Ukrnafta reports third quarter 2016 and nine months 2016 results

PJSC Ukrnafta, Ukraine’s largest oil company, has announced results for the third quarter and nine months period ended September 30, 2016.


 ●        Daily production of crude oil stabilized at 4.2 ktonnes since the beginning of the year;

●        Profitability in Q3 2016 recovered with stronger oil prices

●        Still no decision on the financial rehabilitation plan for Ukrnafta

 Key developments

 ●        Ukrnafta completed tender for 22 electrical submersible pumps (ESPs) as part of the effort to intensify oil production from existing wells. 15 ESPs have already been delivered and will be deployed by the end of the year;

●        Drilling of horizontal well #535 at Buhruvativske oil field in Sumy region resumed;

●        New business model implemented with Kremenchug oil refinery to process oil into petroleum products;

●        12 petrol stations outfitted with new LPG filling modules as part of the ongoing effort to modernize Ukrnafta’s retail network;

●        Restructuring of the central office completed and the company’s headcount reduced by circa 1 500 people (5.6% of total) through a voluntary retirement program.

●        Ukrnafta successfully challenged in court the decision by State Service of Geology & Mineral Resources threatening to suspend Ukrnafta’s 17 special licenses for subsoil use in Poltava, Ivano-Frankivsk and Lviv regions. Operations went uninterrupted at the affected oilfields;

●        Kyiv district administrative court decision went into effect on August 4 obligating the State Fiscal Service to accept as tax lien 2.0 bln m3 of natural gas which belongs to Ukrnafta;

 Financial and operational results







change %

Net revenue, mln UAH

6 406

5 468

5 772


15 301

21 011


Profit before taxes, mln UAH


   (2 364)




2 751*

- 66%

Corporate income tax






(1 286)


Net profit/loss, mln UAH


(2 445)




1 465*


Production of crude oil, ktonnes





1 144

1 272


Production of gas, mln m3






1 141


Production of LPG, ktonnes








 * 9 month 2015 financials have been adjusted to reflect the reversal of the transaction offsetting dividends due to Naftogaz for 2011-2013 with value of gas

 Analysis of operational and financial results

The company has stabilized daily oil production at 4.2 ktonnes since the beginning of the year, mainly due to improved well maintenance and measures to improve yields at existing wells. The output of oil and gas, as well as production of LPG in Q3 2016 remained at the level of the previous quarter.

However, output has declined year-on-year due to lack of sufficient funds for investment in maintenance, equipment modernization, and new drilling. Ukrnafta needs to invest about UAH 2.6 bln in order to stop the output decline, whereas the actual capital expenditure in H1 2016 was only UAH 230 mln.

The company’s revenue for 9 months 2016 declined year-on-year reflecting weak oil prices in the beginning of the year as well as underlying production decline. At the same time, the revenue in Q3 2016 increased as the oil prices improved. The net profit for 9 months 2016 recovered to UAH 427 mln vs a loss of UAH 10 mln in H1 2016, which reflects positive trends in the company’s operational performance.

The allocations to reserves for possible fines and penalties related to the rent and other tax arrears which the company had accumulated in the previous periods remain the key negative factors impacting Ukrnafta’s financial performance. The company allocated to these reserves
UAH 690 mln in Q3 2016 and UAH 2.2 bln within 9 months 2016.

The amount of all taxes (the majority being subsurface rent and VAT) paid by Ukrnafta in Q3 2016 reached UAH 2.0 bln and UAH 5.3 bln for 9 months 2016 vs UAH 3.0 bln paid in taxes for 9 months 2015. As of 30 September 2016, the tax debt of Ukrnafta increased by UAH 2.1 bln due to increase in debt by some of our customers and weak oil prices restricting our cash flow. The company is in negotiations with its customers to mitigate any payment delinquency.

In addition, in order to liquidate the receivables accumulated in the previous periods Ukrnafta filed several lawsuits seeking recovery of UAH 7.6 bln in July 2016. In September, the courts of first instance awarded decisions in favor of Ukrnafta in two of these legal cases.

Supervisory Board and shareholders have failed so far to make a decision on the management’s plan of financial rehabilitation of Ukrnafta which has significant negative impact on the company’s operational and financial performance due to inability to invest enough capital under the current conditions. If implemented the plan would allow the company pay off its ‘historic’ tax debt and meet the minimum capital investment requirements. Furthermore, the company’s ability to invest is constrained by the currently high rate of oil taxation in the country. The company calls for reducing the rate of the rent for oil to the level of the rent for natural gas, given that currently Ukraine is lagging behind in terms of attractiveness of investments in oil production projects.

Mark Rollins, Chairman of the Executive Board of Ukrnafta:

“Ukrnafta delivered a solid set of results in the third quarter considering the challenging conditions under which we operate. We continue to look for a long-term solution to our tax and receivables issues. However, in the meantime, underinvestment continues to hamper the development of Ukrnafta’s business.”

 For more information please contact press office: +38 044 239 14 93