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Director of PJSC "Ukrgasdobycha" Oleg Prokhorenko: We were hampered by lack of financial resources

November 19, 2015
The largest gas company of Ukraine "Ukrgasdobycha" intends to attract international experts for a thorough audit of its oil fields and wells. "It is revolutionary work," - said in an interview with RBC-Ukraine Head of PJSC "Ukrgasdobycha" Oleg Prokhorenko. According to him, it was an independent external international expertise will provide an opportunity to develop a reasonable and thoroughly consider the investment strategy for the development of domestic gas production.
RBC-Ukraine: The head of "Naftogaz" Andrew Kobolev presented annual financial report of his company, saying in particular that you have to develop a strategy for Ukrainian gas production. At what stage is this strategy? That it would be entirely new?
Oleg Prokhorenko: Fundamentally new it  will be that we intend to develop this strategy using an international experience. We plan to conduct a technical audit of our fields and wells with the help of international experts. That is the first time in the history of the company we will attract international experts in drilling management reservoirs to intensify exploration and wells to ensure that they have rated, due to what, what methods, what technologies and what investments we can provide the most efficient production.
It will be a revolutionary work. I am sure that in the course of this audit will be opened a lot of interesting things never seen before. Because on the one hand our geologists say that we have exhausted resource base, and on the other hand we see that the company continues to produce gas. Therefore, the question is how to develop further. When we carry out the technical audit, we understand the real state of our fields. In addition, independent external international expertise will give us recommendations on what field which will require an investment, and what their potential. Then we will be able to develop its investment and, in fact, the strategy of development of production.
RBC-Ukraine: What international companies may be subject to such audit?
Oleg Prokhorenko: We evaluated proposals from various companies. At one meeting, at which I was in Houston, I was able to connect with alliance of  the 30 largest oil and gas international and national companies, which is called Peter Skills. Now we are working with them on this question. What is their advantage, since it is in the fact that they may involve experts and specialists from 30 major oil and gas companies, both national and international.
The Alliance established with a British Petroleum, Shell, later joined by giants such as SaudiAramco, MOL, Petronas, KuwaitPetroleum, Repsoll - as national companies. From international - is Chevron, Maraphon, Devon, Anadarko. I spoke with representatives of the Alliance in their headquarters. Now we are discussing the scope of this co-operation and funding. At the moment, for us, of course, the priority of external financing. But if we do not find a mutual solution, then we will look for ways to finance their own expense.
Carrying out such an audit is important for to conduct a dialogue with international financial institutions, to continue the discussion with large international investors the project of production sharing agreements (PSA). This work is necessary, because then it will allow us to negotiate with the international financial institution such as the EBRD, the European Investment Bank, the World Bank. They will understand that we have an independent view of our resources, understanding of the prospects and potential of the company. And this means understanding that if they give us the money to development, we will have the opportunity to return the money.
RBC-Ukraine: Did you discuss with the representatives of international companies the situation with rental rate?
Oleg Prokhorenko: Of course, they care about this issue, but there is a certain branch that includes the PSA, which has separate tax from the general tax regime. This is what is attractive of these agreements. Accordingly, if these rates will continue to exist, it is the attractive mode that will allow investors to go for specific objects, where the concept of the algorithm and the volume of investments return on investment.
RBC-Ukraine: You probably already worked through various scenarios. Tell us how it can be, depending on whether the reduced rental rate for state-owned companies.
Oleg Prokhorenko: You have to understand that it is a question of balance of interests of the Ministry of Finance, the State and that it is the financial resources to cover the subsidies. And we understand that. But from our point of view, the faster will be reduced rent, the faster we will be able to raise the question of stabilization of the production capacity and production volumes. Because it is an industry that requires long-term investment.
Investments that we are doing now will help to increase production and stabilize production in the future two to three years. Therefore, the sooner we reduce the rental rate, the faster we will be able to invest and benefit from this result. But this does not apply to the following year. Now we have a problem, first of all, to stabilize production.
RBC-Ukraine: Have you counted how to grow production, when the rate will be reduced?
Oleg Prokhorenko: If there is a reduced rate for our company it is really in 2020 to have a production of 20 billion cubic meters per year. It is our assessment, that is based on the internal analysis, but it requires a confirmation. And just in this purpose we want to attract international experts who will have to estimate the exploration and wells to form an understanding of how this figure real is. Perhaps order of digits to be somewhat different.
RBC-Ukraine: Please comment on the statements of some politicians that tie decline in rental rates to the price of gas.
Oleg Prokhorenko: These are two different issues. The issue of gas prices - a global reform that has ripened in Ukraine 20 years ago. The sooner Ukraine will come to market prices for gas, the better for her. The issue of rent - it is a question of withdrawal of payments to the state budget, the issue of balancing the budget, this is the question of how the Ministry of Finance plans to fill the budget, the question of sources to cover its needs.
This question has nothing to do with the price of gas. Anyone who says so is engaged in populism. The sooner we get out of it, the faster we will reform the prices in the country, the faster we will reach a normal market economy, where companies produce gas at normal commercial rates. This will develop the production.
We are hampered by lack of financial resources, when we receive it, we will be able to invest more and increase production. While the company can not do this, we are in the mode of maintaining production at current levels. Speaking about the development in such a situation is difficult.
RBC-Ukraine: How do you assess the possibility of privatization "Ukrgasdobycha" in the coming years?
Oleg Prokhorenko: This is a strategic issue for the state. Now "Ukrgasdobycha" in the list of strategic enterprises, which are not subject to privatization. In order to raise the issue of privatization of the company, it takes a decision on the level of Parliament, the President and the Cabinet of Ministers on whether the gas production strategy for this country, whether state presence here. Plus, in what proportion should be a state presence in the company.
Countries decide such questions in different ways. There are countries where, for example, the oil and gas industry is seen as strategic - Russia, Norway, the United States, but then raised the question of state presence. For example, in the same Norway has the company Statoil, which is the state, but there is also a private presence in the United States, for example, there are no state-owned companies, all companies owned by private investors. Also there is Saudi Arabia, where the company only state, that is, there is oil and gas industry - a strategic resource, which is fully controlled by the state.
RBC-Ukraine: What format do you think is most appropriate for Ukraine?
Oleg Prokhorenko: I think that for Ukraine the most appropriate option would be one in which the company's share, for example, 60% is sold large international investors the level of BP, Shell, Chevron, but a significant proportion of blocking, remains with the state, which through the Board Directors will affect the strategy and decision-making in the company. For example, how many and what Invest. However, to ensure maximum efficiency, I believe that a controlling stake in the long term, probably, five years must have some large strategic investor.
November 19, 2015