Naftogaz Group has improved the economy of partnership projects for the restoration of abandoned and mothballed wells. This ensures mutually beneficial cooperation and will help attract investment in gas production in Ukraine.
Since 2018, in order to maintain the level of gas production at the depleted fields, Naftogaz has been implementing a program to recover / extend production life of the abandoned and mothballed wells that are owned by the company but operated by other producers having special permits. Since only the holder of the special permit is entitled to explore and produce hydrocarbons, the recovery of such wells is possible only in partnership between the holder of a special permit and Naftogaz, which owns the corresponding abandoned or mothballed wells.
Uniform, approved partnership terms apply to all program partners. According to them, the partner invests in the recovery of assets, produces hydrocarbons as the license holder, and after their sale pays Naftogaz a share of the profit earned.
Today, Naftogaz successfully cooperates with several Ukrainian companies that have recovered 19 wells and produce hydrocarbons from them. Since the start of cooperation, additional production from these wells has reached 106.6 mcm of gas and 5.4 thous. tons of oil and gas condensate. Naftogaz Group's profit from these projects amounted to more than UAH 200 M.
Given the slump in gas prices, the agreed terms needed to be adjusted in 2020. This change seeks to avoid a reduction in production volumes or even a halt in production at some wells.
Naftogaz brought the cooperation terms in line with the current market conditions. In particular, the company adjusted the calculation index of the gas price which is used to determine the amount of payments between the parties. The adjustments allow both contracting parties to share profit equally (50/50) at any price level and make the partnership mutually beneficial.
“We understand the current circumstances of the gas market pretty well, as we feel them ourselves. Therefore, Naftogaz decided to support gas production in Ukraine and renegotiate agreements with our partners on new terms. Through this process they will retain production, and we will retain an additional source of income. This is a kind of win-win for private producers, Naftogaz, and the country. Moreover, following the adjustment of the cooperation terms, one of our partners announced their intention to intensify work at some of the recovered wells. We also expect the adjusted cooperation terms to attract new investors. Naftogaz has over 200 abandoned and mothballed wells located outside our licensed areas. And we are open to new mutually beneficial projects on these assets, which will help stabilize gas production in Ukraine,” said Otto Waterlander, Chief Operating Officer of Naftogaz Group.