Ukrnafta again failed to sell all its oil and condensate through the state-run auctions
Ukrnafta again failed to sell all its oil and condensate through the state-run auctions

On November 20, the Ukrainian Energy Exchange held an additional oil and condensate auction # 252D. The auction resulted in the sale of 132 thousand tons of oil and condensate. 368 thousand tonnes of products worth UAH 4.9 billion (VAT included) remained unsold., which equals the company's production volume for 3 months. 

In total, the company put up for sale 86 lots ranging in size from 17 to 9000 tons with a total volume of almost 500 thousand tons (including production in November and December) and worth UAH 6.7 billion. 

Ukrnafta has stabilized and for the second year in a row has been increasing its hydrocarbon production, however, due to the restrictions imposed by the state, the company regularly faces problems with the sale of oil and condensate. Ukrnafta is the only company in Ukraine obliged by the state to sell oil and condensate at exchange auctions at the starting prices set by the state auction committee. The starting prices at such auctions may significantly exceed the prices at which Ukrainian oil processing companies are able to import or buy raw materials on the domestic market. 

Since the beginning of this year, 11 out of 19 stock auctions have not failed due to the absence of buyers. The state, represented by Naftogaz of Ukraine, is obliged by law to buy unsold oil and condensate if two auctions in a row fail. However, this obligation is not fulfilled due to the lack of adequate funds in the financial plan of Naftogaz and due to the economic unattractiveness of such transactions. 

The company has repeatedly pointed to the Government on this issue and has suggested the change of the current order of sale of liquid hydrocarbons, because due to non-market pricing it cannot ensure rhythmic sale of Ukrnafta’s oil and condensate. Restrictions on the sale of raw materials adversely affect Ukrnafta's financial performance and the Company’s ability to finance its investment program. This, in turn, is likely to result in the decrease of the hydrocarbons production as of the next year.