Exclusive interview with the CEO on the Ukrainian operations Burisma Mr. Taras Burdeinogo news agency "Interfax-Ukraine" Question: In 2015, the subsidiaries of Burisma Group increased the volume of natural gas production. What are your plans for 2016, due to which factors does Burisma expand its business? Answer: We expand our business due to equipment investments, people and technology. At the moment, we have assembled the best experts and the most innovative equipment, which allows us to drill slanted wells 2900 m deep in three weeks. This year Burisma plans to drill 16 wells over 4000 m, and 5-7 wells under 4000 m. At the moment, seismic surveys are being conducted at four units at the same time. We put into operation a well with a depth of 5620 m, which provides a profit of 280 thousand cubic meters of gas and 25 thousand cubic meters of condensate per day. And we have not uncovered the most powerful horizons yet. According to the results of the well exploration, it was taken a decision to drill another well within the Vodyanovsk field. In May, we plan to drill a well with a planned depth of 5800 m, and to accomplish it in five or six months. In 21 days, there was drilled a well 2870 m deep with an inclination angle of 45% within the Proletarian field. All this allows us to reach the planned production volume of 1.8 billion cubic meters of gas, but this year we plan to increase the volume of gas production up to 2 billion cubic meters of gas. Question: What projects did Burisma implement in 2015? Answer: We built an additional gas piplene between Kharkiv and Shebelinka, which cost us 18 mln uah, and conveyed it to “Transgaz” system for free. This made it possible not only to facilitate the work of Kharkov ring, but to operate the Ukrainian gas transport system more efficiently. With this ring all the gas companies (including state-owned ones) operating in Kharkiv region can increase the output without violating the regulations. This is a net investment in the government project for the more efficient gas production. Today there are no similar investments, where private companies would invest in the state system of gas transmission. Burisma also launched a gas pipeline over 30 km long in Krarkiv oblast’, which connects gas transport providers’ nets to our company fields. This will increase production and ensure transmission of 4 million cubic meters of gas per day. Question: How much did it cost to build a gas piplene? Answer: The project cost amounted to more than 150 million uah. It is noteworthy, that it was built and put into operation within three months. Easements were signed with more than 200 landowners. So, in order to accelerate the construction, we announced a tender among private companies for the construction of a10-kilometer stretch. We implemented the other important and promising project on liquefied gas. We are the first company in Ukraine to design and launch installations for extracting propane-butane fraction by adsorption unit and modular turboexpanders. This will enable additionally liquefied gas extraction from natural gas. The plant capacity will amount to more than 1.5 million cubic meters per day. There are no analogues of such a facility in our country. We also implemented the other interesting project on methanol recovery. Our methanol recovery technology allows us to minimize the import dependence. For example, some time ago, six tons of methanol would be purchased at the one of our fields daily, today –only two tons. As a result, we save up to 60-70%, which equals to 100 thousand uah per day. In addition, innovative methods of horizontal drilling, used in more than 50% of our wells in complex geological conditions, enables Burisma to be welcome partners within large international projects. Question: Last year Burisma announced about its activities in Kazakhstan and Italy. What projects may contribute to the company’s portfolio in 2016? Answer: Even though, the Holding’s activities differ in these two countries (in Italy, the holding company develops geothermal field), we convey our competences to international markets. First of all, our service and our drilling technologies. Burisma owns the largest rig fleet in Ukraine, including heavy drilling rigs, that enable to reach the depth of up to10 thousand meters. In Kazakhstan, we signed an agreement with the National Oil and Gas Company “KazMunayGas” and its subsidiaries. For example, we signed a contract with «KMG Drilling & Services» to perform a drilling of a directional appraisal well at the Urikhtau field. In Italy, it’s a new aspect, specializing in the electricity production from renewable and environmentally friendly geothermal sources in Europe. An international group Gesto Investimento e Gestão (G.I.G.) became our partner in the Italian project, and now we cooperate on three projects. Companies in Mexico and the United Arab Emirates would also like to see us, as their investors and partners. Currently we estimate the prospects of a series of projects; we will be able to tell you more about it later. Question: Is it worthwhile to invest in Ukraine at the moment? Answer: But, in spite of macroeconomic and political risks, we continue to invest in Ukraine. Our principled position is to form an energy independent state and develop the Ukrainian gas production market. The future of Ukraine depends on having an energy independent state, which would be able to provide completely its market with domestic extracted gas. Despite market expansion, the Ukrainian market remains strategic for us. Burisma is the most recognizable Ukrainian gas company in the world. We promote the “made in Ukraine” brand in the world as a part of the qualification potential of Ukrainian universities and the technological possibilities of the Ukrainian companies. The company became a “guide” of energy independent implementation in terms of Ukrainian national policy. Despite the difficult situation in the country and “unfriendly” fiscal policy in 2014-2015, we continue working on our projects on the natural gas exploration and production. In 2014, production amounted to 692 million cubic meters, in December 2015, we managed to increase the production volume to 1.2 billion cubic meters in annual equivalent. Last year our companies paid about 3 billion uah of tax charges. According to this number, the group is among the three largest industrial taxpayers of the country, which demonstrates the social orientation of the company and compliance with international practices. Question: Does Burisma plan to cooperate with a state-owned company « Ukrgasdobycha»? In which format? Answer: We actively upgrade our rig fleets. This year we purchased a new drilling rig SK – 3000 with the load capacity of 750 tons. This is the most powerful rig, not only in Ukraine but also in the CIS. We also bought a new US fleet for hydrofracturing, which consists of 15 pumps with a total capacity of 35 thousand hp. We can say, that this national project will give an opportunity to participate in tenders for services of various companies, including the largest state-owned gas producer “Ukrgasdobycha”. We have already signed a cooperation agreement with leading American company ProPetro, which performed more than 10 thousand successful hydrofracturings and is ready to cooperate if we win the tender. We also purchased seismic equipment, which lets us cover large areas and provides high quality seismic information. In this field we cooperate with Dawson Company. Question: In March, the largest gas companies united in the Association of Ukrainian gas producers. Burisma was one of the founders. What do you expect from this? Answer: Burisma is not just a co-founder, it was the initiator of the Association establishment. We wanted to bring together, over the idea of an energy security, not only responsible businesses, but also politicians and experts, who maintain an open dialogue on the necessity to develop a transparent gas market and integrate it into the European energy community. In order to put the words into action, we started to develop an “attractive” market for investment: not the one we have today, which depends on imports, but energetically and politically independent from any country-suppliers of energy sources. Question: How can you comment on the legal proceedings involving Mr. Zlochevskiy, the ultimate beneficiary of Burisma Group? Answer: Speaking of legal aspects, we are sure about the legitimacy: in January 2015, the British court found in favor of Nicholai Zlochevskiy. In Ukraine, an active legal work is being performed, and we hope that the Ukrainian judicial system will be as objective, as the British is. It is a kind of a test of compliance with European legal standards of our country.