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Ukraine tax cut to spur gas investment

22 Dec 2016, 2.30 pm GMT

Ukraine tax cut to spur gas investment

London, 15 December (Argus) — A proposed reduction in Ukraine's subsoil tax rate for gas will encourage field development by private-sector producers, London-listed independent JKX says.

The tax cut would make Ukraine "an attractive destination for investors and stimulate gas production", JKX chief executive Tom Reed said this week. It would have a "material impact" on the development plan for the Rudenkivskoye field, which could produce 1.13bn m³/yr, according to JKX, although there is no timeframe for developing the field yet.

Ukraine's parliament has passed a first version of a law setting subsoil tax at a flat rate of 12pc of the wellhead price. Producers currently pay subsoil tax of 29pc on gas from wells up to 5,000m deep and 14pc on gas from deeper wells. Subsoil tax was cut from 55pc in January, but remains higher than the global average of 11.7pc, according to former energy minister Volodymir Demchishin. Private-sector producers such as JKX, along with state-run Ukrgazvydobuvannya and Ukrnafta, have pushed for lower taxes to encourage exploration and production.

Ukraine aims to raise output to 28bn m³/yr by 2020 from 19.9bn m³ last year. Cutting subsoil tax to 12pc would be sufficient to meet this goal, according to Ukrainian gas producers association AGPU.

JKX produced 550,000 m³/d in Ukraine in November, up from 490,000 m³/d in October. Overall Ukrainian output reached 56.2mn m³/d last month, with state-run firms accounting for 80pc of this. JKX oil and gas production totalled 10,130 b/d of oil equivalent in January-November, up by 15.8pc from a year earlier.

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