"Ukraine to recover, become even stronger than before” Director of Ukrnafta PJSC for Caliber.Az

Exclusive interview of Caliber.Az with the director of "Ukrnafta" PJSC Sergey Koretsky.

- Thank you for agreeing to be interviewed. If I'm not mistaken, this is the first interview of the head of Ukrnafta to an Azerbaijani publication. Therefore, in my opinion, we should start with how this company is functioning now, 15 months after the start of a full-scale Russian-Ukrainian war.

- Let's take a look at the company as a whole. Ukrnafta is the largest oil-producing company in Ukraine, which operates 1806 oil and 152 gas wells. The company also owns a network of 537 gas stations (filling stations), which operate under the Ukrnafta brand.

Now 451 filling stations are active, the rest are either destroyed due to Russian shelling, or are located in the temporarily occupied territory, or are so close to the front line that we simply do not have the right to take people there. In November 2022, the Headquarters of the Supreme Commander-in-Chief decided to consolidate 100 per cent of the company's shares by the state.

I was offered to head the company last fall, so I can only talk about what has been done since November. Ukrnafta fully meets the needs of the Ukrainian armed forces. After the victory, I will be ready to tell you all the details.

From a business point of view, only the first 4 months of 2023 have become quite indicative - Ukrnafta has already demonstrated a record profit of over UAH 6 billion ($162.7 million). For comparison, the results for the whole of 2020 are UAH 4.3 billion ($116.6 million), and for 2021 - UAH 2.4 billion ($65.08 million). In other words, in the first 4 months of this year, the company earned 2.5 times more than in the entire pre-war 2021. Our forecast is UAH 12 billion ($325.4 million) of net profit for this year.

The company entered the open exchange auctions with its resources. It was possible to stabilise the level of hydrocarbon production. Now it is slightly less than 4,000 tons of oil and up to 3,000 cubic metres of natural and petroleum gas per day, which is, more than last year. We plan to drill new wells this year and systematically increase production volumes.

- I remember the first days of the war. There was not only non-stop bombing of Kyiv and other Ukrainian cities, but also a terrible shortage of gasoline, diesel, and petroleum products in general. How was all this overcome?

- To begin with, it is necessary to clarify a bit the reasons for this crisis. Until 2022, Ukraine imported 70 per cent of its oil products from Russia and Belarus. Since the start of the full-scale invasion, the market began to refocus on supplies from Europe, and, in principle, stocks might have been enough for this transitional period. However, the Russians started hitting oil depots with missiles, and the logistics chain deteriorated significantly as well.

These factors and a number of other reasons provoked a deficit. As a result, Ukraine completely changed the logistics. Previously, fuel used to come in large quantities through ports and pipelines, then transported by rail to oil depots, and from there, on the short logistic shoulder, went gasoline tankers.

Now, the first place went to the railroad, river ports and trucks - in fact, some of the fuel gets to Ukraine in tank trucks. This has been arranged for several months, a huge work has been done, and everyone - the Cabinet of Ministers, the core associations, and market players - worked perfectly. Now there is enough fuel, and prices are going down. Special thanks to our international partners: petroleum product producers from all over the world, including Azerbaijan, heard our request and lent a hand.

- In this regard, it would be reasonable to ask how you evaluate the assistance of SOCAR Energy Ukraine during the first months of the war and in the future.

- As a Ukrainian, I am grateful to SOCAR for the assistance it provided to our country. I mean both the fuel for ambulances and rescuers and charitable initiatives - reconstruction of schools, aid to children and so on.

- Often in discussions with Ukrainian journalists, politicians and political analysts, after I talk about the successes of Azerbaijan, I hear from them a simplified formula for the success of our country - "You have oil. Let's be clear - what proved oil and gas reserves did Ukraine have before the annexation of Crimea and the occupation of other territories, and how many are there now?

- The annexation of Crimea had the strongest impact on the possibility to develop the Black Sea shelf. According to various calculations, the total losses there are from one and a half to two trillion cubic meters of gas and more than half a billion tons of oil and condensate. At the same time, Ukraine still has enormous proven reserves.

According to government data, by the end of 2020, the volume of balance reserves of oil was 84.8 million tons, gas - 719 billion cubic meters. And we are talking only about the explored reserves, which the state operates in its statistics.

It should be taken into account that not all the fields are thoroughly explored. For example, the potential of western Ukraine suggests that we have even more resources. However, the existing resources, given the volume of production in Ukraine, are sufficient for long-term investment. They are the largest in Europe onshore and are second only to the shelves of Norway and Great Britain.

