MainPublications -

Oleg Tolmachev: "We are producing more gas than in pre-war 2021"

Since 2016, Ukraine has been aiming to stop buying gas abroad, a goal the government set out in its energy strategy. It failed to achieve this goal, although gas imports indeed declined year on year. But Ukraine did not stop buying gas abroad completely. One of the main reasons was its insufficient domestic production, which could have covered the needs.

Russia's full-scale invasion has affected gas consumption, primarily by industry, which has almost halved it.

As for Ukrainian production, the figures for the last 10 years have been disappointing, indicating its decline. Has this problem been resolved, how much gas has Ukraine produced this year, and has it managed to stop imports? We addressed these questions to Oleg Tolmachev, acting CEO of Ukrgasvydobuvannya.

Photo: Max Trebukhov

In December, Ukrgasvydobuvannya launched two powerful wells that produce 200,000 cu.m. of gas per day. How many new wells have come on stream this year?

This year, we have launched more than 20 wells with a capacity of more than 100,000 cu.m. of gas per day. Keep in mind that we operate in difficult conditions, mostly in depleted fields. Therefore, this is a very good figure. And we get such wells very often. By the way, we also have wells that are currently producing 400,000-600,000 cu.m. of gas. And this is one of the factors behind the growth in production by Naftogaz Group as a whole.

Is the production of 600,000 cu.m. per day per well a good indicator?

We haven't seen wells of this capacity since 2019-2020, probably. This is, let me say, a diamond.

How much gas does Ukrgasvydobuvannya produce per day?

Our average daily production is approximately 37.5 million cu.m. Compared to the beginning of this year, it is an 11% increase.

How much did you manage to increase gas production in general compared to 2022? If so, how?

Firstly, 2022 was a very difficult year for us. Some of our facilities were under occupation. Accordingly, we lost some volumes or did not receive enough. We are now forecasting to produce more than 700 million cu.m. on top of we had in 2022. We have very strong results at our fields in the east. The Group's management has decided to allocate all our resources there in terms of site construction and other activities. The key factor behind the production increase was a highly successful drilling programme. Thanks to well-coordinated teamwork, we managed to develop and reach full capacity at one field in a record six months, while the average timeframe is up to three years. The exploration, drilling and geology departments are led by specialists with expertise in applying modern technologies, including in international companies.


How much gas was produced in 2023?

Ukrgasvydobuvannya increased gas production by about 7% compared to 2022. Perhaps a little more. We are still counting. We have new drills that are coming into operation. By the way, this is a better figure than in pre-war 2021. Then it was 12.9 billion cu.m.

In recent years, the volume of state gas production has been declining. For example, from 2013 to 2021, it decreased by almost 4 billion cu.m. of gas. What are the main reasons for this decline?

I have been working in Ukraine since 2021. So I don't want to blame my predecessors. But there were both objective and subjective factors in this story. First, we did not receive a sufficient number of licences for new fields. For certain economic reasons, the former management of Naftogaz preferred trading and reduced investment in its own production in order to secure the necessary gas volumes. We also did not get enough seismic data, which is super-critical for finding new wells. Without it, we will practically be going blind. There were reasons why Ukrgasvydobuvannya fell into a kind of production hole. The Group has broken this downward trend.

Photo: Max Trebukhov

Ukraine is able to stop importing gas and replace it with fuel from our own production. This is the opinion of Oleksiy Chernyshov, board chairman of Naftogaz. Is it possible to do so?

My responsibility is gas production. That is, I don't calculate the fuel balance in Ukraine. Yet, this heating season Ukraine will not buy imported gas. I believe we can state that this year we have balanced the supply and demand equation. We have become an energy independent country when it comes to gas. But there are still many challenges ahead. However, the Group will address them step by step.

If we are producing gas so actively now, how long will it last? Aren't we going too fast?

Drilling speed is a matter of efficiency. We are working to find additional resources. We conduct seismic surveys, for example, in the Carpathian region over an area of 1,500 kilometres. This has never happened before in the history of Ukrgasvydobuvannya, and we are already seeing results. We are obtaining new licences, performing 3D seismic surveys, and attracting the latest global technologies, for example, in the field of horizontal drilling. I believe we have enough to repeat the success of the United States and Canada. But this depends on many factors, including the end of hostilities, the reconstruction of Ukraine, and investments in the oil and gas industry.

Photo: Facebook/Ukrgasvydobuvannya

Ukrgasvydobuvannya announced that it had discovered gas deposits in the Carpathians. When will this well come on stream? Is the company exploring for new deposits in this region?

This is the oldest gas-producing region in Ukraine and, probably, in Europe as a whole. We have drilled a well that produces 150,000 cu.m. of gas per day. We are now working to increase production by another 50,000 cu.m. This is a record for the western region. One well will produce 1% of the total production of the Lviv Gas Production Departmemt. This region is interesting for production development, but I still believe that Poltava and Kharkiv regions are the locomotive of the process in terms of unconventional deposits.

How much does it cost to drill and equip a well? How long does it take for it to pay off?

The cost depends on the depth of the well. It also depends on many other factors. But if we look at a standard 4-kilometre deep well, for example, it costs more than UAH 300 million.

What is the cost of Ukrainian gas? Is it profitable to produce it compared to imported gas?

It is not more profitable to buy imported gas, that's for sure.

Ukrgasvydobuvannya announces a significant increase in well testing. How many of them were conducted in 2023? How do they go? How often are they effective?

