Advisor to the Management Board, Director for International Cooperation and Strategic Development of Burisma Group, Chairman of the Board of the Association of Gas Producers of Ukraine Vadym Pozharskyi about the future of the oil and gas industry in Ukraine.
«Ukraine is capable not only of providing itself with gas, but also in exporting it to Europe,» – Vadim Pozharsky, Advisor to the Board of Directors, Director for International Cooperation and Strategic Development of Burisma Group, Chairman of the Board of the Association of Gas Producers of Ukraine optimistically announces to LDaily. On the example of one of the largest gas producers in Ukraine, Burisma Group, he tells how the business of the company and the gas industry as a whole, changed. How to turn a local market player into a global one; how to create the most recognizable brand of the gas industry abroad. Vadym Pozharsky told LD about how to bring a dozen foreign service companies to Ukraine and how the results inspire.
LDaily: What is important for the gas extracting industry of Ukraine now? Can we talk about it`s revival?
Pozharsky: In 2017 the consumption of natural gas in Ukraine, in comparison with 2016, decreased by 1.3 billion cubic meters: from 33.2 to 31.9 billion cubic meters. If analyze gas consumption by categories, it was distributed in the following way: the population consumed 15.8 billion cubic meters, budget institutions – 500 million cubic meters, heat and power (production of heat for the needs of budgetary institutions and industry) – 1 billion cubic meters, industry – 9.1 billion cubic meters . 4.4 billion cubic meters of gas was spent on technological costs and production of liquefied gas. At the same time, natural gas production in Ukraine in 2017 even increased by 4% (or 804.3 million cubic meters) compared with 2016 – to 20.79 billion cubic meters, but this is not enough to cover their own needs.
Looking at the domestic production market, NJSC Naftogaz Ukrainy (a subsidiary of PJSC “Ukrgazvydobuvannya”) increased its gas production by 2.9% (by 453.2 million cubic meters) to 16.35 billion cubic meters last year, private gas companies developed more dynamically and increased production by 8.6% (by 351 million cubic meters) to 4.44 billion cubic meters.
Absolute gains in public and private sectors were practically equal, despite the enormous difference in the number of wells and preferences of state-owned enterprises. Today, private companies already provide a quarter of the total gas produced in Ukraine, and their share grows year after year, reducing import volumes. In periods of more active economic development, the private gas production sector grew by 30% annually. Over the last 7-8 years, we have doubled the production of natural gas from 2 billion cubic meters to 4 billion. Burisma Group is one of the largest players in the private gas production segment and forms the current trends of the Ukrainian gas industry.
LDaily: What factors influence the growth of gas production?
Pozharsky: There are many factors that form the gas production market: investments in the market, technological process, legislation. Two years ago, we were faced with certain regulatory constraints that we successfully resolved. In recent years, for the first time it has been established a constructive dialogue among the gas business and the state, which was the result of the cooperation of the Association of Ukrainian Gas Producers with the parliamentary committee and the responsible executive bodies. A number of very important regulatory acts were adopted: a law, that since 2018 stimulates hydrocarbon production through a reduction in rental rates for gas extracted from new drilled wells. The preferential taxation now corresponds to the European level. But if for Europe it is not a privilege, but an element of formation of investment attractiveness of the industry, in Ukraine it is preferential taxation. We continue to work and create an environment for attracting investors to the industry.
LDaily: In addition to establishing a dialogue with the state, what are the goals of the private gas producing industry?
Pozharsky: The biggest challenge and macro goal of all players in the gas production market, including Burisma and the state, is the complete energy independence of Ukraine. This is our mission since the company appeared. This is confirmed by our slogan – “Energy security for the future”. Of course, there are certain factors that impede the rapid achievement of this goal – macrofinancial, socioeconomic, etc. This instability is holding back the influx of investments and the arrival of large foreign players. The more foreign investments will be, the more gas will be extracted, and the sooner we will achieve the energy independence of the country.
LDaily: Isn`t a competition with foreign companies risky to local companies and Burisma? Don`t you afraid to lose market position?
Pozharsky: A gas producing business in the economy of any country is a very capital-intensive field that requires investment, technology and time resources. Therefore, in order to “catch up” and reach the current volumes of production, any company will need not only time, but also huge investments. On the other hand, we welcome the arrival of new players, because they bring new knowledge, experience, expertise, business practices to the market and in any case they will contribute to the development of the market. Places are just enough for everyone, and we all have a global task – to provide Ukraine with its own energy resources.
LDaily: Do you know investors who are looking at the Ukrainian market, but are afraid to come here?
Pozharsky: Today, Ukraine is considered the most undervalued market in Europe, and a number of large companies will monitor the market in anticipation of a suitable moment to enter. So far, investors are repulsed by the general situation in the country, especially military conflict, social and economic instability and negative forecasts. In general these factors are very important for investors in any industry. We show by our example that they should not be afraid to invest in Ukraine. They should come and work.
LDaily: What guarantees investors need to enter the market without fear?
Pozharsky: Every investor, regardless of geographical position and sphere of activity, wants to be sure of the security of its investments. As a rule, investors, when deciding whether to enter a particular project, analyze not just one particular country, but the region as a whole. And Ukraine is evaluated as one of the options. Much news about Ukraine have a negative context in dealing with a military conflict within the country. Positive news is very small. This is our common problem that shapes the perception of the country. Those who personally visited Ukraine, change their opinion. They come to Kiev and see the successful European city, no worse than Prague or Budapest. This proves once more that we need to talk more about the successful cases of companies that work here. To at least somehow change the information field, we try to prove that Ukraine can and must be invested.
LDaily: How much does the company invest in its development?
Pozharsky: Bursa is a successful story of Ukraine. We have our own investment program – about $ 100 million per year, which goes into exploration, development and drilling wells. We do not take loans, we reinvest our profits in the Ukrainian economy. We are one of those national investors who hold on to the Ukrainian economy. In addition, we constantly acquire foreign hi-tech equipment and bring new technologies to the market. For example, our company has brought the most powerful drilling rig from the USA to Ukraine. Now it is successfully working in the Kharkiv region. There is no an analogue of this equipment present in Ukraine or in the Eastern Europe. We are trying to completely upgrade our range of drilling machines. At the moment, we have about 20 drilling units of various configurations. Most of them are machine tools of foreign production. I can proudly say that Burisma is the leader in upgrading the drilling fleet, which no one player in the gas industry in Ukraine has.
LDaily: Do you have foreign specialists working in the Burisma Group?
Pozharsky: Today, we have American specialists who accompany their facilities and teach Ukrainians to work on new standards and technologies. We stopped at the choice of people from the United States, as they are not only pioneers in the field of oil and gas production, but also have the same complex geological conditions for the production. Therefore, we invest in attracting American experts so that they pass on the experience to our specialists. And this, in turn, allows us to retain the leading position in the market.
LDaily: What is the aim of the company?
Pozharsky: The purpose number one is, of course, to make Ukraine energy independent country. The government set the task to reach this in 5-7 years. Today, these terms seem rather optimistic. When we can close the internal needs for natural gas, the next not less important step will be the export of Ukrainian gas to Europe. We will be able to compete successfully in the international market.