Gas production slowed

November 24, 2014

In October, the growth of gas production in Ukraine has almost stopped. State companies have reduced production by 0.5%, while private producers have inertia kept a positive trend, showing an increase of 10%. The overall picture in the industry does not look magnificent and results have been the worst last month since the beginning of 2014

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In October, gas production in Ukraine has increased by 1% to 1 660 million m3. State companies have shown modest results. Ukrgasvydobuvannia has had data on the last year level, while production of Ukrnafta continues to stagnate – a decrease of 10%.

Things could be worse, but Ukrgasvydobuvannia said the company was fortunate to drill several high-debit well, which helped to keep production going. Another good piece of news from Ukrgasvydobuvannia are plans to intensify work on hydraulic fracturing. In 2015 the state company has planned 21 operations with hydraulic fracturing, also plans to upgrade the existing fleet of the company.

Another Ukrainian state company Chornomornaftogaz has disappointing news. Capturing of enterprise by self-declared Crimean authorities has a painful impact on his condition. In just 9 months the company’s management changed five times, and it ended in scandal and the opening of criminal cases each time. In early October, Sergey Beym took the lead in Chornomornaftogaz, one of the owners group TES, which operates a network of gas stations on the Peninsula. The new head of Chornomornaftogaz has not yet figured out the intricacies of the gas production. Instead of developing Ukrainian shelf Beym expects to receive the missing gas from Russia on South Stream.

Private producers reduce rates

The main trend in October was a sharp slow in production rates by private companies. Until August the average production growth was 35% in comparison with the previous year. But since August, when there were sharply increased taxes for private companies, the growth rate fell sharply. In August, the private producers, increased gas production by 30%, in September – 15%, and in October – 10%.

The trend in reducing rates is quite remarkable, and it can be established that the pessimistic predictions of representatives of private companies, said in August, are coming true.

A good example can be Poltava Petroleum Company, subsidiary of the British JKX. The company is preparing a draft half year of drilling, found the contractor, planned works, which were started in November, and investments. But the introduction of the new rent payments led to the fact that a project worth several million dollars turned out to be unprofitable, and it had to reject from it. This means that the company will not receive new wells next year, drilling will not work, and the country does not receive the necessary volumes of gas. In general, Poltava Petroleum Company is showing a positive trend and is in fourth place according to volumes of production.

KUB-Gas is in the third place, which production volumes in October amounted more than 30 million m3. Cub Energy Inc. (USA) holds a 30 percent share in t KUB-Gas and owns 100% of Tysagaz. The company reported that average daily hydrocarbon production increased by 44% (to 661 boe barrels / day) in the III quarter 2014 compared to the same period of 2013 – up to 2,174 th. barrels / day. One of the key factors in the growth of production is the work of a new well M-17, which provides an average production rate of 400 thousand m3 per day.

In October, there was a change of leadership in the market. The company Esko-Pivnich (part of Burisma Holdings, production in October – 51 million m3), came over Naftogazvydobuvannia (part of DTEK, 48 million m3). If you take into account other production assets of Burisma Holdings, First Ukrainian Petroleum Company and Paris, the gap is even more impressive. Naftogazvydobuvannia informed NefteRynok that several wells were now being repaired, but the company expected to maintain its leadership in the gas production by the end of 2014.

Previously approved program of enterprise development involves the commissioning in 2015 of at least 20 new wells and access to the production level of 1 billion m3 of gas. However, these plans now have two outcomes, depending on the introduction of the new taxation procedure for subsoil use. “In this regard, the next year we have two budgets. That is, if the laws are changed to the normal conditions for us, we have put 28 wells, though 18 of them – on a completely new fields. If the taxes are not changed, then we would not be able to increase production definitely. If we do not drill more than 7 wells per year, the increase in production will not happen”, – said Burdeinyi.

Oil and Gas Condensate Production Volume in Ukraine in October, 2014 (thousand of tons)

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Gas Production Volume in Ukraine in October, 2014 (Mio m3)

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Taxes are now reaching 80% of income of gas companies; eat almost all investments, without which the development of the industry will stop. But, even this is not enough for the government. The Cabinet of Ministers decided to remove administratively private mining companies from market gas. This is a scandal draft bill No.596, which suggests obliging the largest companies buy gas from Naftogaz of Ukraine NJSC, taking away the market from private owners. In such conditions, independent gas production has no future. However, the producers have filed a lawsuit against NJSC and are sure in victory. However, knowing how long Ukraine can pass court proceedings, production companies are aware that the win could come not earlier than spring.