Ukrnafta announced Friday that it has received a formal notification from the State Service of Geology & Mineral Resources of Ukraine that 16 licenses could be suspended, in addition to three recent suspensions.
Suspension of these 16 licenses would stop production of approximately 320,000 tons of oil and 210 million cubic meters of natural gas in 2016. This is a “significant portion” of Ukrnafta’s annual production, according to a company statement, which would place “undue stress on the Ukraine’s energy security and the future growth of company”.
Ukrnafta has stated that the majority of the reasons used as a basis for the suspensions “are related to the ongoing historical rent-tax liabilities while others cite reasons that have been previously resolved”. One of the licenses under the suspension order relates to the Verkhne-Maslovetskoe field, where Ukrnafta recently announced the spudding of the first development well in 2016.
Commenting on the fiscal implications of the suspensions, Ukrnafta claimed that significant costs would be required to safely halt production facilities and producing wells, which will “inevitably be damaged during the suspension process and may never return to current levels of production”. The company estimates that approximately 1,000 employees would be affected by the suspensions, either directly or indirectly.
Ukrnafta’s Chairman of the Executive Board Mark Rollins said in a company statement:
“At times of long-lasting world oil price decrease, special permits suspension would be the most radical measures, which neither the company nor the state will benefit from. This practice of licenses suspension won’t generate any more tax to the state budget. On the contrary, it will neither let the company settle its existing tax liabilities, nor pay its current monthly tax to the state and local budgets, as it will significantly reduce oil and gas production.”
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