1. Preliminary high-level plan to 20bcm in 2020
UGV gas production levels, mcm/y
21,000
20,008
18,366
18,000
4,017
16,525
2,940
1,865
15,000
14,778
14,525
828
220
328
769
192
277
1,223
12,000
552
355
1,593
652
426
12,658
11,722
10,786
9,850
2016
2017
2018
2019
2020
Intensification
Exploration on new fields
Other
Tight gas
Exploration on existing fields
Base

2. Key success factors for UGV 20/20 strategy
Technical
Operating framework
Intensification (hydraulic fracturing, directional drilling, coil tubing, hydrochloric acid treatment)
Booster compressor stations (modernization+new)
Drilling rigs renovation and modernization, workover equipment, advanced basin modeling, exploration of tight gas deposits
Sufficient funds for CAPEX program
Increase of gas prices up to market level
Appropriate political and legal climate for international companies and experts
Rent decrease to economically feasible levels
Preventing political and corruption-motivated meddling

3. Gas prices relevant for UGV case
USD / ‘000m3
2013
2014
2015
2016F
Average selling price of gas as commodity for UGV
(net of VAT)
43,7
29,4
58,5
101,2
(net of VAT and production tax)
35,0
23,5
24,9
45,6
Estimated selling price of gas as commodity for private producers (net of VAT and production tax)
264,0
149,0
102,0
145,0
Average price of gas as commodity for households**
46,5
41,4
80,6
130,5
Average retail price of gas for households***
109,8
91,3
137,0
192,5
Notes:
* - average annual official UAH//USD exchange rate for and IMF forecast for UAH//USD exchange rate are used
** - final retail price excluding transportation and distribution tariffs, regulated retail supplier’s margin, special “mark-up” and VAT. Special “mark-up” comprises 4% for , starting from 2016 it was abolished.
*** - final retail price (including transportation and distribution tariffs, regulated retail supplier’s margin, special “mark-up” and VAT. Special “mark-up” comprises 4% for , starting from 2016 it was abolished).

4. State bodies hamper UGV reform
General Prosecutor’s Office’s criminal case against the new management for competitive transparent tender won by American and German producers (NOV Fidmash and KATT)
State Geological Service: termination and delays in issuance of new licenses
Denial or delay in approvals of permits for drilling
State Financial Inspection tries to stop the purchasing reform – ProZorro
Political and corruption-motivated interventions of Members of the Parliament in reforming UGV

5. Gas sales 2015 (unregulated market)
Market share
(bcm)
Preliminary segment results for Naftogaz
(UAHbn)
Naftogaz
24%
Others
76%

6. Roadmap to efficient gas market in Ukraine
Privatization of gas production
Corporate Governance reform of Naftogaz
Supervisory Board: insulation from political meddling and graft
0% Royalty Tax + Fair Auctions for new gas production licenses
Increase in Production
Competition in retail
Non-regulated household prices

7. Evolution of market conditions: 2016 to 2020 +
2020+
NON-COMPETITIVE price of gas imported from Russia
2009 Contract terms with Gazprom
COMPETITIVE price from the EU
EU oriented gas imports
Supply from EU dominates, can fully substitute supplies from Russia in 2016
LOW flexibility for flows across the borders
Contractual bottlenecks at all but one IPs at the border with EU;
Backhaul is not possible under existing contracts structure
COMPETITIVE Price of gas imported from Russia
Hub-minus-transportation
NON-COMPETITIVE price from EU
HIGHER import from Russia due to attractive pricing
+ Possibility to re-export surplus of imported Russian natural gas
DEBOTTLENECKING at all interconnection points
Backhaul operations are introduced;
Bidirectional gas flows at all IPs
NO RUSSIAN GAS
Under conservative scenario
Imports from EU to cover peak consumption
FREE flows of gas across the borders
Full infrastructural, legal and contractual integration with the EU transmission system
GTS and UGS are not attractive for investments
Infrastructure is used inefficiently due to uncompetitive practices by Gazprom => future cash flows are uncertain;
GTS and UGS are attractive for investments
Given predictable cash flows, TSO becomes attractive for Western partners;
Very cost-attractive Ukrainian transit route of the East-to-West gas corridor;
Attractive capacity products are offered by SSO + competitive gas price from RF => shippers are incentivized to store gas in UGS and trade during the periods of peak consumption

8. Largest tax payers in Ukraine in 2015, UAH bn
Ukrgazvydobuvannya
Naftogaz
Ukrnafta
TOP-20 tax-payers,
112 UAH bn
ArcelorMittal Kryvyi Rih
TOP-20 tax-payers,
53 UAH bn
2015
2014
Naftogaz Group: 43 UAH bn (38%)
Naftogaz Group: 13 UAH bn (25%)
ТОP-100 Business digest