Ukrainian oil producers profitability to fall as royalties reach limit

The adjustment coefficient for the calculation of royalty payments for oil produced in Ukraine in June declined by 8% mom, Interfax reported last Saturday. According to current legislation, the coefficient for royalty payments is adjusted every month based on the average price of Urals on the International Petroleum Exchange divided by a fixed USD 100/bbl benchmark oil price and cannot be below 1.

Roman Dmytrenko: After the 8% mom decrease, royalty payments for Ukrainian oil producers reached the lower limit of USD 36.5/bbl, which effectively corresponds to the USD 100/bbl price of Urals. Considering the 13.4% mom drop in the Urals average price to USD 94/bbl in June, the unequal 8% decrease in monthly rental payments actually reduces the profitability of biggest Ukrainian oil producing company Ukrnafta (UNAF UK) by 2.3 pp mom over the month and biggest listed independent oil producer JKX Oil & Gas (JKX LN) by 1.0 pp mom in June.