Audited financial statements of Ukrnafta 2020
Audited financial statements of Ukrnafta 2020

PJSC Ukrnafta, Ukraine's largest oil producer, publishes its audited financial statements for 12 months of 2020.

Indicators

12 months 2020

12 months 2019

Oil production with condensate, ktonnes

1 501

1 516

Gas production, mln. m3

1 127

1 162

LPG production, ktonnes

117

112

Net income, UAH mln

35 535

28 210

Profit/(loss) before tax, UAH mln

5 572 

(4 939)

Profit tax, UAH mln

 (1 303) 

881

Net income/(loss), UAH mln

4 269

(4 058) 

In 2020, Ukrnafta managed to resolve its tax debt issue, meet its oil and natural gas production plan, show excellent results in safety and health at work, ensure strict fiscal discipline and maintain jobs and social guarantees for employees. The company posted a net profit of UAH 4.3 billion against a loss of UAH 4.1 billion in 2019 and became the largest taxpayer in Ukraine, sending UAH 47.5 billion to the state budget.

Oleg Gez, Chairman of the Management Board of Ukrnafta, said: "In 2020, our company operated under particularly difficult conditions due to a sharp drop in oil and gas prices, the COVID-19 pandemic and restrictions on oil sales through the state auctions. Despite this, the company showed significant positive results. We managed to prevent production decline despite limited investment resources, protect employees, meet obligations before the state and personnel on time, and thanks to our joint efforts resolve the tax debt problem. "Ukrnafta showed significant positive financial result under the conditions of implementation of agreements with NJSC Naftogaz of Ukraine on the purchase and sale of natural gas and became the No. 1 taxpayer in the country. Last year's achievements were made possible thanks to the coordinated work of the Management Board and Supervisory Board of Ukrnafta and fruitful cooperation with NJSC Naftogaz of Ukraine, the Government and other governmental authorities of the country.

External environment

In 2020, both in Ukraine and globally, the macroeconomic situation was marked by turbulence, while energy prices were highly volatile with general negative trend in place. In the spring of 2020, the Urals oil and natural gas prices reached their lowest levels in the last 5 years, hitting USD 20/bbl and UAH 1860/kcm, respectively. Despite the price recovery in the second half of the year, in 2020 the annual average price of oil was 35% lower and that of gas 33% lower than in 2019.

In response to the challenges of the COVID-19 pandemic and the fall in hydrocarbon prices, the Company fully revised its operating and capital expenditures, which were planned in the annual budget for 2020. During the year, the Company used flexible approach to cost management, constantly monitoring changes in the market conditions and adjusting the scope of capital expenditure and the programme of organisational and technical measures on the existing well stock accordingly. Thanks to this approach to liquidity management during the crisis year, the company has fulfilled its obligations to the workforce, the state, and ensured uninterrupted operating activity.

Analysis of Production Results

Despite the unstable macroeconomic situation and significant drop in oil and gas prices as well as demand for petroleum products in 2020, Ukrnafta managed to fulfil its production plan and prevent significant decline in production indicators. Production of oil with condensate amounted to 1.5 million tonnes and natural gas to 1.13 billion m3. Production of liquefied gas reached 117,000 tons.

The main focus was on operations on the existing well stock: transition to new productive horizons, optimisation of workovers and current repairs of promising wells, replacement of critically worn equipment. On the whole, last year Ukrnafta performed 2 hydrofracturing operations, completed workover operations on 133 wells, performed 24 operations with coiled tubing units without a workover crew, carried out 20 production enhancement operations and brought 107 wells out of operation. These measures enabled the company to produce additional 145,400 tonnes of oil and condensate and 79.4 million m3 of natural gas.

Analysis of financial results

In 2020, net income from sales increased by UAH 7.3 billion to UAH 35.5 billion compared with 2019. The main factor for the increase in net income in 2020 was the completion of the gas agreement and, consequently, the sale of natural gas from 2006 production to Naftogaz of Ukraine in the amount of 2.061 bn m³ for UAH 12.5 bn (VAT excluded).

