Naftogaz presented a new corporate strategy

18.02.2021, 13:05:06

Naftogaz Group released its new corporate strategy-2025, that envisages the future of Naftogaz, which is based on three business platforms: "Gas Business", "B2C / Utility" and "Low Carbon Businesses".

"Approval of the strategy was made possible following the adoption of Naftogaz's charter and ownership policy by the Government in October last year and a clear definition of the state shareholder’s expectations regarding the Group's work.

Based on these expectations, we have developed a clear action plan until 2025, which should increase the Group's value.

The basis of this plan is to focus on customer needs, intensive exploration and development of new fields, active promotion of the energy markets transformation, attracting professionals and partners, acquiring new knowledge and technologies, entering new businesses and increasing operational efficiency,” — explained Andriy Kobolev, Chief Executive Officer of Naftogaz Ukrainе.

Today, the Naftogaz Group's gas businesses, such as exploration and production, trading and retail, are the main source of revenue and cash. At the same time, the portfolio of other businesses needs to be optimized and requires investment in efficiency and growth.

To fully implement the announced strategy,Naftogaz will focus on developing key strategic business platforms and reducing its presence in others.

“The group has every opportunity to become a full-fledged vertically integrated company working directly with end users. This format allows us to offer quality services at the best prices, promote competition and provide Ukrainians with equal access to quality and affordable energy products and services", — said Andriy Kobolev.

GAS BUSINESS PLATFORM

The Group's strategic goals for the development of the Gas Business platform deal with the full disclosure of the potential of the natural gas resource base in Ukraine. Until recently, the portfolio of the new Naftogaz fields, and thus -

promising resources that have to ensure the company's sustainable development and the state's self-sufficiency in natural gas, — was very limited. This situation created risks for the stable l development of the company and would inevitably lead to a drop in production.

In 2020, thanks to the fruitful cooperation of the Government and Naftogaz teams, the company received new promising licenses.

Obtaining the possibility of exploration and development of these areas will increase the estimated production potential of the Group in case of successful exploration 5 times — up to 600 billion cubic meters.

To fully realize this potential, Naftogaz must invest $ 20-25 billions, of which about $7 billion dollars — within the first 5 years (until 2025).

To finance its most ambitious projects, Naftogaz plans to use the equity model. It stipulates that the Naftogaz Group conducts exploration work independently, and if the first stage succeeds, engages a partner to participate in financing the development and allocation of risks.

In the 5-year perspective, such efforts will allow the Naftogaz Group to stop declining reserves and reach a replacement ratio of 100% by 2025.

The group will also develop opportunities for trading and wholesale of gas, in particular, will enter the European trade market and start trading in forward physical and financial products. Thus, Naftogaz will develop its trading opportunities to gain access to more profitable markets and increase its ability to hedge risks.

B2C / UTILITY PLATFORM

To become a full-fledged vertically integrated company working directly with end users, the Naftogaz Group will develop the B2C/Utility Platform.

"Six months ago the free gas market was launched. During this time, we have been chosen as a supplier by more than 800,000 Ukrainians. Our goal is to continue to offer customers high quality services at the best prices and to become a partner for 4 million Ukrainian consumers by 2025, reaching a market share of 35%. We will provide the best prices by creating an effective scalable model. For example, instead of creating our own physical network, we rely on working with customers online and working through the networks of our partners. In particular, we have already started cooperation with the networks of PUMB, Oschadbank branches and Privatbank. This is the synergy that allows us to offer win-win solutions for all", — said Andriy Kobolev.

2021 should be a crucial year for the Group in building a platform for retail gas sales. If successful, the company plans to go beyond the sales of exclusively gas and to offer consumers quality and competitive integrated energy solutions.

LOW CARBON PLATFORM BUSINESSES

Caring about the ecological and social well-being of Ukraine is a fundamental principle of the Naftogaz Group's work. Our main goal is to achieve carbon neutrality by 2040. This will be achieved through active investment in emission reductions and the development of new businesses, such as hydrogen and biofuel production, as well as carbon capture, use and storage.

ESG (Environmental, Social and Governance Criteria)

The Group is guided by the Global Sustainable Development Goals.

Achieving carbon neutrality is part of our contribution to these goals. In particular, Objective 7 "Affordable and Clean Energy" and Objective 13 "Climate Change Mitigation".

Taking care about the conservation of terrestrial ecosystems, which are the 15th in the system of the Global Sustainable Development Goals, we strictly adhere to the policy of biodiversity protection and make internal and external audits, which in particular include ecological-biological and hydrobiological monitoring of forest, meadow and aquatic ecosystems in the areas of operation.

We also contribute to the goals of sustainable urban and community development, health promotion, decent work and economic growth.

Our strategy over 10 years should lead to the creation of 290 thousand jobs, GDP growth and national production of 233 and 782 billion UAH, respectively.

RATE OF IMPLEMENTATION AND RESULTS

The new strategy of the Naftogaz Group sets goals for the transformation of the Group by 2025, and also provides guidance for the further development of the company by 2030.

In 2021-2025, we plan to increase the resource base and sustainable growth of the gas business, create a platform for supplying energy solutions to customers and enter new low-carbon businesses. For this we will actively involve partners and increase the understanding of our customers and technical and commercial competencies. Thus, by 2025, we will carry out the transformation and ensure the readiness of the Group to the IPO.

These efforts will allow us to double the value of the Naftogaz Group.The levers for increasing value will be to increase operational efficiency ($ 1-2 billion), commercial efficiency ($ 2-3 billion), implement development and growth projects ($ 3-4 billion), and create a Low-Carbon Business platform (at least $ 1 billion).

"These are ambitious goals. We will be able to achieve them only in the absence of political interference in the work of the Group, timely issuance of licenses and land allocation, continued reform of state property management, timely approval of financial plans, enabling the company to finance investments in growth and efficiency by maintaining the existing level of subsoil use fees for traditional deposits and a predictable and development-oriented dividend policy, as well as resolving issues of payments for gas supplied in the heat segment.

However, if we succeed, the Naftogaz Group will become a catalyst for economic growth and prosperity of the country. We are talking about significant budget revenues, greater partnership opportunities for financial institutions and businesses.

Last but not least, such a strategy will help to create new jobs and new opportunities for Ukrainian workers who will be able to find well-paid jobs in the country that will maximize their intellectual potential. Ultimately, all this will have a positive impact on GDP growth.

As a result, the implementation of our corporate strategy will allow us to realize our mission and vision to unleash the full potential of Ukrainian energy markets and become an energy partner chosen by consumers, employees, financial and industry players, the state and the people of Ukraine", — said Otto Waterlander, Chief Executive Officer of Naftogaz Group.


Integrated Communications Department
NJSC Naftogaz of Ukraine