How are things going with effective management, ARMA?

Until today, I have not commented on the situation surrounding the suspension of the activities of Ukrnaftoburinnya (UNB). But what has been happening to the company over the past eight months, and especially over these two weeks, goes beyond any norm.

I am still involved in UNB activities as an officer of JKX, one of the company's current shareholders. Together with our advisors, we are monitoring the situation that is developing around the UNB and trying to warn the company against negative events or their consequences. But the new NSA management began to do quite “interesting” things from the very first days.

The first thing that the “mother’s managers” of the UNB did was to postpone the sale of gas “until the winter,” as if prices would be higher. As a result, about 240 million cubic meters of gas have been accumulated in underground storage facilities. By the way, all taxes for gas (which at that time had not yet been produced) were paid prematurely under my leadership, taking into account the risks.

So here it is. The price peak of this year passed in August-October, current gas prices have already decreased by 3,000 - 4,000 UAH/thousand cubic meters. It is easy to calculate the lost additional net profit in the amount of more than half a billion hryvnia, direct budget losses (VAT and income tax) - more than 250 million hryvnia.

The second thing the new managers did was to divide the UNB team into insiders and outsiders, and fired everyone who had worked in the company for more than three years. Contrary to the existing level of competence.

And recently something happened that generally calls the existence of the NSA into question. Contrary to current legislation and common sense, the current management of the company stopped production on December 1, 2023. But there was no legal basis for this: the stop could not have happened before the State Geological Service canceled the special permit for the use of subsoil No. 6349, that is, only on December 4. During this time, the company's management could have taken measures to restore the permit, but no one did anything.

And no one can still do anything about the fact that production at the Sakhalin field is falling. And this despite the public promises of the management of Ukrnafta to increase annual oil production by 14%. Already at the time of losing the license, UNB was producing 220 thousand cubic meters less gas than us. The current operation of the field well is a sign of either desperation of the current team or blatant incompetence. You cannot first shut down one well and then expect at least some production from it. And instead of repairing another well, open it and carry out a prohibited type of technical operation. If anything, then you can’t put your fingers in the socket either.

The bottom line is that we have what we have: you have 1.8 billion hryvnia in your accounts, and you haven’t even started new projects planned last year (drilling well 87, major repairs of two wells and restoration of a well drilled in Soviet times), your storage facilities are full of gas, your commercial strategy is not working, and in addition to everything else, you are losing the right to production. It was the 6th month of “management” with the goal of “avoiding or preventing interruption of the functioning of the NSA and/or the risk of disruption in natural gas supplies”...

PS While I worked as Chairman of the Board of UNB, the company achieved significant results. We updated our future business support and development strategies annually. We updated management and selected professionals with relevant competencies and experience. It was difficult, but worth it for what we achieved together. I am still making every effort to maintain the team of specialists I created, of course, outside the National Security Bureau.

It is obvious that in the current conditions, UNB will no longer be able to restore the quality and level of its activities comparable to those before the cessation of hydrocarbon production at the Sakhalin field. So what could happen next?

If we talk about licenses, the current legislation on subsoil use defines only two ways to obtain special permits: auction and outside the auction. Holding an auction in the current situation is a farce. No one will buy a special permit if they do not have control over the company. Without an auction it’s difficult, there are nuances.

Simple hydrocarbon production at the Sakhalin field is:

– reduction in national hydrocarbon production by at least 3%;

– monthly reductions in tax revenues to the budget (rent payment is almost 200 million UAH, VAT is almost 100 million UAH, income tax is approximately 80 million UAH);

– lack of revenue to the state budget from the management of seized property in the amount of 90% of the profit promised by Ukrnafta from the National Security Bank in the amount of UAH 1.7 billion.

All this is uncollected taxes, unpurchased drones or military equipment, unfunded air security, and much that is UNDER-resourced, which we provide with our own funds, and not at the expense of foreign revenues.

How are things going with effective management, ARMA?