Naftogaz seeking USD 8 bln from Russia for lost Crimea assets

Naftogaz of Ukraine (NAFTO) values the damages it is seeking
from Russia for unlawfully expropriated assets in Crimea at about USD 8 bln,
including interest, the company reported on Feb. 17. To recover them, it has
filed a complaint in the Permanent Court of Arbitration in the Hague. Earlier,
the court ruled that Russia breached a bilateral investment protection treaty
when it expropriated Naftogaz’s assets in Crimea. The court is scheduled to
start hearing the damages complaint in May, with the final ruling expected in
mid-2021, Naftogaz reported.

In other news, Naftogaz expects a decline in natural
gas output at its production subsidiary UGV by 2% yoy to 14.6 bcm in 2020. The
reason for the expected decline is the depletion of UGV’s existing resource
base, Andrew Favorov, the director of the integrated gas division of Naftogaz,
told journalists on Feb. 17. He estimates that total natural gas production in
Ukraine will be 20.5 bcm in 2020, down 1% yoy, while natural gas consumption
will be 29.3 bcm (down 2% yoy).

Favorov also presented Naftogaz’s strategy to boost
gas output in the mid-term, which he expects to be reached by expanding its
resource base in three directions: deep well drilling at existing fields, the
exploration and production of tight gas and the development of offshore
gas-bearing fields.

Alexander Paraschiy: There is
little doubt that Naftogaz will win its multi-billion-dollar claim against the
Russian government. But as in the case of Oschadbank, which won a similar claim for USD 1.3 bln,
it’s unlikely that the ruling will be enforced. Meanwhile, the company’s new
strategy to develop new gas production opportunities will require a lot of
investments and, therefore, might be among the factors prompting the company to
initiate an IPO in the mid-term. In the meantime, having already received its USD 3 bln award from Gazprom,
Naftogaz remains a cash-rich company and one of the biggest donors for
Ukrainian state budget.