Ukraine should extend incentive royalty in oil and gas industry to attract investment – Naftogaz top manager.

Ukraine should extend the incentive rates of royalty in the oil and gas industry to attract investment, Otto Waterlander, the Chief Operating Officer and the Chief Transformation Officer at Naftogaz Group, has stated.

"We propose considering the positive results of the stimulating royalty for the oil and gas industry and extend it from five to 10 years. Thanks to the introduction of incentive taxation, almost 200 wells have been drilled, of which private producers account for a third, they provided over 1.4 billion cubic meters of gas. This effect should also be applied in production of oil and gas condensate through the introduction of incentive royalty rates at the level of 6-12%," he wrote in a column for the website of the Interfax-Ukraine agency.

Waterlander recalled that the Cabinet of Ministers of Ukraine set a goal for Naftogaz to reduce the country's demand for gas imports through increased production and development of energy efficiency, as well as increase probable and proven reserves of gas and oil.

At the same time, the volume of investments required to complete the tasks ($20-30 billion) exceeds the financial resources of the group, therefore, conditions are needed for private companies to join the implementation of the relevant state policy.

"For this, it is necessary to create and maintain attractive conditions for investment – competitive taxation, a stable legal framework and predictable political prospects. This is important for attracting international investors not only to oil and gas sectors, but also beyond," he said.

According to the expert, data from Geoinform Ukraine (the State Information Geological Fund of Ukraine) indicate that there are over 3,000 abandoned or suspended wells in Ukraine, from which hydrocarbons have not been produced for the last two or more years. At the same time, over the past two years, it is thanks to workovers at such wells that a number of companies have increased their own gas production by 50% or more.

Waterlander also noted that Ukraine has significant "unconventional" hydrocarbon reserves, in particular, the potential of tight reservoirs is estimated at 1.2 trillion cubic meters. Therefore, the introduction of a stimulating royalty rate of up to 1.25% will contribute to the rapid development of these resources.

"The oil and gas market is cyclical, it is characterized by falling and rising prices. However, this time the way out of the crisis is getting more complicated, energy companies are strictly monitoring the profitability of their investments. Many countries are aware of this and governments around the world are trying to stimulate their production. Each of these steps in Ukraine will stimulate development and investments in new projects. They will discover new gas fields and ensure production growth in three to five years. And this brings us closer to energy independence," the expert added.

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