Azarov: Naftogaz to Extract 21bn cu-m of Natural Gas in 2015

News
Naftogaz Ukraine, the country’s state-owned energy monopoly, should produce about 21bn cubic meters of natural gas in 2015, Prime Minister Nikolay Azarov said on Wednesday (Jun 26). This increase would represent a 16% rise from the 18.2bn cu-m that Naftogaz reported extracting in 2012. Azarov added that Naftogaz will cooperate with Eni (Italy), Total (France) and CBM Oil (Britain) in order to intensify its oil and gas extraction in Ukraine. The 2012 output figure was an increase of just 0.5% YoY. Naftogaz consolidates the gas output of its 100%-owned on-shore producer UkrGazVydobuvannya (15.2bn cu-m in 2012), 50%-owned UkrNafta (2.1bn cu-m) and 100%-owned off-shore producer ChornoMorNaftogaz (1.2bn cu-m).

Commentary
The gas output target stated by Azarov does not look particularly ambitious to us given expected 2015 nationwide gas usage of around 50bn cu-m and the government’s oft-expressed desire for greater energy independence from Russia. We view market reforms that would bring the price for domestically extracted gas up to par with that for Russian imports as far more economically beneficial than a 3bn cu-m rise in output. On the other hand, the possibility for Naftogaz to reach gas output of 21bn cubic meters by 2015 looks quite realistic, taking into account considerable investments in off-shore extraction in recent years. ChornoMorNaftogaz boosted its gas output by 35% YoY to 352mn cubic meters in 1Q13. Generally, increasing domestic natural gas production in Ukraine and implementation of energy saving technologies are the most obvious ways for strengthening NaftoGaz’s position in negotiation process with Russian Gazprom.
Naftogaz-14 outstanding Eurobonds are currently quoted at 10.6%/9.7% YTM, implying a spread to sovereign papers of 150 basis points.

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Источник: Eavex Capital