The reduction of royalty paid on gas production which was introduced earlier this year, has significantly increased the attractiveness of gas production relative to oil production. Ukrnafta currently pays 45% on oil production, but only 29% on gas production.
Mark Rollins, Chairman of the Executive Board of Ukrnafta:
“On a netback basis it’s more profitable for us to produce gas than oil. As a result we are bringing forward plans to produce more gas whilst delaying efforts to produce more oil. With oil prices falling back to levels seen earlier in the year, we are finding it less and less economic to develop our oil reserves”.
Earlier, Ukrnafta has submitted to and discussed with various government and parliamentary organisations, proposal bring the rate in Ukriane in line with the lower levels found in most other oil-producingcountries, proposing a system in which the rate would rise and fall with the oil price. In the proposed system, effective rent tax rate reaches the current 45% flat rate level at oil price above $100/bbl – the level seen at the time when the 45% rate was put in place in August 2014.
“It is disappointing that we are still waiting for these changes to be agreed and accepted, particularly as Ukrnafta is committed to invest the savings to reverse the ongoing decline in oil production. However, it would be very easy and a lot less complex to reduce the rate to 29% - the same as for gas. And we would still commit reinvest the savings” said Jonathan Popper, EVP for Corporate Strategy and Development.
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