Naftogaz, losses of $1 billion and occupation of 40 fields. Interview with the ex-CEO of Ukrgazvydobuvannya

The name of Oleksandr Romanyuk is hardly known to a wide circle of people. However, he is well known in his professional environment. Behind the shoulders of the 46-year-old manager are various managerial positions in the company "Ukrgazvydobuvannya", a "subsidiary" of NJSC "Naftogaz of Ukraine" . UGV, as Romanyuk calls it for short, produces 70% of Ukrainian gas. According to Romanyuk, even in war conditions, the market value of Ukrgazvydobuvannya with its deposits and licenses is up to $10 billion.

Oleksandr Romaniuk was released in January. This is how his seven-month term in the post of acting head ended. of the General Director of Ukrgazvydobuvannya, which began in May 2022. Romanyuk himself claims that he left the company of his own free will. This happened three months later, when instead of Yury Vitrenka , Naftogaz was headed by former minister Oleksiy Chernyshov .

A LIGA.net journalist met with Oleksandr Romanyuk in one of the cafes in Kyiv. The initiator of the meeting was Romanyuk himself. And although the manager said almost nothing about the reasons for his own dismissal, Romanyuk does not hide his critical attitude towards Naftogaz. If the epithets "patriotic" and "professional" come to him when he mentions Ukrgazvydobuvannya, then when he mentions Naftogaz, the manager's associations are not too kind: "slow" and "inefficient".

The difference in views is not difficult to explain. On the one hand, he gave more than seven years of his life to the country's largest oil and gas giant, participated in its transformation, went through all the defeats and victories with it. On the other hand, he knows from the inside all the disadvantages of working in a state-owned company: with its bureaucracy, scandals, and behind-the-scenes struggles.

In an interview with LIGA.net , Romanyuk tells in detail about previously unknown events: how 40 fields of Ukrgazvydobuvannya survived the occupation, how its employees secretly extracted gas behind the Russians and how, despite the war, problems with electricity and shelling of the Russian Federation from artillery, the company plans increase gas production in 2023.

About underground work, the help of the Armed Forces and the loss of the Shebelinsky GPP

- The country experienced a shock in the first days of the Russian invasion. What was happening within the walls of Ukrgazvydobuvanny at that moment? Did you prepare for the fact that the company's assets will be on the front line and become targets of Russian missiles?

- A mobilization department was created half a year before the full-scale invasion. The reserve general of the Armed Forces of Ukraine was responsible for its organization. We prepared for different scenarios, including the worst. And the worst-case scenario is when the electricity and communications go out. Loss of communication means loss of controllability, loss of electricity, essentially stopping gas production.

The worst was avoided.

- How quickly did your deposits and assets end up on the front line?

- In the first week, the enemy captured Balaklia. And this is 20 kilometers from the central office of the Shebelinka gas production branch. This meant that about 40 of our deposits came under occupation – with people, transport, drilling and other equipment.

The main tasks for us at that time were to save people, help the Armed Forces and keep the production. Our workers had to manage facilities and repair electrical networks under constant fire. Literally under bullets, our guys refueled military equipment at our gas stations, extracted gas in the occupied territories and redirected it to the controlled ones.

The guys took a lot of risks then. Unfortunately, some of them paid for it. When they were found by traitors and enemies, there was torture and everything else. Thank God they survived. All of them are real heroes

- Did you manage to evacuate your employees?

- Thousands. In principle, we did not look at whether it was "ours" or "not ours". They evacuated everyone they could – workers, their families, other citizens. They settled in their recreation centers near Kyiv, in the west of Ukraine, and helped women to leave abroad with their children.

- Did you estimate the amount of damage caused by the war?

- The total amount of damages is approximately $1 billion. This is if we take into account losses of production, destroyed infrastructure and equipment.

The attacks on our facilities began in the second week of the invasion, when Balaklia and Kupyansk were captured. The Russians also regularly de-energized them by shelling them with artillery. The lines that provide electricity to our facilities were definitely known to them.

Unfortunately, the orcs (Russians. – Ed .) eventually managed to destroy one of the megacritical facilities for Ukrgazvydobuvannya – the Shebelyn gas refinery. During the summer alone, approximately 50 mines, shells and rockets flew at the plant. He was 13 km away from the enemy.

- Many workers of Ukrgazvydobuvannya suffered since the beginning of the war?

