Ukrnafta stops well drilling, cites license uncertainty

Ukraine’s largest crude oil producer Ukrnafta (UNAF
UK) decided to stop well drilling at one of its fields in northern Ukraine,
citing the risk that its license (expiring in end-2019) won’t be renewed, the
company reported on July 18. With expected production of 134 boepd, the well
would recoup expenses in only three years, or beyond the period of the current
license’s validity, Ukrnafta said. 

Due to Ukrnafta’s tax debt, which now exceeds USD 0.5
bln, Ukrainian authorities are refusing to prolong the company’s production
licenses. With six licenses having expired since the beginning of 2017,
Ukrnafta had to stop production at these fields, causing about a 20% decline in
oil and gas production compared to the year start.

Alexander Paraschiy: Ukrnafta’s decision not to drill new wells won’t affect the company’s
performance much, given that its drilling operations were almost non-existent
in recent years. With 1,523 wells that the company operates, it managed to put
just one new well into operation last year, which is not enough to keep its
production from declining. But the absence of a solution to the company’s tax
debt and licensing trouble adds uncertainty to the company’s future. We remain
pessimistic about Ukrnafta’s value growth prospects.