Ukrnafta Profits Fall on Taxes

Ukraine’s top oil producer Ukrnafta said net profits fell by 18% year-on-year in 2011 as a massive jump in revenues proved not enough to offset a near doubling of rent tax.

The Kiev-listed company, whose major shareholders are state oil and gas concern Naftogaz and the Privat business group, reported net income of 2.18 billion hryvnia ($272 million) under Ukrainian accounting standards, compared with 2.65 billion hryvnia in 2010 (IOD Feb.16’11). Revenues increased by 22.5% to 24.5 billion hryvnia despite lower production as tax code changes "closed the loopholes" that had enabled the company to sell crude oil to related parties at a significant discount to the import price, Dragon Capital analyst Dennis Sakva wrote in an earnings review. Although this propelled the company’s average oil sales price up by 70% to $100/bbl, a 91% increase in rent tax charges to 8.1 billion hryvnia hit the bottom line.

Sakva said Ukrnafta’s gas output for the year was down 12.2% to 2.15 Bcm, while oil and condensate production fell by 8.6% to 45,600 b/d due to "continuous underinvestment into exploration and production." Ukrnafta’s first-quarter 2012 results, released at the same time as its 2011 numbers, provided much better news, as net income in the most recent quarter increased a massive 28 times to 827 million hyrvnia. "This is explained by both low results achieved in the first quarter of 2011 and also by a less oppressive oil rent tax regime," the company said.