Ukrnafta reports audited financial results for 12 months 2017
Ukrnafta reports audited financial results for 12 months 2017

PJSC Ukrnafta, Ukraine’s largest oil company, has published audited financial results for 12 months 2017.





Production of crude oil and condensate, ktonnes

1 379

1 518

Gas production,  mln m3

1 108

1 301

Production of LPG, ktonnes



Motor fuel sales, ktonnes



Net revenue, mln UAH

26 907

22 579

Profit / (loss) from operating activities, mln UAH


(14 698)

Financial results from operating activities before tax and net of amortization expenses (adjusted EBITDA), mln UAH

5 547

2 962

Profit / (loss) before taxation, mln UAH


(11 905)

Income tax, mln UAH


3 165

Net profit / (loss), mln UAH


(8 739)

Mark Rollins, Chairman of the Executive Board of Ukrnafta:

‘Ukrnafta managed to stabilize and even grow production in the first half of the year with minimal investments. The company restored profitability in 2017, however, the bottom line could have been much better had it not been for the missed volumes and revenues following unlawful actions by the regulator who blocked renewal of our licenses. The company’s operations remain fundamentally healthy and the ongoing transformation of the organizational structure and business processes will allow to realize the company’s potential. The management has maintained fiscal discipline and looks to the government and shareholders for solutions that will enable Ukrnafta to increase significantly its investments to develop its business.’

Production and other factors impacting revenue

In 1H2017, Ukrnafta improved the average daily production of liquids by 2% to 4.1 ktonnes per day through rational use of limited investment resources and a series of technical measures to intensify production at the existing wells. At the same time, between July and October the daily rate of production declined by almost 20% as the company was forced to stop 6 productive fields after the government blocked the renewal of its licenses. The company was able to establish in court that the regulator acted unlawfully refusing to extend the licenses after which the operations at 6 fields were restored. The rate of production continued to grow in November-December, however, it did not recover to the pre-stoppage levels.

The company missed over 92 ktonnes of liquids and 76 mln mof gas during the suspension of 6 fields. These losses were the main factor behind the y-o-y decline in production of 9.2% for liquids and of 14.8% for gas in 2017. The natural exhaustion of wells and lack of investment in maintenance, modernization and drilling account for the decline in production.

In 2017, the price environment improved with the average-weighted sale price for oil at USD 51.8 per barrel vs USD 40.5 per barrel in 2016. Stronger oil price drove up the revenue to UAH 26.9 bln in 2017 from UAH 22.6 bln in 2016. At the same time, because of the forced suspension of 6 productive fields, loss of production and sales the company missed circa UAH 1.4 bln of revenues. Besides, throughout the year the company faced challenges selling oil and condensate coming from problems with the state-run oil auctions where the company is required to sell its oil and condensate at the state-regulated prices. Last year, the majority of the state-run oil auctions failed which had a negative impact on the stability of the company’s cash flow.

Analysis of financial results

In 2017, the company reduced its operating loss to UAH 68.2 mln, which was materially impacted by a number of non-monetary accounting provisions made in accordance with the IFRS rules, namely:

  • provisions for possible fines and penalties for unpaid rent and other taxes in the previous periods of UAH 2.99 bln;
  • provisions for inflation and 3% annual interest for unfulfilled obligations before the shareholders of UAH 0.95 bln.

Once adjusted for these major non-monetary items, the financial result from operating activities before tax and net of amortization expenses (adjusted EBITDA) improved by a factor of 1.8 y-o-y to UAH 5.5 bln.

The profit before taxation was UAH 475 mln adjusted for non-monetary items (amortization of financial instruments UAH 0.6 bln, interest income of UAH 141 mln), as well as for monetary expenses of UAH 189 mln.

The expenses from income tax stood at UAH 30.6 mln and include the current tax liability for income tax of UAH 847 mln and deferred income tax of UAH 816 mln. Adjusted for these items, the company posted net income of UAH 444 mln for 2017 vs net loss of UAH 8.7 bln in the previous year.

Rent and tax debt

In 2017, Ukrnafta paid UAH 10.2 bln in taxes, an improvement over 2016 when the company paid UAH 8.1 bln. The company spent 52% of its total cash expenses to cover tax liabilities.

The company fully met its current tax obligations in 2017. It recorded UAH 11.85 bln of overdue tax debt as of 31 December 2017. This includes the debt owed by the company and its structural units, as well as the debt from the joint activities. Ukrnafta’s approach to recording and reporting tax debt is consistent with the Ukrainian law and is supported by the independent external auditor. The bulk of the debt accumulated in 2014-2015 before the management change.

Ukrnafta’s financial plan for 2018 envisages repayment of UAH 1.2 bln of the overdue tax debt. Ukrnafta emphasizes that the risks to repayment of the overdue tax debt may come from attempts by the regulator to block its production licenses. Another risk factor is the problems with failure of the state-run oil auctions where the company is required to sell its oil and condensate at state-regulated prices.

Ukrnafta is able to pay its overdue tax debt over a 3-5-year period entirely from its own cash flows depending on oil prices and being allowed to continue production on all licenses. We have made a number of proposals to the government during 2017 and 2018 to reschedule the debt but received no response to date. We will continue to pay down the debt at a pace which allows us to pay current taxes and invest in essential capital expenditures required to sustain and increase production to the benefit of the company and Ukraine.  


The amount of receivables for products, goods and services declined by UAH 0,75 bln to UAH 2.0 bln at the end of 2017. Throughout the year, there were no significant positive developments with enforcement of court rulings in favor of Ukrnafta to recover the outstanding receivables from the debtors, or to recover 2 bln m3 of gas from Naftogaz and Ukrtransgaz. The company continues to pursue all avenues to ensure enforcement of the court decisions.


In 2017, the capital investments were UAH 871 mln, with the target of UAH 2.4 bln. This level of investment is significantly below the minimum necessary to stabilize and increase production. The company had to downsize its investment program throughout the year due to loss of revenue as the regulator blocked the renewal of the licenses. Besides, in the absence of the financial rehabilitation plan agreed by the government and the overdue tax debt continued to constrain the company’s ability to invest in the development of business.

In 2018, the company envisages to invest UAH 3.2 bln. The company believes that this investment is critical to maintain basic production systems, safety and asset integrity. However, the implementation of the investment program will depend on the arrangements concerning the repayment of the company’s tax debt.


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