Ukrnafta welcomes the decision of the Verkhovna Rada to reduce the royalty rates for oil in 2017 to the level of royalty rates for natural gas: from 45% to 29% for the deposits under 5,000 meters and from 21% to 14% for the deeper deposits. Unfortunately, the parliament decided to keep the old rates for the condensate and did not support the proposal of the oil and gas companies, including Ukrnafta, to introduce 12% royalty rate for the new wells to stimulate new drilling in 2017.
The reduction of the oil royalty rate to 29% and 14% will allow Ukrnafta to save circa UAH 1.3 bln next year. The company would like to use all of these savings to increase the level of capital investments, but this will partly depend on its success in finding a sustainable solution to its legacy tax debt and recover outstanding debt. Nevertheless, we do expect to increase expenditure on a number of essential and critical items, such as replacement of worn out tubing, replacement of pumps, production enhancement projects, etc.
The 45% royalty rate for oil was introduced at the initiative of the Government in August 2014 as a temporary measure when the price of Urals was over USD 100 per barrel. Now when the oil price has gone down to USD 45-50 per barrel excessive taxation limits the investment resources of oil producers and lead to a decline in output. In 9 months 2016, Ukrnafta paid UAH 5.3 bln in taxes, and spent only UAH 390 mln in investments.
‘The MPs have made the decision which will benefit not only the oil industry of the country, but also medium term government revenue. The reduction of the tax burden will help us to sustain production and reverse the ongoing decline. Ukrnafta would like to reinvest the savings and do this in the most transparent manner, balancing this against the need to settle our tax debt’, said Jonathan Popper, Executive Vice President of Ukrnafta for Corporate Development & Strategy