Poltava Petroleum Company (PPC) is celebrating its 25th anniversary this year. PPC is the first Ukrainian oil and gas company with foreign capital. Viktor Gladun, PPC General Director, shared some details about the British company’s operations in Ukraine.
PPC is celebrating its 25th anniversary. Is this a significant period of time for a company?
VG: It is quite a significant period for a private oil and gas producer. PPC was the first company with foreign capital in Ukraine’s oil and gas sector. When it was founded PPC accounted for 99% of the private oil and gas market. Other private companies appeared later.
What significant achievements from the past 25 years is PPC proud of?
VG: PPC’s experience has been full of landmarks for the entire industry. For instance, it was the first company to run a 3D seismic survey in Ukraine. Before that, the gas industry had been focused on 2D acquisitions only. We have a unique combination of local experience and international expertise. By the way, PPC was among the first companies to drill a horizontal section. Today this technique is one of the most cost-effective and efficient drilling practices.
Has PPC been involved in any other activities in addition to hydrocarbon production?
VG: Hydrocarbon production is PPC’s primary business activity. It should be mentioned that we also sell the hydrocarbons produced, with a significant portion of sales done via electronic trading platforms. We have our own electronic trading platform where we sell oil and condensate. Since 2017, we have been selling natural gas through the Ukrainian Energy Exchange. It is critical for the market to see as many participants as possible switching to this trading practice. It makes the pricing mechanism transparent and contributes to the competitiveness of the market. PPC also produces LPG. We were the first private producer to build its own LPG plant. It happened in 2011.
Does British business have difficulties operating in Ukraine? What are the main challenges PPC has faced?
VG: The main business requirements have always been as follows: rule of law, level playing field, and stable legislation and taxation environment. I have always said investors should be able to plan their business development strategy and return on investments for years to come, which is impossible with tax rates and legislation that change rapidly. So there should be a provision in place envisaging steady fiscal rates for at least 5 years or even 10 years.
Today we can see some positive changes in that area due to efforts by the Parliamentary Committee, the Cabinet of Ministers, the Association of Gas Producers of Ukraine and the public.
There have been some media reports on PPC’s cooperation with state-owned enterprises. What kind of cooperation is that? How efficient could it be?
VG: We have been successfully cooperating with NJSC Nadra Ukrayny and PJSC Ukrnafta (with the state holding 50%+1 share in the latter), as well as with UGV. We started this cooperation project with NJSC Nadra Ukrayny. The cooperation pattern is as follows: PPC leases wells from another company with the wells being within PPC’s licence territory. Historically, state-owned companies had operated on the land plots before those were licensed, and the wells have remained their property. At present, such wells are abandoned or suspended.
Can a state-owned company do any work in such wells?
VG: Neither a state-owned company, a well’s owner, nor a private company, a licence holder, can get access to wells on their own. We have found a solution which now works for the entire industry: we conclude agreements with a well owner, reinstate the well (i.e., make investments), and the state-owned company gets remuneration. This is a profitable cooperation. The well owner bears no risks, makes no investments, and gets financial benefits as a result.
You became General Director in 2016. How would you evaluate the Company’s performance?
VG: PPC showed its best performance in 2008 which was followed by a decline. In 2016-2017, it suffered a severe crisis and had difficulties with liquidity as there were no new drills, no incremental production, and the hydrofracturing project had failed. The shareholders voted against the old JKX Board. I was appointed acting CEO of JKX. We ran cost optimization, altered the work programme, and shifted our focus onto reinstatement of abandoned and suspended wells.
Our team showed excellent results. The financial results PPC achieved in 2018 were the best since 2011 (mainly due to high oil and gas prices), the Company drilled a new well for the first time in 5 years and stimulated dozens of old ones. In 2019, we have already drilled two new wells and performed successful workovers in some old wells within our fields. It mainly became possible because of our success in getting access to the wells I mentioned before.
In 2018, we managed to change the gas production trend from decline to growth. Over one year, from 2017 through 2018, output grew by 5%, oil and condensate production increased by 4%, from 32,400 tonnes in 2017 to 33,640 tonnes in 2018. The increase we have today is over 30%.
What are the priorities for the gas industry development, in PPC’s opinion?
VG: The development of Ukraine’s oil and gas industry is in progress. Several licensing rounds were held through auctions to sell hydrocarbon-bearing assets. A tender was run to conclude production sharing agreements (PSA) with a few foreign companies participating in it. This is indicative of investors’ interest. It is necessary to carry on. The next step in the industry’s development is data transparency.
On June 17-19, the Extractive Industries Transparency Initiative (EITI) Global Conference was held in Paris and over 1,000 participants from around the world shared their experience in data transparency. PPC was invited to share its experience and we presented our case on disclosure of geological information. Geological data transparency is a priority for the extractive industry’s future development. The round table discussion attended by representatives of the Government, companies and NGOs has resulted in an important conclusion: transparency ensures better protection of companies against external risks. We are positive that transparency makes our country more attractive to investors. In turn, this leads to a more competitive environment and, as a consequence, to energy security. The more companies, the more diversified resource suppliers.
What plans for the future?
VG: PPC’s midterm development strategy was approved in a five-year development plan. The plan was approved by the Board of JKX Oil & Gas plc in September 2018. It covers all five production licences PPC holds. The Plan implementation started in December 2018. To date, we have completed three successful projects: one sidetrack and two new drills. Currently, we continue fulfilling the programme and looking for opportunities to acquire new assets.
JV “Poltava Petroleum Company”, a joint Ukrainian-British venture, was founded in 1994. JV PPC is one of the leaders among private oil and gas producers in Ukraine. The Company’s scope of activities includes prospecting, extraction and processing of gas and oil. PPC uses state-of-the-art technologies and practices to make its contribution to Ukraine’s energy independence.