- At the beginning of 2023, we had 13 dead. 10 of them are in the ranks of the Armed Forces of Ukraine. More than 40 were injured.

About the slow Naftogaz, problems with electricity and production in 2023

- Since the beginning of autumn, Ukraine has been experiencing serious problems with electricity. How did it affect the work of Ukrgazvydobuvannya?

- Critically. But by the end of 2022, we closed all critical facilities with diesel generators. We closed the largest facilities on our own, and our foreign partners helped us with the smaller ones.

- How do Ukrgazvydobuvanny facilities work during an air raid? Do you produce gas or stop?

- The most valuable thing is not cubes, but life. We quickly organized temporary underground shelters near each object. When an alarm sounds, the facility is switched to a diesel generator or shuts down if there is no possibility of automatic switching. Disconnected – hid in a bomb shelter. Rebound – turned on and we continue to work.

- In 2022, UGV production fell by 3%, and at private companies, historically more efficient, by 15%. How to explain it?

- The first and most important thing is a professional and patriotic team, the second is the management of the company. We worked last year with maximum autonomy. If I, as a manager, needed to agree something with a shareholder (NAC Naftogaz of Ukraine. – Ed .), I received all agreements quickly. This is what we agreed with Yuri Vitrenko at the beginning of the war.

I strengthened the key technical areas with experienced specialists, crisis managers and created a coordination group. He also granted autonomy to branch managers. No one in Kyiv better understands what is happening in Kharkiv Oblast, Poltava Oblast or Lviv Oblast than local leaders.

Since March, we were the first in the country to resume drilling and other service operations in Poltava and Kharkiv regions. In the second half of the year, Ukrburgaz drilled more than 30,000 meters per month – such speeds and volumes of UGV had not been seen for decades.

- That is, the forecast that in 2023, despite the war, Ukraine will be able to increase production by 1 billion cubic meters , is this a real scenario?

- Specialists of Ukrgazvydobuvannya predicted that in 2023 gas production may increase by 700 million to 13.2 billion cubic meters of commercial gas per year. In order for this to become a reality, all planned 2,000 operations must be completed on time and many more issues resolved, the main of which is the return of control to Ukrgazvydobuvannya.

- What do you mean?

- Unfortunately, the long-term "transformation" of Naftogaz, which was supposed to increase the company's efficiency, was not successful. In practice, each of the "daughters" of Naftogaz was divided into divisions and corporate functions. And the heads of these divisions report not to the general directors of the company, but to ten different managers from Naftogaz. The general director can neither dismiss them nor call them to a meeting. None of the company's corporate functions are subordinated to him at all .

Naftogaz has the authority to operationally intervene in the internal processes of subsidiary companies. And this greatly harms the efficiency of work – the speed and quality of decision-making. It is difficult to show results if more than 50% of the time you have to coordinate your every step with people from Naftogaz, whose goals and objectives are different from yours. One person is responsible for mining, while others make the decisions necessary to execute mining plans. At the same time, they are not responsible for this, and their remuneration does not depend on the volume of production.

- Does this mean that Naftogaz should be disbanded or its powers weakened?

- In my opinion, Naftogaz is now an ineffective superstructure. He is slow and does not understand all the processes of extraction, transportation and storage of gas. At the same time, he continues to manually manage Ukrgazvydobovaniya and other "daughters". And this is the biggest problem.

In my understanding, Naftogaz should be a shareholder. He must agree with the management of the subsidiaries on the objectives, budgets, corporate policies and standards for each function. And the managers of the subsidiary companies must follow and fulfill them. They must independently select a team, organize business processes and make decisions.

- Why were you fired?

- A new team has arrived at Naftogaz (Olexia Chernyshova. – Ed .). She has her own vision, her own approaches to business management. I chose to quit.

- What do you plan to do next?

- I plan to reboot and continue to work for victory. There are several offers from the private and public sector.

- Over the past seven years, Naftogaz has experienced several corporate reforms and a change of teams. How has Ukrgazvydobuvannya changed during this time?

- Most of the positive changes were implemented from 2015 to 2019, when Naftogaz operated a more efficient operating model. Ukrgazvydobuvannya has transformed from a closed post-Soviet company with outdated equipment and missing software to a modern and high-tech one. UGV operates its depleted fields at the level of international oil and gas companies.

