Ukrnafta Rebuilds Output at Six Fields

Upstream company Ukrnafta is continuing to restore production at the six fields where operations were suspended earlier this year when the state geological service refused to extend a number of licences. So far it has brought back 80 out of 132 production wells in the Anastasievske, Artyukhivske, Korzhivske, Pivdenno-Panasivske, Rybalske and Zavodivske fields.

Ukrnafta has been able to increase daily production of oil, condensate and gas. Since the beginning of December, Ukrnafta’s average daily production rate for liquids has increased to 3,900 metric tons (mt) and gas output has risen by 12% to 2.9mn m³/day.

However, despite the improvements, output is still lower than it was. In 1Q 2017, before the company had to stop the first of the six fields, Ukrnafta produced 4,100 mt of oil and condensate and 3.5mn m³/d of gas. According to executive vice-president for upstream at Ukrnafta Mavriki Kalugin, the damage caused by well suspension operations, low reservoir pressures and other equipment failures are to blame for the expected failure to return to earlier levels.

Some of the gas fields may never recover, he said: "These licence problems and the uncertainty of the duration of the shut-in forced us to delay much needed improvements and investments."

In the course of 2017, nine of  Ukrnafta’s production licences expired and its attempts to renew them was blocked by the state geological service and between April and June 2017 Ukrnafta was forced to suspend production at those six fields. The company won a number of court cases challenging the regulator’s inaction and in late October and November it was able to restore operations at the suspended fields.

During the downtime, the company missed 92,000 mt of oil and condensate and 76.3mn m³, costing it almost to hryvnia 1.4bn ($52mn) in revenues, and the government about hryvnia 450mn in rent revenues alone.

Next year, Ukrnafta will see 27 of its licenses expire which account for 45% of its annual production of liquids and 25% of its annual production of gas. The annual production at these fields totals over 710,000 mt of oil and condensate and 360mn m³ of gas. Of the 27 fields where licences expire next year, seven are in Ivano-Frankivsk oblast; 7 in Chernihiv; 5 in Sumy; five in Poltava; and three in Lviv oblast. The company has already submitted to the state geological service 23 applications to extend the licences and will submit the remaining applications shortly.

Ukrnafta is the largest oil company in Ukraine, accounting for 68% of the oil output and 6.6% of the gas. Ukrnafta’s drilling divisions cumulatively own 46 drilling rigs, 1946 oil and 172 gas wells, and 537 filling stations that cover every region of Ukraine. The company is 50%+1 share owned by Naftogaz of Ukraine, a fully state-owned holding company.