Naftogaz Attracted an International Investor to Increase Gas Production on Depleted Fields

According to the results of the open tender, Naftogaz Group has attracted an international company, Expert Petroleum, to increase hydrocarbon production on fields of JSC Ukrgasvydobuvannya in Western Ukraine

Within the first ever full-scale Production Enhancement Contract (PEC) in the history of Ukraine's oil and gas industry, the Western partner has committed to about 1 bln UAH (conversion of $30 mln, based on the forecast course) into intensification, drilling and development of infrastructure in the first 5 years of cooperation and, potentially, make additional investments after that.

Partnership between Naftogaz and Expert Petroleum will generate at least an additional 300 million cubic meters of gas within 5 years from 13 small fields in Western Ukraine.

“International partnerships developing is one of the key vectors of Naftogaz' transformation program. The agreement assumes the largest foreign investment in Ukraine’s gas production over the last 5 years. This money will be directed into development of those small-size depleted fields for which Naftogaz does not have enough own resources under the circumstance of significant drop in prices for energy resources. Instead of the expected production decline on these fields, we will achieve an increase in production. We will bring to Ukraine new technologies and European standards for management of "old" and "small" deposits, which can be extrapolated to other fields. After all, most of Ukraine's oil and gas assets are depleted and small in size. This is an important event for stabilizing the situation not only in the industry but also in the Ukrainian economy. And this is an example of innovative anti-crisis solutions that the country needs today”, – said Naftogaz Group's Chief Transformation Officer Otto Waterlander.

According to the company calculations, intensification of works, increase of tax and other budgetary contributions of the partnership will allow to accumulate more than 4 bln UAH in GDP of Ukraine and Lviv region in particular.

“We have a solid and successful track record of implementing such Production Enhancement projects with major national and international oil and gas companies in Romania and Hungary in particular, where Expert Petroleum invested more than 100 million U.S. dollars in some projects and increased the production up to 150% above the baseline. Today, we are pleased to begin a similar partnership with Naftogaz in order to make their depleted gas field more sustainable by increasing production and reserves and implementing safe and green operations. We hope this agreement will lead the way to many more partnerships like this one. Expert Petroleum Ukraine LLC headed by Director Victoria Sergeyeva, will lead our operations in Ukraine”, –  mentioned David Martinon, Co-founder and CEO.

“We fully understand the responsibility that comes with our commitment to the effective and safe development of these Ukrgasvydobuvannya's fields and the objective to increase their production and  reserves. For this purpose, we plan after completing of new reservoir models to drill new wells, carry out operations on intensification of existing wells using the latest technologies in directional drilling, logging, water shut off management and perforations, and modernize the surface facilities to increase operational efficiencies, reduce energy intensity and environmental footprint. Expert Petroleum’s commitment to the local community is its absolute priority, in particular the training of employees' competences on new technologies. The company takes all measures to ensure that employees work in a supportive environment, focusing on safe working conditions and strive to comply with the highest standards of environmental protection, occupational and process safety“, – highlighted Michel Louboutin, Co-founder and COO.

The contract between Expert Petroleum and Ukrgazvydobuvannia is concluded for 15 years, with the possibility of extension for another 10 years. To execute this contract and its related services, Expert Petroleum has registered a dedicated Ukrainian company which will be a party to the contract. Naftogaz Group will approve the development plans, annual work program and budget, proposed by the operator company on these fields. The operator will receive a fixed fee for support of the baseline production (at the level of current operating costs of Ukrgasvydobuvannya, taking into account the inflation component) and for achieving incremental production. The full ownership of the extracted production, geological licenses and existing assets will remain with Ukrgasvydobuvannya.

KPMG was the financial advisor to Naftogaz in this transaction; PwC advised Naftogaz on tax and accounting matters. Expert Petroleum’s legal counsel in this transaction was CMS Cameron McKenna office in Kyiv.

For reference

Expert Petroleum is a French-owned company that is part of the GMS holding group, a large investment group with assets all around the world. Expert Petroleum maximizes mature Oil & Gas fields potential by investing in these assets taking execution and incremental production risks through long term Production Enhancement Contract (PEC).  Expert Petroleum’s technical capabilities and expertise are focused on fit for purpose and new technologies and enhanced process to rehabilitate old wells and reservoirs in decline. At present, the company effectively manages production at 25 depleted fields, operates 1,200 wells, and produces 8.5 thousand barrels of oil equivalent per day. It has about 1000 employees.