October 11, 2018 / 2:05 PM / 5 days ago

Exclusive - Naftogaz courting partners to develop Ukraine gas fields

LONDON (Reuters) - Ukraine’s Naftogaz is in talks in London with a number of big oil and gas firms to help it develop the country’s existing and yet-to-be-tapped gas fields, the company’s chief executive has told Reuters.

FILE PHOTO: A man walks past the headquarters of the Ukrainian national joint stock company NaftoGaz in central Kiev, Ukraine, March 15, 2016. REUTERS/Valentyn Ogirenko/File Photo

Ukraine is looking to increase domestic production so it can lessen its energy dependence on hostile neighbour Russia, the cost of which is straining Kiev’s limited finances.

Ukraine used to produce around 70 billion cubic meters (bcm) of gas a year when it was part of the Soviet Union but now draws out only around 20 bcm.

“One of the reasons why I am currently in London is that I am negotiating with big international oil and gas companies potential partnership agreements to develop gas fields in Ukraine,” Chief Executive Andriy Kobolev said in an interview.

Kobolev believes the potential to recover some of the production lost over the last 50 years is sizable if it can revive existing gas fields and tap new shale and offshore areas.

“We have done lots of studies, we have lots of geological materials, we have lots of experience producing from those fields and we see huge potential,” he said.

“By the end of the year we will sign at least one partnership ... and I believe if we have one partner this year, I would expect we could sign partnership agreements with at least two big names next year.”

Ukraine imported almost 30 percent of its gas during last year’s icy winter but the cost has risen in recent years due to the hryvnia’s devaluation in international currency markets.

The International Monetary Fund is also demanding Kiev hike what households are charged for gas to match what it costs the country to buy it.

At the moment, that requires a roughly 60 percent increase. It’s a tough political sell ahead of presidential elections next year, but without it the IMF is unlikely to disperse a much-needed $1.9 trillion aid tranche.

“My hope is the (IMF) deal will be reached this month,” Kobolev said.

“This might sound strange,” he added, “but at the end of the day such reforms (gas price rises), if they are done the right way they can actually be positive for the government.”

His advice was to make sure poorer parts of the population receive special payments to help cover their increased bills. On top of that, they should be able to keep any money they save by cutting their consumption.

“It is simple, you need to monetise subsidies.”

If Kiev and the IMF cannot agree a new aid deal, however, Kobolev said Naftogaz would almost certainly have to shelve its plans for a $0.5-1 billion bond sale that has been pencilled in for sometime over the next month.

“If the deal doesn’t happen, our probability of success will be very, very low.”

Additional reporting by Natalia Zinets in Kiev; Editing by Dale Hudson

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