Future Opportunities for U.S. / International Exporters and Investors

UKRAINIAN UPSTREAM FUTURE OPPORTUNITIES FOR U.S. / INTERNATIONAL EXPORTERS AND INVESTORS

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UKRAINE

Natural Gas Production Oil Production in Ukraine, in Ukraine, 2012-2019*, BCM 2012-2019*, million ton

Gas production in Ukraine remains stable at the same level - 20-21 BCM / year. In 2019 for the first time there was a re- duction in production over the last 5 years The share of private producers is growing and in August 2019 reached 23% Oil & Condensate Production in 2010-2015, Million ton Oil & Condensate production has been growing for the second year in a row, and this year it will yield 2.4 million ton. This is the highest production output during the last 4 years. Most to the nation’s production increase was contributed by Ukrnafta and private producers.

Copyright © 2019 Exploration & Production Ltd OIL&GAS INDUSTRY Gas Production UGV Oil&Condensate Production UGV Since 2016, UGV has been steadily increasing natural gas production. In 2019, natural gas production will slightly drop for the first time over the years. Gas Production UKRNAFTA Oil Production UKRNAFTA

Ukrnafta suc- cessfully stabi- lized their natural gas production in 2018, and now is increasing their oil production.

The largest production increase among private companies in 2018 was shown by UNB, 37% more than in 2017. UNB’s oil production increased by 69%, and totaled 72,000 ton. Last year four new wells were commissioned.

Burisma Group, the second largest privately-owned company, produced nearly 1 BCM in 2018. This company is commissioning 20 new wells by the end of 2019. Burisma’s drilling contractors include the two leading private drilling companies: Poltava Drilling Com- pany and Ukrburservice.

The largest natural gas production company during the last 5 years remains DTEK Naftogaz, which accounted for almost 40% share in private gas production of Ukraine. ZakhidNadraServis Group is the leading The company has further potential to increase its natural private producer in the Western Ukraine gas production

In 2019, 18 drilling companies operate in Drilling Volumes in 2008-2018, forecast until 2022, th meters Ukraine. The total drilling&workover fleet is 130 rigs, of which only 80 rigs are for drilling.

Over the last 3 years, private drilling companies have expanded their fleets with additional 8 heavy drilling rigs: Ukrburservice – 2 rigs, PBC - 3 rigs, SMS – 1 rig, Goryzonty – 1 rig, and Energofinance – 1 rig.

Ukrgasvydobuvannia has already The 8 Ukrainian drilling companies operate modern rigs (drilling at received 12 out of 20 drilling rigs 3000-6000 m) bought from international rig manufacturers include: with a capacity of 450 tons 1. Poltava Drilling Company 5. Region 2. Ukrburservice 6. DC Gorizonty (2 rigs from Bentec + 10 rigs from 3. Specmekhservice (SMS) 7. Naftogazburinnya Honghua) 4. Energofinance 8. UGV

Copyright © 2019 Exploration & Production Ltd DRILLING MARKET Foreign drilling companies in Ukraine, the number of drilling rigs 320-450 tons The 4 interantional drilling contractors operating their 320-450 ton drilling rigs in Ukraine include: 1. EXALO (Poland) Engineering (China) 2. Crosco (Croatia) 4. Belorusneft (Belorus) 3. Xin Jiang Beiken Energy

Maximum drilling depths by foreign companies in Ukraine in 2018, m

Beiken drills for UGV, Crosco drills for PPC EXALO drills for Cadogan Petroleum Belorusneft drills for DTEK Oil&Gas.

