Ukrnafta revises down drilling plans due to failure to extend licenses
Ukrnafta revises down drilling plans due to failure to extend licenses

Ukrnafta’s investment committee decided to put on hold the project for exploratory drilling at Velykobubny field in Sumy region. The project envisaged the completion of drilling of new exploratory well #119-G with design depth of almost 3,000 meters and average yield of 23 tons of oil per day. However, due to the unresolved issue with the extension of the licenses the investment committee had to cancel the drilling. The license for Velykobubny field expires on 24 December 2019.

Jonathan Popper, Executive Vice President, Corporate Development & Strategy:

«The uncertainty around the license extension has limited the investment horizon for Ukrnafta. The oil business is about long-term investments, especially, when it comes to new drilling. The payback period for this particular project was only 3 years and this goes to show that we cannot afford to plan for even such a relatively short period. This is bad news for Ukrnafta but it's even worse for Ukraine”.

Since the beginning of the year, Ukrnafta was forced to stop production at six field in Sumy and Lviv oblast due to failure by the State Geological Service to extend the licenses. As a result, the residents of eight communities in Sumy region were left without gas supply, while the company lost 20% of daily output of liquids and two of its gas processing plants have been operating at very low utilization levels. LPG production declined by almost 80% at the Gnidyntsy facility and by 30% at the Kachinivka facility. Ukrnafta will see 9 licenses expire in 2017, 27 – in 2018, and 22 – in 2019.

As reported earlier, Ukrnafta had submitted to the State Geological Service on time and in full the applications and supporting documents to extend 9 licenses. The regulator has repeatedly refused to extend the licenses citing the company’s tax debt even after the relevant provisions of paragraph 15 of the procedure for issuance of licenses were recognized as unlawful and annulled by the court decision. According to the ruling of the District Administrative Court of Kyiv which was subsequently sustained in the court of appeals and higher administrative court and entered into effect on 17 January 2017, the tax debt is not a lawful ground for refusing to extend the licenses.

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