
"According to Ukrnafta's estimates, the company may see a 15% decline in oil production in 2017 vs. 2016. With the rent rates for oil and condensate high and the legacy tax debt unresolved, the company will not have sufficient resources to implement a capital investment program," the company said in a statement on Friday, November 4.
In January-September 2016, the company was able to spend only UAH 391 million in capital investment, i.e. 15% of the minimal investment level. In order to maintain the current level of output the company needs to invest at least UAH 2.6 billion in equipment upgrades, workovers of existing and drilling of new oil wells.
The current rates of rent for extraction of oil and condensate are 45% for deposits above 5,000 meters and 21% for deeper deposits. The rent rates for extraction of natural gas are 29% and 14% correspondingly.
Ukrnafta has advocated for a proposal to equalize the rent rates for oil/condensate and natural gas.
According to Deloitte's 2015 research report, the average rate of royalty and similar taxes on hydrocarbons in the EU countries was 12%.
Read alsoCourt bars mineral resources agency from suspending Ukrnafta licensesEarlier the company reported that in the nine months of 2016 its output of oil declined by 10%, natural gas by 14%, and LPG by 16% compared to the same period of last year.
Mark Rollins was appointed Chairman of the Executive Board at Ukrnafta in September 2015. While in office, he has managed to stabilize the financial situation at the company, which has paid a record high amount of dividends for 2014 and pays current taxes on time but still has the "legacy" tax debts estimated at UAH 12 billion.
Late in 2015, Rollins proposed developing Ukrnafta's pretrial debt settlement plan, which has not been approved yet.
In October, Rollins announced his company had asked the government agencies to consider a reduction in crude oil royalties from the current rate set at 45% to 29% of the commodity value of crude oil.
UNIAN memo. Ukrnafta is the largest state-owned oil and gas company in Ukraine. It accounts for about 70% of oil and condensate production, and 11% of gas extraction in the country. Ukrnafta is one of the key players in the retail market for petroleum products in Ukraine: the company owns more than 560 fuel filling stations throughout the country.
Ukrnafta's shares are listed on the Ukrainian Exchange (UX) and the PFTS Stock Exchange (Kyiv). Depositary receipts for company's shares are traded on the Frankfurt Stock Exchange. Last year, the company reported a net loss of UAH 5.44 billion, as compared with a profit of UAH 1.265 billion in 2014.