You will be surprised, in 2015, out of 18,000 employees of Ukrgazvydobuvannya, only one person spoke English. It was a completely closed company to the outside world. And now it is a company that has many international partners and speaks the same language with the whole world.

Another no less important event – we stopped the quasi-privatization of 25% of Ukrgazvydobuvannya for $4 million. Today, for comparison: Ukrgazvydobuvannya is worth up to $10 billion, but using the exploration of unconventional gas deposits, its value can double.

- Privatization of Ukrgazvydobuvannya?

- This is the history of the joint activity (SD) of Ukrgazvydobuvannya with Karpatigaz. $4 million is the amount contributed by a private investor who controlled the Ukrainian legal entity "Karpatigaz" (the company Misen Enterprises AB. – Ed .).

This is the largest SD, which de facto took control of half of the production of Ukrgazvydobuvannya. And since private individuals had 51% of Karpatygaz, they actually owned a quarter of the production of UGV. Although they had bigger plans.

After five years, we terminated this contract in the Stockholm arbitration.

- Who was behind the private owner of Karpatigaz?

- Unofficial information – the heads of the UGV during Yanukovych's time. But law enforcement agencies should answer this question.

About the cost of production, Russian sabotage and the gas revolution for $1-2 billion

- Two years ago, the former executive director of Naftogaz, Otto Vaterlander, said that the production cost in Ukraine is UAH 1 per cubic meter. And what is the cost price now?

- Each field has its own cost price, so there is no average amount. Old and depleted deposits are one number, and unconventional deposits, which hold the future, are another.

In old fields, it is low because all the key costs have already been incurred and amortized – exploration, seismic, drilling and infrastructure construction. In fact, there are only operational costs, but if we are talking about new drilling, exploration, exploration, seismic, the cost is much higher. Especially if these are unconventional gas deposits.

In any case, even if the cost price is equal to the market price of imported gas, it is still necessary to invest in own production. This is better than importing gas and investing in the economy of other countries. Although Naftogaz has not always shared this view over the past seven years.

- What are unconventional gas deposits?

- The gas in traditional and unconventional deposits is the same. To put it simply, traditional deposits are easily recoverable gas reserves, which we extract using traditional technologies – vertical drilling. Unconventional are hard-to-extract reserves. Simplified – the gas is sealed in a solid stone. It is necessary to drill horizontal wells and perform hydraulic fracturing of the formation there.

Today, Ukrgazvydobuvannya operates deposits, the vast majority of which were discovered during Soviet times. They are exhausted by more than 80%. The remaining confirmed and probable reserves are 242 billion cubic meters. This is a large number, considering the annual gas consumption in the country. However, in the world, only 3% of the remaining reserves are extracted from large depleted deposits per year, so only the discovery of new deposits can compensate for the natural decline in production from depleted deposits (Ukrgazvydobuvannya – Ed. ). And this is about 7% of the company's annual output.

According to Ukrgazvydobuvannya, there are unconventional deposits in the UGV deposits, similar in their characteristics to the deposits of the largest deposits in Texas. The estimate of prospective reserves is greater than the residual reserves of conventional gas. And these are only UGV deposits. In general, all unconventional deposits in Ukraine are estimated to be from 500 billion to 1 trillion cubic meters of gas.

- And where are these non-traditional resources located?

- Exactly where our traditional deposits are located – in the Dnieper-Donetsk depression. This is the territory between the Dnipro and Donets rivers. In this depression, gas deposits have been forming for millions of years – both traditional and unconventional, which were considered unexploitable before the "shale revolution" in the USA. But in order for them to become minable in our country, modern technologies and investments are needed, and they are primarily owned by American companies.

- That is, if the " shale revolution" is repeated in Ukraine , it will become the European Texas?

- Our unconventional deposits are not shale gas, they are gas from tight reservoirs, although the extraction technologies are similar. At the same time, our deposits are on average 1-2 kilometers deeper than American ones.

Ukraine will have the largest gas reserves in Europe on land. If foreign partners are involved, there is an opportunity to increase gas production several times.

Even if we were to achieve a third of the US level of efficiency, to increase current daily production of GHG by 50% would require drilling 55 successful wells and making up to 30 hydraulic fractures each.

- Will it be expensive?

- Each of these wells will initially cost $25 million. We are talking about investments of $1-2 billion.

By the way, Ukrgazvydobuvannya is preparing to drill several pilot horizontal wells with its own machines this year. The technological partner will be the American oil service company Halliburton. This will allow testing the concept and should facilitate the attraction of an investment partner.

