Ukrnafta To Continue Working On Sakhalinka

Yesterday the state exploration & production company, Nadra Ukrayiny, announced that on July 9 it amended its joint activity agreement with Ukrnafta (UNAF: SELL) on the exploration and development of Sakhalinka field. No specific details were disclosed; the announcement only said that the parties improved mechanisms of decision-making and profit distribution. In April 2006 the Sakhalinka license moved from Poltavaneftegazgeologia (PNGG) to its parent company, Nadra Ukrayiny, meaning that Ukrnafta had to change its counterpart in the JAA. Ukrnafta stopped works on 12 oil wells and four gas wells at the Sakhalinka field on June 1. Previously, the company said that the halt could result in a loss of 140 mt of oil and 450 ths m3 of gas per day (3830 boepd, 149.4 mboe total over June 1-July 9). Vladimir Nesterenko: Unfortunately, the release did not disclose the size of Ukrnafta’s current working interest in Sakhalinka, which is the most interesting detail. Prior to prolongation of the JAA, Ukrnafta was eligible for 79% of profits and had a majority in the management committee. Given that Nadra Ukrayiny wanted to change the distribution to 50/50%, we bet Ukrnafta’s interest was reduced, perhaps to 60-70%, which won’t materially affect our full-year production forecasts.