Photo: Max Trebukhov

These surveys look like this: we lower a special tool into the well, which scans the geology and layers. This data then allows us to understand where there is oil, where there is gas, where there is water. This year, we have already carried out more than 2,000 such surveys. We have increased drilling by 50% compared to last year.

What is the level of well depletion?

This is a big problem for the entire extraction business. At Ukrgasvydobuvannya's wells, the average depletion of the fields reaches almost 70%. This means that only one third of the gas reserves are left. These fields have a long life, they will work for another 20 years. But basic production will decline. That is why we need to look for new fields. Horizontal drilling using hydraulic fracturing allows us to increase production volumes in tight formations several times. With my experience in the US, I was part of this story. For example, at Montage Resources, we drilled a 7 km long well and performed 145 hydraulic fracturing stages. It is thanks to horizontal drilling that the US has turned from an importer to an exporter of gas. And it is my dream that we will do the same in Ukraine, where the characteristics of tight rocks are very similar to those in the US. I'll tell you more: we are already preparing the first projects and have support for this.

Revenues of mining companies decreased by 14% in 2022, according to Opendatabot. What are Ukrgasvydobuvannya's performance indicators for 2023?

Ukrgasvydobuvannya is a bit of an unusual company. Our shareholder is essentially the state. It regulates prices, dividends and other things. It is very difficult to compare us with, for example, DTEK Oil&Gas. They have different royalties, different gas payment regulations. We see that this year is better than 2022 in terms of the company's profitability. Ukrgasvydobuvannya's profit for the first nine months of this year amounted to UAH 9.8 billion compared to a loss of UAH 3.5 billion for the first nine months of 2022. At the same time, we paid UAH 17.78 billion in royalties to the budget over the same period. Royalty is the most important factor affecting companies' revenues.

The largest gas production company (Shebelynkagasvydobuvannya) has undergone a management reshuffle. Its head has tendered resignation. Why?

For starters, I did not initiate the management changes there. Second, this is a normal thing, it happens in many of our branches. Therefore, such things are commonplace. But for some reason, this example is very much in the news. In my opinion, this is not a very healthy reaction to the company's personnel changes. Shebelynka is indeed a very strong enterprise, and the team has achieved very good results. But when I say team, I mean a very large number of Ukrgasvydobuvannya employees. Development of new wells is a huge job for the company. Shebelynkagasvydobuvannya is a part of it. We received a lot of gas from new fields. Accordingly, this happened thanks to seismic interpreters, geologists who found drilling sites, thanks to Burgaz, and builders who constructed the sites on time. In fact, it is a great honour to head such a branch. But the employee has made a choice to move in a different direction, and I really wish him success.

So there is no conflict between you and the director of Shebelynkagasvydobuvannya?

I have no conflict. In fact, that's all I can say.

Energy experts at the Ukrainian Institute for the Future suggest that if the Russians fail to "knock down" Ukraine's energy system, they may attack its gas production. This has already happened with coal. Is Ukrgasvydobuvannya ready for such a scenario? Have your wells ever been attacked?

We've had a lot of examples of these attacks, they started with a full-scale invasion. And they happen often. I want to thank the employees of our branches who work in such difficult conditions. We are trying to overcome the consequences of the attacks very quickly. At the same time, we are working to protect our facilities and ensure the safety of our employees. Security is a priority for the entire Naftogaz Group. The measures we are implementing are unprecedented.

Photo: Max Trebukhov

At the same time, there are risks, we understand that hits are possible at any time. Unfortunately, this is part of the daily routine. In the east of Kharkiv Region, production facilities and wells were lost at the beginning of the full-scale invasion. Thanks to the Armed Forces of Ukraine, we have recovered them. This is a significant part of our production. However, several fields remain under occupation, for example, in Luhansk Region, in the east of Donetsk Region. There are also a lot of wells within 8-10 kilometres of the frontline. It is very difficult for us to deploy employees and equipment in this area and work on production. And wells are like patients: if they are not treated, they get sick and produce less gas. But now the volumes under occupation are insignificant compared to total production. Especially after the liberation of Kharkiv Region.

The High Court of Justice in England has recognised that Russia's occupation of Crimea caused Naftogaz 5 billion dollars in damage. What is the share of Ukrgasvydobuvannya's losses in this amount? How does the company plan to recover this amount from the Russians?

These cases are handled centrally by Naftogaz Group. The group has lawyers in Europe and the United States. A team is working on this. I am not involved in this process. But there is a part of Ukrgasvydobuvannya in these 5 billion. And it is very significant.

A year before the full-scale invasion, the exploration of new gas deposits in the Black Sea shelf reached the stage of geological research. Is Ukrgasvydobuvannya ready to continue this process after the victory? Does it make sense?

Photo: Max Trebukhov

A few weeks before the war, we completed the collection of seismic data. This was done by the Norwegian company PGS. We are now studying this data. We already see the potential in the shallow shelf of the Black Sea. Especially given the new gas discoveries by Turkey and Romania. We also need to do research in deep water. This is a long-term work. According to the classics of the genre: if you have seismic surveys and are ready to drill, the total cycle is three to five years. I know that when our ships were working on data collection, there was a lot of harassment from the Russian navy. Presumably, the Russians understand the potential. That's why they tried to scare our contractors. I can say that we will win the war and have a very powerful potential in the Black Sea.

We all have to make efforts to bring the victory closer. More than 1,000 employees of Ukrgasvydobuvannya are currently serving in the Armed Forces. And all of us in the company understand who we have to thank.

Serhiy BarbuSerhiy Barbu, Correspondent of “Channel 5”
Read news on social networks Facebook, Twitter and Telegram