In 2017, Ukrainian gas production gave reasons for optimism. Reduced rent rates and advancing service market facilitated the launch of new projects. Domestic gas producers renewed its exploration and drilling operations with increased efforts to raise production levels. In particular, Burisma Group, owned by Nikolay Zlochevskyi, brings together major gas producers and plays a significant role in the Ukrainian service market. At the end of 2017, the Group appointed Mr. Taras Burdeinyi as its new CEO. Mr. Burdeinyi has been with Burisma Group for more than 15 years. He will oversee a wide range of operations, as the Group owns exploration licences for promising fields, Ukraine’s largest drilling and seismic fleets and latest hydraulic frac equipment. NefteRynok sat down with Mr. Burdeinyi to discuss what the Group has planned for 2018
NefteRynok: How did 2017 go for the Group?
Taras Burdeinyi: Last year, we continued our “Billion Strategy” that we adopted earlier. Each of its components, including production, investments and taxes hit the billion mark. In 2017 alone, we drilled 16 new wells. Some of them were completed earlier than originally planned, while others require more time and efforts. In certain cases, we had to act immediately and adjust our plans to enhance production capacities. In December 2017, the Group reached the daily production rate of 2920 m3 gas, which is more than 1 billion m3 a year. This represents an increase of 11% between the years 2016 and 2017.
NR: Further growth of domestic gas production greatly depends on state policies. Just a while ago, several gas projects were frozen due to tax load. Now we see a positive shift, though there’s still a long way to go in terms of legislation. Is it true to say that the Cabinet of Ministers and Verkhovna Rada are now playing on the gas producers’ side?
T. B.: I can say that the industry’s relations with state authorities have definitely improved, and it benefits everyone from state and local authorities to gas producers, local communities and consumers. We are glad that the government is meeting us halfway. In 2017, some very important legislative changes were adopted: rent rates for natural gas production were reduced to 12% (wells up to 5,000 meters deep) and 6% (wells deeper than 5,000 meters). These values are valid until 2023. For example, our company will use the money to explore new wells. It is a win-win situation for both sides.
In addition, starting this year, 5% of the rent paid by gas producers will be transferred to local budgets – this will directly affect local communities. It is very important for us at Burisma to be actively involved with local communities and support them in any way we can.
NR: How do you support local communities and how much did the company pay for rent in 2017?
T.B.: Burisma’s rent payments in 2017 amounted to more than UAH 1,5 bln. Last year, Burisma Group paid circa UAH 5 bln to budgets of all levels. Starting this year, part of the tax-money will go to local budgets, which creates new opportunities for local communities and regions. At the same time, we continue to support our earlier initiatives: we are building roads, schools, kindergartens. Just this year, Burisma provided the Kyiv city child care center with everything it needed.
In addition, we hope to be able to continue the dialogue with state authorities. We expect the bill #3096-d (adopted in the first reading in December 2017) to be abolished, adopted in the second reading and signed by the President. The Association of Gas Producers of Ukraine that bring together domestic gas producers meets regularly to discuss ways to improve the operation process. All proposals are sent to relevant departments at state and local levels. The industry has built strong relations with both the Verkhovna Rada and the Cabinet of Ministers of Ukraine. Support from state authorities allows us to grow. The money previously intended for paying taxes can now be spent on surveys and field development. Many companies are still using outdated geophysical data. Now we have a chance to conduct new surveys and help the industry.
NR: Have you already set up a precise geophysical survey plan?
T.B.: Over the coming two years, Burisma Group plans to conduct 2D-seismic surveys on more than 500 linear kilometers, 3D-seismic surveys on more than 1500 square kilometers. In January, we have already initiated surveys at 4 gas fields.
NR: How many wells do you plan to drill in 2018?
T.B.: The company has planned to drill 16 new wells. Half of them are more than 5,000 meters deep. We have already started drilling three wells and building a new pipeline that connects several gas fields, which increases the flowrate. We plan to invest approximately $150 million in drilling and infrastructure in 2018.
NR: What are your plans in terms of wells stimulation, in particular, hydraulic fracturing?
T.B.: In 2017, we carried out frac jobs on 10 wells. Four of the procedures turned out to be very effective, two showed no significant results, and the others are still in process. We were able to increase production capacity of certain wells up to about 100 times – on some we started to produce oil and significantly increased the share of gas condensate. For 2018, we have planned six frac jobs for the first quarter alone. To increase efficiency, Burisma Group acquired new equipment. Our technicians will be trained by American experts from Lime. We provide fracking services not only within the Group, but to other companies as well.
NR: What infrastructure projects are you going to launch?
T.B.: Last year, we completed reconstruction of a comprehensive gas treatment unit at the Karaykozivske field and built a mobile gas treatment unit at Veselkivske field. Both units were implemented according to latest technologies and the reservoir parks are now more than 4 times bigger (more than 1,200 m2 each). Now we are planning to build refrigeration units at the Rakytianske field and produce gas concentrate at the Karaykozivske field. In order to be more effective, we signed a three-year lease agreement for coiled tubing and three nitrogen plants. We have already purchased a Galileo booster compressor. New projects require more personnel. We constantly invite foreign experts for trainings and the launch of new equipment. We have already engaged more than 20 foreign technical consultants and experts.
NR: The Ukrainian service market is changing rapidly, mostly due to the growing number of foreign companies. Which companies have you started to partner with and which ones do you plan to engage with later on?
T.B.: Besides Gallileo, we are also using Siemens electronics at Burisma’s CGTUs. We have signed a service contract with Schlumberger and agreements for equipment supply and technical support with NOV (USA). For instance, we purchased a TDS-11 SA top drive (800 HP, 500 tons load capacity) that will allow us to increase drilling speed. Among our long-time partners are Weatherford, M-I Swaco, Smith Bits, Baker Hughes and others. Our team will be attending the NAPE Summit (Houston, USA) in February 2018, which is the oil and gas industry’s marketplace for the buying, selling and trading of prospects and producing properties.
NR: Who are your primary gas condensate and natural gas buyers? How do you set the prices?
T.B.: The prices are established through tender procedures. They are mostly equal to the prices of imported gas. We have a single buyer for most of our gas condensate and more than 50 natural gas buyers, among which are Coca-Cola, Carlsberg Ukraine, the National Bank of Ukraine, Ukrzaliznytsia, Kyivvodokanal, Ukrposhta, Ukroboronprom, Biskvit-Shokolad Corporation and many others.
NR: Several Ukrainian gas producers have launched liquefied gas projects. Do you plan to join the LPG market? If yes, then when?
T.B.: We are definitively encouraged by positive LPG market dynamics, and we are going to start production anytime soon. I do not have exact dates just yet, but we expect to join the list of Ukrainian LPG producers this year, once certain technical and infrastructure issues are settled.
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