Ukrnafta reports audited financial results for 12 months 2018
Ukrnafta reports audited financial results for 12 months 2018

PJSC Ukrnafta, Ukraine’s largest oil company, has published audited financial results for 12 months 2018. 

Items

12m2018

12m2017

Production of crude oil and condensate, ktonnes

1 448

1 379

Gas production, mlnm3

1 082

1 108

Production of LPG, ktonnes

110

116

Motor fuel sales, ktonnes

455

493

Net revenue, mln UAH

36 113

26 907

Profit / (loss) from operating activities, mln UAH

7 979 

104 

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

12 293

4 041

Profit / (loss) before taxation, mln UAH

7 861 

57

Income tax, mln UAH

(1 423) 

45

Net profit / (loss), mln UAH

6 438 

102 

Mark Rollins, Chairman of the Executive Board of Ukrnafta:

“2018 turned out to be a milestone for Ukrnafta in terms of both production achievements and financial results. I am proud of the work of all our employees over the past year that succeeded to restore positive production dynamics and continued our process of modernization and transformation. We achieved a very strong financial performance as a result of all our efforts. Taking into account all the financial, political and economic restrictions the company has experienced for several years already these results are particularly pleasing and position the company strongly for further advances.

I would like to thank the whole highly professional team of Ukrnafta for the changes we’ve succeeded to implement in the company for more than three years - Ukrnafta has a bright future!”

Production and other factors impacting revenue

In 2018, Ukrnafta increased oil and condensate production as well as factually stabilized natural gas production. The average daily production of oil and condensate increased by 5% up to 3.97 ktonnes/day against 3.78 ktonnes/day in 2017. Meanwhile, gas production demonstrated insignificant decline from 3.03 mln m3/day to 2.96 mln m3/day.

By the end of 2018 the company factually restored the production rate it had before the enforced stop of six fields in 2H2017.

Ukrnafta succeeded to get positive production results under the condition of restricted investments due to works on the existing wells such as recompletions, optimization of capital and planned workovers and replacement of the obsolete equipment.

In total, last year, Ukrnafta completed 17 hydraulic fracturing operations, 121 capital workovers and 93 opex workovers. As of Dec. 31, 2018, due to the capital workovers, Ukrnafta produced additional 58.4 ktonnes of oil and 74.2 mln m3 of gas. The opex workovers resulted in incremental production of 27.2 ktonnes of oil and 12.4 mln m3 of gas.

In 2018, the oil market was featured with a favourable price environment: the average-weighted sale price for oil at USD 70 per barrel vs USD 51.8 per barrel in 2017. Stronger oil price drove up the revenue to UAH 36.1 bln in 2018 from UAH 26.9 bln in 2017. Throughout the year 2018 Ukrnafta 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, only 13 state-run oil auctions from 24 announced auctions took place which had a negative impact on the stability of the company’s cash flow.

Analysis of financial results

In 2018, the company’s profit grew up to UAH 7,979 mln, which was impacted by non-monetary accounting provisions made in accordance with the IFRS rules, in particular:

  • provisions for possible fines and penalties for unpaid rent and other taxes in the previous periods of UAH 2.8 bln.

Once adjusted for these major non-monetary items, the financial result from operating activities before tax and net of amortization expenses (adjusted EBITDA) for 2018 improved by 204% y-o-y to UAH 12.3 bln.

The profit before taxation was UAH 7,861 mln and was generated by interest income of UAH 80 mln, as well as for monetary expenses of UAH 206 mln.

The expenses from income tax stood at UAH 1,423 mln and include the current tax liability for income tax of UAH -2,114 mln and deferred income tax of UAH 691 mln. Taking into account this factor, the company posted net income of UAH 6,438 mln for 2018 vs net income of UAH 102 mln in the previous year.

Rent and tax debt

In 2018 Ukrnafta paid UAH 16.3 bln in taxes, including UAH 1.4 bln of the overdue tax debt, to the budgets of all levels. Thus, last-year’s taxes in total exceeded by 50,9% the same indicator for 2017 (UAH 10.8 bln) and by 101.2% the taxes of 2016 (UAH 8.1 bln).The company spent 57% of its total cash expenses to cover tax liabilities.

In 2018 the company fully met its current tax obligations along with repayment of the outstanding tax debt on a regular basis. In total Ukrnafta repaid UAH 1.4 bln of the debt in the reported period.

Ukrnafta recorded UAH 10.4 bln of the overdue tax debt as of December 31, 2018. This includes the debt owed by the company and its structural units as well as the debt for the joint activities, excluding the penalties and fines charged by payback. Ukrnafta’s approach to recording and reporting tax debt is consistent with the Ukrainian law and is supported by the independent external auditor.

For two years Ukrnafta was submitting a number of proposals regarding the tax debt restructuring but none of them was approved. Only this year, 2019, the shareholders agreed the decision that is intended to lead to the elimination of the overdue tax debt of Ukrnafta. It envisages 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 its turn, Ukrnafta is obligated to allocate all proceeds to repay the tax debt and other tax obligations arising in the course of execution of the contracts, which will open the way to increasing investments, modernizing production assets and achieving sustainable growth in production of hydrocarbons. However, Ukrnafta will be able to fully repay the tax debt only if these gas contracts have been fully executed.

Investments

In 2018, the capital investments were UAH 1.2 bln, with the target of UAH 4.3 bln. At the same time, the investments for the reported period are by 38.8% up against the similar indicator of 2017 (UAH 871 mln). Nevertheless, the rate of investments remains much lower than needed for production stabilization and growth.  

In 2019, the company envisages to invest UAH 2.9 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 as well as earlier will depend on the arrangements concerning the repayment of the company’s tax debt.

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