Copyright © 2019 Exploration & Production Ltd DRILLING MARKET Drilling Cost Breakdowns % Cost Breakdown of Services for Cost Breakdown of Services for Drilling 3000m-5000m Deep Wells ,% Drilling over 5000m Deep Wells,%

Cost Benchmark for Drilling VS Services,%

Number of Coiled Tubing Operation for Year Service Price of Tender, Cost per one Opera- Number of Number of Coiled Tubing OperationUGV in 2018 for-2019 UGV in 2018-2019 Company $ thousand tion, $ thousand Operation 2018 Tacrom Ukraine 1 287 76 17 DC Goryzonty; 37 Tacrom Ukraine 1 632 74 22 Tacrom Ukraine; Tacrom Ukraine 1 632 74 22 178 Service Oil 1 852 74 25 Burova Burova Tekhnika 1 779 71 25 UGV Budget for Tekhnika; 2019 DC Goryzonty 2 800 76 37 2018 Coiled 103 Tacrom Ukraine 3 104 80 39 Tacrom Ukraine 3 040 78 39 Tubing Operations Tacrom Ukraine 3 140 81 39 was $ 8.2 million, Burova Tekhnika 3 104 80 39 for 2019 Coiled Burova Tekhnika 3 036 78 39 Service Oil 2 936 75 39 Tubing Operations Service Oil; Service Oil 3 108 80 39 - $ 24.3million. 103

The average cost of one coiling operation for UGV 2018-2019, UAH thousand

Company 2016 2017 2018 2019 HF Operations in Ukraine UGV 16 101 173 300 UKRNAFTA 0 0 17 15 Burisma 0 0 3 5 PPC 0 4 0 0 Ukr-Az-Oil 0 0 1 0

Cost of the HF Operation for UGV in 2018, min-max, th UAH

During 2016-2018 more than 300 hydraulic fracturing operations were performed in Ukraine. Including nearly 190 hydraulic fracturing operations in 2018. The leader in using hydraulic fracturing operations is the UGV (about 170 frac jobs per year). Ukrnafta has its own hydraulic fracturing fleet, and in 2018 conducted 17 hydraulic fracturing operations.

Welcome to Ukraine! Carpathian Oil & Gas Conference 2020 - Lviv, May Odesa Offshore Conference 2020 - Odesa, September