- I heard that the Russians prevented us from conducting seismic in the Black Sea. That there were systems on the so-called "Boika towers" that silenced the signal as soon as they saw that certain works were being carried out. Therefore, we had to involve in this process private vessels that secretly conducted seismic. Can you tell me how it was?

- It was in the fall of 2021, when conversations about the invasion of the Russian Federation into Ukraine began in the information space. Seismic was conducted by a Norwegian company, one of the best in the world. It was a contract for the study of the entire Black Sea shelf. We started with the shallow inner shelf and did 5,000 square kilometers by the end of 2021. Several times the contractor recorded a loss of signal, which was impossible with the latest equipment they were working with.

Then the Russians began military exercises in the Black Sea and tried to approach the ship. The contractor warned them by radio about the danger of damage to their marine equipment. The Russians then withdrew, but declared that military exercises would take place in that square, that civilian vessels were not allowed to enter. The situation was resolved thanks to the joint work of our team and the Naval Forces of Ukraine.

After the inner shelf (up to 50 meters), the contractor had to start exploring the outer shelf (up to 100 meters) and deep water (over 2,000 meters) at the end of winter. But at the beginning of winter, the Norwegian government recommended that the contractor not go out to conduct these studies. There was a risk that any day Russia would launch an invasion.

However, this is not their only attempt to prevent us from achieving energy independence. They blocked our development for decades with their meanness and blackmail. For example, in zero years they prevented us from studying joint marine facilities in the area of the Kerch Peninsula, and in 2013 they prevented the Shell company from extracting unconventional gas in Donbas.

- What prospects have you found in the Black Sea?

- I believe that our prospects on the shelf are not much smaller than those of Turkey, which discovered large gas deposits in the Black Sea. Currently, prior to conducting seismic surveys, we estimate the resources in our areas in the Black Sea to be about 300 billion cubic meters of gas. But the shelf is a very expensive project, without partnerships with other oil and gas companies, Ukraine will not be able to implement it. This is from 5-7 years and from $10 billion. One exploratory well on the deep shelf can cost up to $100 million.

Processing and interpretation of the inner shelf seismic is currently underway. And the intermediate results exceed our expectations. If earlier we thought that there was up to 30 billion cubic meters of gas on the shallow shelf, today we are talking about numbers many times larger. The first points for laying exploratory wells have already been determined. We even found a potential investor from Asia who was ready for a partnership before the war.

About calls, rent and a silent competition from ARMA

- With the beginning of the war, many oil and gas companies again turned their attention to the west of Ukraine, where the oil and gas fields are depleted. How promising is this direction from the point of view of gas extraction?

- According to Ukrgazvydobuvannya specialists, there are still up to 60 billion cubic meters in western Ukraine. The only nuance is that no one has yet done full-fledged seismic research there. Last year, UGV started seismic work in the Carpathians, so in the future, gas reserves in the Carpathian region may be even larger.

- What are the challenges facing the industry in 2023?

- Now the most important challenge for the industry is war.

The front line should advance to the east. This is critical for the country's energy security

- In the summer, the court seized and transferred to ARMA the assets of Belarusian companies: BNK, Servis Oil, which actively participated in the contracts of Ukrgazvydobuvannya. They were not given to you?

- At that time, 4 drilling rigs were occupied at UGV, and 4 rigs were also seized at Service Oil. We repeatedly appealed and held meetings with ARMA representatives, but we were not heard. Although we really needed this equipment.

Then it turned out that this equipment was purchased or taken over by a private company. According to rumors – DTEK . The competition was held quietly. UGV found out about him already after ARMA held a competition and chose the winner.

- In September of last year, the government changed the rent formula: instead of tying it to gas prices in Europe, the Cabinet of Ministers tied the rent for gas extraction to domestic prices. How did it affect the cash flow of Ukrgazvydobuvannya?

- Positively. Last year, when Ukrgazvydobuvannya was forced to pay rent linked to prices in Europe, the situation reached absurdity. When gas prices in Europe reached $2,000 per thousand cubic meters, Ukrgazvydobuvannya was forced to sell gas at a price lower than the rent paid. In 2022, this was the case for the first two months.

However, and this is quite important, Ukrgazvydobuvannya made a profit in 2022. Despite the war, inflation and projected losses. This is a great team achievement.