"Ukrnafta” plans to significantly increase its oil and gas production. Unfortunately, the company's production has been underfunded for a long time, which resulted in a year-to-year decline.

Historically, since Ukraine's independence, the company produced the biggest amount of oil in 1991 - 4.2 million tons. In 2022, it was 1.37 million tons. Now, as I said earlier, Ukrnafta is recovering production. This year we plan to increase it by 6 per cent.

Unfortunately, there are problems with both production and service equipment - it's outdated, made in the USSR, Russia and Belarus. It's impossible to repair it; the company plans to switch to APL world standards.

Now the company is interested in attracting partners. In particular, PSA (Product Sharing Agreement) and RSA (Risk Service Agreement) agreements were prepared for the development of joint drilling projects. We created a Virtual Data Room on interesting projects for potential investors - there is all the information on the fields. I take this opportunity to invite potential partners from Azerbaijan to consider the prospect of investment in the Ukrainian oil and gas industry and, in particular, Ukrnafta - the company has great potential.

- Have you ever been to Azerbaijan, maybe even studied more than a century of oil production in our country?

- Unfortunately, I have not visited Azerbaijan personally yet. But the experience of oil production - the experience of SOCAR is one of the benchmarks, Ukrnafta adheres to both in the context of oil production and in terms of assets management, including the network of filling stations.

Azerbaijan's experience is quite relevant to us. It is not only a century old but also relatively recent. In the 90s, despite the fact that oil production has already reached its peak in the world, your country staked on hydrocarbons, and this gave a powerful impetus to the development of the economy.

Now Azerbaijan is a strong regional player both economically and politically. As I have already said, Ukraine has hydrocarbon reserves which allows us to believe that we could make a similar breakthrough.

- You have already mentioned that on November 5, 2022, under the decision of the Supreme Commander-in-Chief, President Volodymyr Zelenskyy in connection with the military necessity and pursuant to the law of May 17, 2012 No. 4765 "On the transfer, compulsory alienation or seizure of property under the regime of military or state of emergency", assets of strategically important enterprises, among them Ukrnafta and Ukrtatnafta, were alienated to the state.

What kind of "inheritance" did you get, how clean, legal and transparent was the work of the former management of "Ukrnafta"?

- There are many problematic issues worth millions of dollars. The law enforcement agencies will be able to assess these facts.

On the other hand, the company has great potential. State audits and tax audits are being conducted now. There is an audit of Ukrnafta's joint activity. The condition of the company, in general, is exhausted. There are problems with equipment, technology, and machinery- everything is outdated both physically and morally. It is the same with petrol stations. There are no stores there.

That is, the biggest network in the country simply loses customers because it simply looks worse and provides fewer services than other participants in the Ukrainian market. And the competition in the market of the country is very high. Step by step it all can be improved. This is what we have started to do.

- In case the oil and oil products supply to Ukraine is stopped, the need for them at the expense of its own production and reserves can be met within no more than 10-30 days. This was stated by Ukraine’s Deputy Energy Minister Mykola Kolesnik in the parliamentary committee on energy and housing and communal services.

How would you comment on this, from the point of view of the counter-offensive of the Ukrainian army expected by everyone, which is impossible without large, serious reserves of oil products?

- Only the military can comment on the counteroffensive, sorry. As for our own reserves, the Cabinet of Ministers has now developed a bill that provides for the creation of a state fuel reserve for 61 days.

Moreover, 50 per cent of these volumes can be kept outside of Ukraine - for safety. I support this decision. Taking into account the experience of last year, we really need to create a reserve of hydrocarbons and oil products, this is important for the functioning of the economy and, of course, first of all, it is important for the army.

- When, in your opinion, will the war end and how do you see Ukraine after it?

- We all want one thing - the speedy victory of Ukraine and the liberation of all our territories. As well as uncompromising and severe punishment for all those who started and support this war.

For this, every Ukrainian does everything possible. The Ukrainian armed forces are at the forefront, the rest are on the economic front.

As for the future, I sincerely believe that Ukraine will recover, get stronger and become even stronger than before. But waiting for victory and doing nothing is unacceptable. The post-war economic condition will be difficult.

The president, the presidential office and the Cabinet of Ministers are already doing a lot to build a solid foundation for post-war development. And we, each at our workplace, must already now think about tomorrow.

What we hear from international partners is a lot of support and investment. But we must be ready for this. In our case, after the war, the country will be able to increase production and restore oil refining, which means that Ukraine will be able to properly meet the needs of the domestic market and earn on the export of hydrocarbons. This will be a good boost for the economy.

Akbar Hasanov