Ukrnafta reports 11% yoy decline in February oil output

Ukrnafta’s (UNAF UK) oil production fell 10.9% yoy to 139.5 kt in February, Interfax reported on March 18, citing anonymous sources in Ukraine’s energy ministry. The company’s natural gas production grew 2.4% yoy to 160 mcm in February, while gas condensate output declined 10% yoy to 14.9 kt for the period.

Roman Dmytrenko: On a daily basis, the company’s oil production fell 7.7% yoy (1.0% mom) to 4.98 kt/day in February, while gas output grew unexpectedly 6.0% yoy (8.9% mom) to its ever highest monthly rate of 5.73 mcm/day.

The results suggest Ukrnafta has started paying increasingly more attention to gas production. Recall, as a company with 50% state ownership, Ukrnafta has to sell its gas at an extremely low price, which should make the gas business not interesting for the company. However, Ukrnafta’s creative owner of the 40%+ stake has found a way to bypass the price control, selling extracted gas to related chemical companies at the market price. As soon as this works, Ukrnafta is likely to go on to developing gas fields, which seem more lucrative for the company than oil wells. With a lack of new high-quality oil wells, it looks like fracking is the only option for the company to counter its oil production decline from depleting reserves.