Company performance results for 9 months of 2019
Company performance results for 9 months of 2019

PJSC Ukrnafta, Ukraine announce its financial and operational results for 9 months of 2019.

Highlights

  • daily hydrocarbon production increased;
  • the financial result deteriorated due to problems with oil and condensate sales at state stock exchange auctions and decline in prices for main products;
  • the company completed rebranding of 11 UKRNAFTA filling stations;
  • 129 capital workovers and stimulation operations of oil and gas wells as well 5 fracking operations have been completed; 100 idle oil wells were reactivated.

 

Items

9 months 2019

9 months 2018

Change, %

Net revenue, mln UAH

21 320,5

27 054,0

(21,2)

Profit before tax, mln UAH

(423,2)

5 764,2

n/a

Corporate income tax, mln UAH

59,3

(1 038,2)

n/a

Net profit/ (loss), mln UAH

(363,8)

4 725,9

n/a

Production of crude oil and condensate, ktonnes

1134

1 077

5,29

Gas production, mln m3

870

797

9,16

Production of LPG, ktonnes

83,2

81,3

2,34

 

Average daily production

3Q2019

2Q2019

Change, %

9 months 2019

9 months 2018

Change, %

Production of crude oil and condensate, ktonnes

4,12

4,18

-1,44

4,16

3,95

5,32

Gas production, mln m3

3,19

3,16

0,95

3,19

2,92

9,25

Analysis of financial results

At the end of 9 months of 2019 net income of Ukrnafta amounted to UAH 21.3 billion, net loss - UAH 363.8 million. The main factors contributing to the deterioration of the financial result were the inability to sell the entire volume of oil and condensate produced at the state-run oil auctions, as well as growing expenses for servicing tax debt.

Since the beginning of the year, due to the lack of buyers, 8 out of 15 exchange auctions have failed have, at which Ukrnafta is legally obliged to sell oil and condensate at prices set by the state. At the last auction, which took place on October 16, 377 ktonnes of oil and condensate remained unsold, which is equal to the production volume for 3 months. The amount of lost net income is estimated at UAH 4 billion. The company has repeatedly pointed out this problem to the government and made proposals to change the current procedure for the sale of liquid hydrocarbons, because due to non-market pricing it cannot ensure a rhythmic sale of Ukrnafta's oil and condensate.

Following the results of 9 months of this year allocations to reserves for possible fines and penalties related to the rent and other tax arrears accumulated in the previous periods have reached UAH 2.6 billion, rendering negative influence on financial result of the company.

Also, the decline in financial results was affected by the decline in prices for major products: for the first 9 months of 2019, the weighted average cost of oil sales decreased by 6.6%, of natural gas - by 30.8% of liquefied gas - by 16% compared to the same period in 2018. 

Ukrnafta continues to pay current taxes in full. In 9 months of 2019, it paid UAH 9.7 billion in taxes to the budgets of all levels.

Capital investments for 9 months of 2019 amounted to UAH 1.1 billion, having increased by 85%. The company invests in equipment upgrades, as well as workovers of existing wells, which allowed increasing hydrocarbon production over the past 2 years. At the same time, the level of capital investments remains insufficient to ensure sustainable growth in the medium term, and the cost of tax debt servicing exceeds the volume of investments.

The issue of Ukrnafta's outstanding tax debt remains unresolved. In March this year, the shareholders agreed the decision that envisages that NAK Naftogas will buy 2.06 bln m3 of gas which was transferred by Ukrnafta to the underground gas storage in the past and will buy additionally 2 bln m3 of gas to be produced in the future.  In turn, Ukrnafta will direct the money received to fully repay the tax debt including fines and penalties, as well as other tax liabilities that will arise in the process of implementation of the agreements. To implement this plan, a decision of the Cabinet of Ministers of Ukraine is required.

Analysis of operational results

In the first 9 months of 2019, Ukrnafta increased average daily oil and condensate production to 4.16 thousand tons per day, which is 5.3% more than in the same period last year. Average daily gas production, in turn, increased to 3.19 m3/day, increasing by 9.25% compared to 9 months of 2018.

The company continues to implement remote monitoring of wells equipped with electric submersible pumps (ESP units). In 2019, 71 new wells were added to the system, covering 186 wells in total.

In the first nine months of 2019, the Company performed more than 500 operations at oil and gas wells, including 5 hydraulic fracturing operations and 129 workovers and production intensification operations. The organisational and technical activities carried out by the company's specialists include optimization of well operations, conversion to mechanised production, decommissioning of old fields, powerful hydraulic fracturing operations, well stimulation and workover operations. Thanks to these activities, the company received additional 102.6 thousand tons of oil and condensate and 93.8 mln m3 of natural gas for the first nine months of the current year.

Implementation of organizational and technical activities at the existing wells allowed Ukrnafta not only to compensate for the decline in the basic production level, but also to achieve growth in hydrocarbon production with minimal costs over the last two years. This year Ukrnafta plans to increase oil and condensate production by 4% and gas production by 6%.

The Company has the potential for sustainable production growth at existing fields, provided it invests at least USD 100 million per year. The unresolved issue of tax debt settlement and artificial restrictions on product sales have so far prevented Ukrnafta from implementing its full potential.