2020

2020 WEEKLY September 30 – October#40 6,(177) 2019

MONTHLY - - ditions previously agreed. Prime Minister of September, 2019 Ukraine Oleksiy Honcharuk noted that the loss of investor confidence would be the - worst that could ever happen. In turn, Min territory of Ukraine after 2019 was also an ister of Energy and Environment Oleksiy Or- WEEKLY REVIEW nounced to be held on October 28.PRODUCTIONzhel noted that his Ministry's position was to - Another important event was the transition of keep the tax regime unchanged for the up Ukrtransgas to the determination of price for coming 5 years. News Review natural gas on intraday basisOil instead and of Gas the ProductionThe Cabinet of Ministers of Ukraine plans to Last week, UGTS Operator LLC applied for monthly one, as it was before.Overview, The purchase August maximize 2019 transparency with active use of Subscribe to news from Ukraine: - Average monthly quotation of oil Brent (ICE Index), $/b certification as a gas transmission sys price and the marginal purchaseAfter the / sale change price of politicalonline auctions power as incentive to attract inves- tem operator to the National Commission caps on natural gas will in be Ukraine, used to further the gas industrytors to is hydrocarbon turbu- production projects in for State Regulation of Energy and Utilities determine the paymentlent. for imbalances Traditionally, and Ukraine. According to Honcharuk, Ukraine (NCREU). The certification should be com will be published dailytion in the is user's account oil andis gas striving produc to attract more investors, but on very sensitive- to - ОГЛЯД РИНКУ ГАЗУ ЗА 3 ЖОВТНЯ (ЧЕТВЕР) pleted by the end of December, so Ukrtrans- on the Information Platform starting October mutually favourable terms both to Ukraine changes. After an absoluteany reboot political gaz asked the NCREU and the Secretariat 1, 2019. The last monthlypolitical marginal power price in Ukraine, for similarand foreign investors. TheВнутрішній Minister of Energy ринок. З наближенням кінця тижня активність - of Dayly, Weekly, Monthly review of the Energy Community for concurrent the purchase of naturalchanges gas willfor September come to the productionand Environment Oleksiyучасників Orzhel plans на газовому to use ринку України знизилася. Через різ - - certification of UGTS Operator. Also, from 2019 was 5 502.54industry. UAH / Mm3. The margin marketing technologiesке зростанняto attract foreign цін на хабахin- сьогодні, більшість українських October 7, UGTS Operator employees will трейдерів зайняли вичікувальну позицію. «Ринок завмер в - al selling price wasThe 4 first 502.08 major UAH step/ Mm3. that can contributevestors to Ukraine's fuel and energy market. DAILY GAS work around the clock to quickly answer all Also, last weekto they a dramatic made a number deterioration of im of theIn asitu private conversation,очікуванні, Prime всі чекають Minister якоїсь більш довгострокової тенден ції щодо зростання чи падіння цін у Європі, оскільки ми вже questions of the NCREU and the Secretariat portant politicalation statements in the gas regarding market hydro is the reviewOleksiy Honcharuk told ExPro that the Cab 3 Жовтня 2019 in relation to certification process. It should - бачили як одного дня ціни різко падають, а потім наступно carbon production.of the currentOn August rent 30, rates.a People's inet plans toAverage attract investors monthly to quotation the Black gas hub in GPL, €/MWh be noted that Yuriy Vitrenko made the as Deputy from the People's Servant Party, Sea shelf. However,го дня так according само різко to зростають» Honcharuk, - прокоментував ситуацію about Gas & Oil industry of the Parliament has received forCurrently the review the один з трейдерів. sumption that the Russian side began to Chairman of the Verkhovna Rada Committee this should be in the form of auctions, not in - Ціна на ресурс жовтня в Україні, грн/тис куб м the Bill No. 1210, which Протягом дня продавці газу в Україні підвищили власні ціни declare that it was ready for European rules on Finance, Tax and Customs Policy Danylo the form of a Product Sharing Agreement. In waiver of incentive rent ratesprovides for gas for на ресурс жовтня близько на 100 - 200 грн/тис куб м і на only when Russians learned that Ukraine Hetmantsev introduced the draft of tax bill addition,a the Dolphin shelf hydrocarbon rich from the new wells. прикінці дня ціни на ресурс жовтня коливалися в діапазоні would not have time to implement these No. 1210 aimed at increasing rents for gas fields should be divided into 4 separate lots. - - predict that the abolitionIt is ofnot the difficult incen- to 5 rules by the expiration date of the current extracted from new wells. 000 – 5 tive rates will dramatically aggravate залишається200 широким.