16:37 28.11.2017

DTEK Naftogaz ready to boost new drilling after fall in royalties – company head

KYIV. Nov 28 (Interfax-Ukraine) – DTEK Naftogaz is ready to boost new drilling if the deposit use royalties are cut, DTEK Naftogaz CEO Ihor Schurov has said at a press conference at Interfax-Ukraine.

He recalled that from 2013 through 2016, gas production by the company grew from 0.5 to 1.6 billion cubic meters (bcm). In 2017, the production pace almost did not change due to the existing fiscal policy.

"Everyone remembers the year 2015 when they raised royalties and, accordingly, we were forced to optimize our investments. We continued in inertia the drilling started in 2013-2014 in 2015. These 13 wells gave that huge increase in production from 0.5 up to 1.6 billion cubic meters of gas. Today, we are drilling only about two wells per year, which allows us to maintain production at the same level. In order to increase production, we need to drill about four or six wells per year," he said.

According to him, in case of a decrease in the royalties for drilling new wells, DTEK Naftogaz will be able to drill additionally at least ten wells to the planned two wells per year within the next five years.

Schurov said that budget revenues due to lower rental rates for new wells cut from 14% to 12% will be compensated by additional revenue from profit tax.

Smart Energy Group CEO Serhiy Hlazunov said that the existing fiscal policy forced the company to reduce the volume of new drilling and focus on less risky projects related to overhauls and well intensification.

"The economic situation in the fossil fuel market and the existing royalty rates have changed the profile of the investment projects that the company is currently engaged in. We reduced the drilling volumes. We now have to focus only on projects that will produce profit with a high probability. We cannot risk, we cannot afford to invest in projects where the probability of success is below a certain level," he said.

Hlazunov said that the opportunities to maintain gas production at the existing level during the implementation of these projects are limited. The drilling and exploration is needed for development of new fossil fuel deposits. It involves significant risks and costs, he said.

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