Gas producers are worried about a draft law hindering industry development

Association of Gas Producers of Ukraine expresses serious concern about the introduction of amendments to the Tax Code of Ukraine initiated by the State Fiscal Service of Ukraine in the framework of the graft law No.1210 and calls on MPs and the relevant Committee not to support them.

The Association claims that this poses a threat to the development of the gas industry, will inevitably lead to a decrease in the volume of drilling and production of domestic gas, and will also negatively affect the state’s reputation among investors.

The draft law No.1210 provides for reformulation on the application of incentive rental rates for the production of natural gas from new wells.

The organization claims that it “completely eliminates the use of incentives for drilling new wells and the use of service contracts as a tool to increase production”.

The Association noted that the introduction of stimulating rents (6% and 12% depending on the depth of the deposit) from January 1, 2018, significantly revitalized the domestic gas production market.

“In particular, over the 20 months of the operation of these legislative norms, 185 new wells were laid, 65 of which were drilled by private companies, a third of which were super-deep (more than 5 km), which ensured an additional production of 1 billion m3 of gas”, the statement said.

For comparison, in 2017, private miners drilled a total of 22 wells. The total volume of natural gas production growth by independent producers in 2018 reached 7% (for comparison, in 2017 it amounted to 0.1%), according to the results of this year, positive dynamics is forecasted to remain.

It is also emphasized that the new fiscal innovations “make it impossible for Ukrgazvydobuvannya JSC to implement PEC (production enhancement contracts) projects to intensify production in mature and depleted fields, because it is assumed that according to the project, future partners of Ukrgazvydobuvannya JSC will implement a significant investment program and implement operations aimed at increasing hydrocarbon production”.

“The adoption of the draft law No.1210, especially in today's conditions, when gas prices have fallen by almost half compared to last year, pose serious threats to the implementation of most new projects. In addition, the introduction of stimulating rent from the beginning of 2018 gave state guarantees of its invariability for 5 years”.

“Such a cancellation of the stabilization warning will, firstly, inflict a crushing blow on Ukraine’s reputation in the world and investor confidence in the new government, and, secondly, lead to legal liability for breach of obligations, which will significantly complicate the further attraction of domestic and foreign investors to the industry”, it is noted in the message.

Tags: The Cabinet of Ministers, gas, Naftogaz, contracts, hydrocarbon production, tariffs, legislation, The Minystry of Energy and Coal Mining, Ukrgazvydobuvannya, gas production, drilling

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