грн/тис куб Крупні м. Діапазон міжнародні цін на трейдери ресурс листопада пропо transit contract. According to Vitrenko, the However, Prime Minister of Ukraine Oleksiy - - the already difficult investment condi нують biggest market in Europe Ukrainian government and regulator assured Honcharuk said that the Government did not листопад по цінам від українських трейдерів сягають 6 that Ukraine will have European rules imple tions of the Ukrainian gasNatural production. gas price, plan to raise taxes or to revise the tax con Сьогодні- продавці пропонували газ по таким цінам: mented by the end of 2019. However, the main issueTTF, of 2019, €/MWh ducers is low gas prices. gas pro- ресурс- жовтня від 5 The next trilateral meeting in the format of 5 грн/тис куб м. Пропозиції - ber 2019, the price of gas is In about Septem - ресурс листопада від 5 500 Russia-Ukraine -European Commission to - Average monthly quotation gas hub in NCG, €/MWh UAH 5,000 per thousand cubic meters- газ в ПСГ від 5 700 грн/тис куб м. decide on transit of Russian gas throughthe Натомість, покупці готові були 000 купуватигрн/тис куб газ м; по: Ціна на газ в ПСГ в Україні, грн/тис куб м with VAT, while in September of the - - жовтень від 4 last year the gas prices exceeded UAH 070 грн/тис 500 куб грн/тис м. куб м; Dynamics of Brent crude quotes - листопад від 5 (ICE Index), 2019, $/bar. 12,000. 4-Oct - ПСГ від 5 900 грн/тис куб м; 11.985 The fall in prices more than twiceСпред in між пропозицією та попитом на ресурс3-Oct жовтня розши- 11.348 000 грн/тис 100 грн/тис куб м. куб м; 10.803 11.742 a year has dramatically changedрився the до близько 200 грн/тис куб м. 9.821 2-Oct10.055 11.312 market situation. Сьогодні на ТБ «Українська енергетична біржа» торги10.227 при 14.803 Companies' reve 1-Oct 9.202 9.961 nues have collapsed. родним газом проводили10.550 8 компаній, з9.703 яких 6 здійснювали 5,310.27 - 13.288 the advent of the fall theHopes priceпродаж that will withgo газу, а дві – купівлю.9.065 Аналогічно9.489 з учорашнім днем, 30-Sep 9.403 4,739.15 11.574 12.764 up have not come true, thereforeне дивлячись9.605 pro- на велику кількість9.362 пропозицій з продажу газу на біржі,10.299 жодній з компаній не вдалося 4,611.31реалізувати ресурс. ducers need to urgently review capital 12.464 (VAT) are accounted. expenditures, and first of all«Екотехноінвест» reduce10.026 проводила4,433.45 торги з купівлі 500 тис куб м Ціна природного газу на хабах NCG, Average monthly quotation gas hub in TTF, €/MWh Natural Gas Prices at the Europeandrilling scopes. Habs and at theресурсу Ukrainian 13.360 Border, Day Ahead Market (€/MWh) TTF та GPL Day Ahead протягом тижня, €/MWh куб м. «ДЕ4,693.51жовтня Трейдинг», стартова проводила ціна становила торги з купівлі 500 тис куб Delivery date Meanwhile, gas production3 in Ukraine - CEGH is showing a gradual reversal.м ресурсу 500≈тис куб м ресурсу по GPL ter several years of жовтня полистопада стартовій ціні 5 Copyright © 2019 Exploration & Production Ltd NCG «Нафтогаз Трейдинг»Af- пропонувала до продажу 1 млн куб м TTF gas production began togrowth, decline ресурсу natural 1 Price at the border of(in the theJuly. imported Ukrainian gas GTS), price in €/MWh Ukrainian GTS quotes for gas at the European hubs, the average4 cost of transportation to the border Price at the border (in the UkrainianIn August, GTS), the UAN/Mm та 1 млн кубжовтня м ресурсуfrom за стартовою ціною 820 as compared to Augustfall 2018. exceeded 3% 4 грн/тис * - at the calculation «Полтавська газонафтова компанія» виставляла 850 на грн/тис продаж куб м та of Ukraine, the cost of entryover into 1.7 the billion Ukrainian cubic gas1 млн meterstransportation куб м wereресурсу system, proJust the official exchange rates000 грн/тисand value-added куб м. tax duced last month. листопада за тис куб м та 1 млн куб м- ресурсу м. «ІЕК «М2» пропонувала до продажу 1 млн5 куб358,84 м ресурсу грн/тис куб м по стартовій ціні Copyright © 2018 Exploration & Production Ltdлистопада за стартовоюлистопада ціною 6 6 492,06 грн/тис куб м. Copyright © 2019 Exploration«Крафт Енерджи»& Production пропонувала Ltd до продажу 500 тис куб м Ф'ючерсні ціни на ресурс вересня на TTF протягом тижня, €/MWh ресурсу грудня по тис куб м жовтнягазу в ПСГ за застартовою 5 ціною 6 6 5001 грн/тис 100 грн/куб ресурсу листопада за 5 000 грн/тис куб м. «Укренергоальянс» виставляла на продаж 1 млн куб м ре сурсу 190 грн/тис5 куб м та 200 тис куб м Пром Газ»жовтня також по пропонувала стартовій 650 ціні до грн/тис продажу куб 1240 м.млн грн/тис куб м ре куб м, 500 сурсу завтра нажовтня УЕБ «Крафт за стартовою Енерджи» ціною виставила 500 тис куб м газу 5 350 грн/тис куб м. «Тех Ціни на Європейських хабах, End of Day, 03.10.2019 5 150 грн/тис куб м. На - № 1 2 - 3 4 Хаб NCG 5 CEGH VTP 6 TTF 7 CZ VTP 8 ETF Ціна, €/MWh GPL PEG ZTP 10.475 11.179 10.050 ↑ 10.500 ↑ 10.889 ↓ 10.043 ↑ 10.053 ↑ 10.075 ↑ ↓ ↓ THANK YOU GENNADII KOBAL Director&Founder of ExPro Consulting www.expro.com.ua