Net income from oil and condensate sales amounted to UAH 0.9 billion. During 2020, Ukrnafta continued to operate under regulatory restrictions on the sale of oil and gas condensate through state auctions, and as a result, the Company was forced to buy back its own oil for further processing at the Kremenchuk refinery on give-and-take terms and incurred additional costs associated with oil monetisation. Net income from gas sales amounted to UAH 14.6 billion, including UAH 12.5 billion from the sale of 2006 gas. Net income from the sale of petroleum products in the wholesale segment, obtained from the processing of own oil, increased by 300 million UAH to 12.0 billion UAH. In the retail segment, net income amounted to UAH 5.4 billion.

Cost of goods sold reached UAH 18.1 billion.

Ukrnafta's net profit for 2020 is UAH 4.3 billion, compared with a net loss of UAH 4.1 billion in 2019.

Capital investments

Ukrnafta adjusted its capital expenditures during 2020 due to significant drop in oil and gas prices and demand for petroleum products. The company was forced to abandon/reallocate some of the organisational and technical measures in line with the new economic feasibility indicators. The total amount of capital investments in the reporting year amounted to UAH 1.146bn which is 29% less than in 2019. At the same time, the company secured funding for operating expenses to maintain assets at an adequate level. Priority investment areas included support for sustainable hydrocarbon production, environmental safety, labour protection and fire safety projects. In addition, investments were made to develop the company's retail business, upgrade its fleet of special-purpose vehicles and transport, and introduce IT projects.

Tax payments for 2020

In 2020, Ukrnafta transferred unprecedentedly large tax payments to the state budget of Ukraine in the amount of UAH 47.5 billion, which were used to pay both current tax liabilities and to repay historical tax debt and accrued penalties.

The company fulfilled its current tax obligations in full, paying about UAH 18.6 billion in taxes to the budgets of all levels, including UAH 4.8 billion in rent payments. The amount of current tax payments in 2020 increased by 67% compared to 2019, which is due to the payment of VAT and income tax advance in connection with the implementation of gas purchase and sale agreements by Naftogaz of Ukraine.

According to the State Tax Service and the publication "Rating. Business in Official Figures, Ukrnafta became the largest taxpayer in Ukraine in 2020.

Resolution of tax debt issue

In December 2020, Ukrnafta repaid its "historic" tax debt. The company transferred UAH 28.9 billion to the special fund of the state budget. This amount includes VAT, profit tax and rent debt, accrued fines and penalties for late payment of monetary liabilities.

The repayment of the tax debt took place within the framework of implementing the agreements between Ukrnafta and Naftogaz of Ukraine on the purchase and sale of natural gas. Under the agreement, Naftogaz of Ukraine paid to Ukrnafta 15.1 billion UAH (including VAT) for 2.061 billion cubic meters of natural gas produced in 2006. In addition, Ukrnafta received an advance payment of UAH 23.5 billion for the supply of natural gas for future production. The company expects to deliver the gas under the terms of prepayment over the next few years.

As a result of the gas sales agreements, Ukrnafta also paid UAH 3.9 billion of current VAT liabilities and UAH 3.3 billion of advance profit tax payments to the state budget special fund. The implementation of the gas agreements between the companies became possible after the Parliament of Ukraine passed laws 1005-IX and 1006-IX and the Cabinet of Ministers' resolution No.1195.

It should be noted that a similar decision could have been implemented back in 2016, when the company proposed to the State Fiscal Service to settle its tax debt by transferring natural gas to a tax pledge. The SFS's refusal led to a rapid increase in the amount of Ukrnafta's tax debt as a result of fines and penalties accrued over the next 4 years.

Repayment of the tax charge significantly improves the financial and economic situation of the company, reduces the risks for current operations and provides a foundation for long-term development. Another positive consequence of the introduction of the tax charge for the Partnership was receiving compensation from Naftogaz of Ukraine for 2.061 bn m3 of gas produced in 2006. A further 9bn m3 of unpaid natural gas can be returned or compensated through negotiations or in court.