Interview with Igor Shchurov for SFS Visnyk. Rating: Major Gas Producers
The gas-producing enterprises of the Poltava Region are the region’s key contributors to the country budget. The first two places among the top 10 players in the Poltava Region are taken by gas producers: the state-owned Ukrgazvydobuvannya and Naftogazvydobuvannya, a productive asset of the largest private company DTEK Oil&Gas. It should be noted that in general, in 2017 the oil-and-gas production enterprises paid taxes in the amount of UAH 74.6 billion, which is almost 10% of the state budget revenues. We asked Igor Shchurov, DTEK Oil&Gas CEO how the sector reform is progressing and what key challenges the industry companies are facing this year.
Our magazine will be issued just at a time of summing up for the first half of 2018. What are DTEK Oil&Gas’ results?
In the 6 months of 2018, our company produced 818 million cubic meters of gas, which even slightly exceeds the planned figures for this period of the current year. We plan to increase production in the second half of the year due to the commissioning of new well No. 25 of the Semerenkivske Field in June.
What key projects can you highlight in 2018?
We continue implementing the drilling program, and this year we plan to drill and commission 2 new deep wells, one of which is partially exploratory and strategic. Moreover, this year we will complete the implementation of a large investment project for the construction of a propane refrigeration unit at the Semerenkivske Field. This is a new and unique project for Ukraine; we have used a lot of modern technological solutions during construction. As a result, the unit is equipped with the latest equipment of the leading world manufacturers, such as Mayekawa USA, ABB, Siemens, Schneider Electric, and Emerson. We will be the first to implement a project of such complexity in the gas production sector. We are also starting the preparations for a large capital-intensive investment project at the Semerenkivske Field: the construction of booster compressor stations.
How did the introduction of the incentive rent for new wells affect the industry in general and DTEK Oil&Gas in particular? Does this create a background for production increase?
We positively assess all the legislative changes and are confident that the industry will show a positive result due to the introduction of the incentive rent. But you shouldn’t expect quick changes. The gas-producing sector works with long-term investments, and investment programs are approved for 5 to 10 years ahead. Accordingly, our current development program is the result of the past years of the company’s operation at the heavily-regulated market with an unpredictable fiscal and a complicated authorization system. In order for the companies to start demonstrating production increase in 2018, these legislative changes had to occur at least in 2015 or 2016. Now we must have patience and go on with the reform.
The industry reform continues, but it can hardly be called complete. What are the gas companies missing to speed up the process?
The companies operate at the existing fields according to the approved strategies, trying to organize the production process as efficiently as possible – and insofar as geology allows. However, further significant increase in production will directly depend on public auctions for new licensed sites. We know about the upcoming auction for oil and gas areas, but the industry fears that this auction will not meet international standards and will not fulfil its key function, which is attracting competent companies with proven expertise and the best technologies. There are many examples of how we shall arrange auctions and attract investors, such as the experience of Poland, Mexico and other countries. Unfortunately, we do not see this now in Ukraine.
Continuing the subject of reforming the industry, please tell me if the law on the decentralization of payments has proven effective (according to Law of Ukraine No. 1793-VIII, 5% of rental payments for use of subsoil for production of oil and gas is transferred to local budgets from January 1, 2018)? Has the company already calculated the amount of payments to the local budgets in the regions where its enterprises are located? Where do you think it is reasonable to allocate these funds?
DTEK Oil&Gas paid over UAH 38 million to the budgets of all levels of the Poltava Region for in the 5 months of 2018. If we consider the rental payments in the context of their impact on the district and village budgets, then it can be said with confidence that they are budget-forming. These funds let the communities implement projects that they could not even dream of last year. This also applies to energy-efficiency projects, which, frankly speaking, have never been a priority because of the lack of funds in the local budgets. This also includes projects related to the improvement of medical services. For example, they plan to purchase a digital photofluorographic unit out of the rental payments at the cost of several million hryvnias in the Shyshaky district where our assets are located. In our turn, we are creating an infectious disease ward with boxes in the children’s unit of the same hospital under the current social partnership program (not rental payments but additional charitable funds of the company; DTEK Oil&Gas finances 12 projects in the amount of more than UAH 8 million total under the social partnership program in 2018 – Editor) There are many examples of such fruitful partnerships. Accordingly, we believe that communities have received an efficient tool for the development of their territories and improvement of the quality of life thanks to this law.
What are the company’s expectations from 2018?
Like the entire industry, we are expecting a comprehensive reform. It is important to start holding public auctions in accordance with international standards this year, and such auctions shall become systematic. This could be called a great victory indeed. Both for the industry and the government.
Visnyk. Rating No. 1-2/2018