Ukraine State Company Tries to Fend off Bankruptcy
State-owned Naftogaz Ukrainy held a meeting of the supervisory board of its subsidiary, oil and gas producer and trader Ukrnafta May 24, in a bid to stave off court intervention in the affairs of the cash-strapped company.
It reported a net loss of gryvnia 5.44bn ($217mn) for 2015, compared with a net profit of gryvnia 1.27bn the year before.
Oil and gas production was down on the year owing to underinvestment in wells, it said; and the oil price was down as well. But its gross profit was up 24%, at gryvnia 17.1bn. In 2015, the capital investment was gryvnia 492mn, down 35.8% on 2014, and mostly spent upstream. "This is far less than the amount required to stabilize production and replace aging plant and equipment," it said, arguing that major new investment will be required in 2016 for drilling and completion of wells and building oil and gas pipelines and compressor stations.
Naftogaz is seeing to forestall a court's declaration of bankruptcy by putting the subsidiary into 'corporate recovery', a local form of voluntary administration.
Ukrnafta said the losses were mainly non-monetary accounting provisions required by international financial reporting rules. Reserves for tax obligations amount to gryvnia 2.6bn; the penalty for the late payment of dividends is gryvnia 1.6bn and the debt provision is gryvnia 6.2bn. "Although these accounting provisions have had a significant impact on the net profit, the company’s management considers them necessary after detailed consultation with the company’s auditors," it said. "In 2015, Ukrnafta was among the ten largest taxpayers in Ukraine. Nevertheless, as has been widely reported, the company maintains a large tax liability to the state fiscal service which it was unable to pay during the course of the year."
Gas processing plant (Credit: Ukrnafta)
The supervisory board instructed Ukrnafta CEO Mark Rollins to see whether the state fiscal service might cancel the tax debt and to see if the debt could be restructured as part of the administration process. The supervisory board also instructed Rollins to present the supervisory committee with a consolidated statement of accounts for 2015, as approved by the company’s independent auditor, Pricewaterhousecoopers.
The board of Ukrnafta is also to submit full information in writing regarding the sales of crude and preliminary payments for oil products in 2015, for which the auditor was not able to receive sufficient and acceptable evidence, said Naftogaz Ukrainy.
The next annual general meeting will be July 7 and the agenda will include appointing a new supervisory board and approving the start of the administration process before the company can be sued for bankruptcy. Rollins was appointed CEO in the middle of 2015. Before that he was an executive with BG, now Shell.
William Powell