Ukrnafta cuts hydrocarbon output 11% in 2016

Ukraine’s leading crude oil producer Ukrnafta (UNAF UK) reported reducing by 9.2% yoy its oil and gas condensate output to 1.52 mmt, according to its Jan. 27 press release. Its natural gas output decreased 13.4% yoy to 1.30 bcm. The company cut its total oil and gas production by 10.9% yoy to 19.5 mln boe (53,260 boepd), according to Concorde Capital estimates.

The company attributed its output decrease to smaller investments, which amounted to UAH 510 mln in 2016, the smallest level in the last ten years. At the same time, Ukrnafta reported it managed to increase the efficiency of its investments and stabilize its reduced oil output throughout the year.

In 2017, the company said it plans to invest UAH 2,600 mln in CapEx, an amount that will be enough to stabilize output, based on its estimates. Half of the planned CapEx will be covered by tax savings after Ukraine’s parliament cut the oil production tax for 2017, Ukrnafta reported.

Alexander Paraschiy: 2016 marked the tenth straight year in which Ukrnafta’s oil and condensate output declined, more than halving from its peak level of 3.19 mmt in 2006. Meanwhile, its gas output has fallen for 12 years from a peak level of 3.35 bcm in 2004.

As the company has an unresolved tax issue, owing more than UAH 11 bln in unpaid taxes (and the company’s supervisory board finding no common ground on this matter), we doubt the company will be able to invest this year the amount needed for output stabilization. Without a resolution to this tax-debt issue, Ukrnafta faces the risk of stopping its operations at any time. We continue to treat Ukrnafta stock as a risky investment.