From Zlochevskyi to Kolomoiskyi. Why Ukraine does not need billion cubic meters of gas annually from Sakhalin field
Sakhalin oil and gas condensate field is located in the Bohodukhiv district of Kharkiv region. It is one of the largest hydrocarbon sites in Ukraine, which could produce 1 billion cubic meters of gas annually. But it has been out of operation for more than six months. Journalists of Censor.NET and Gwara Media tried to find out what the possible reasons for the production shutdown were.
Authors: Tetiana Nikolaienko, Censor.NET; Oleksandr Manchenko,Gwara Media.
Community loses 9 million per month
The recognized reserves of the Sakhalin field are about 15 billion cubic meters of gas, 1.7 million tons of gas condensate, and about the same amount of oil.
The peak of natural gas production at this field was in 2019-2020: 850 million cubic meters annually. In 2021, Ukrnaftoburinnia produced 790 million cubic meters of natural gas, and in 2022, even less - 560 million cubic meters. The decline in production was influenced not only by the hostilities (the last well was drilled there during the full-scale invasion), but also by hidden conflicts over the right to develop the field.
The operation of the Sakhalin field also has a major impact on the Krasnokutsk community, says Iryna Karabut, head of the local village council, in a commentary to Gwara Media. "This is where the field is located.
"We have lost money in the budget because of the field shutdown. The monthly rent payment was about UAH 9 million, so the downtime has a negative impact on us," says the head of community.
According to Karabut, due to the suspending production, the funds that the community could have previously allocated for the development of healthcare, education, and social support are not in the budget.
However, the Krasnokutsk community, despite the lack of funds due to the shutdown of the Sakhalin field, continues to support the Armed Forces of Ukraine. In 2023, the village council allocated UAH 11 million for the needs of the army. In 2024, another UAH 27 million was allocated to support the Armed Forces.
In the conversation, Iryna Karabut emphasized that the community hopes to resume the field's operation. This year, the local administration plans to provide subventions to the Defence Forces, transfer cars, drones and thermal imagers. They also plan to buy equipment for the hospital, finance salaries for the newly formed local fire brigade and create another fire brigade.
However, the community's concerns seem to be the least of the issues that will be taken into account in the battle for the field. Moreover, it has been going on for almost 15 years.
A project worth UAH 1 billion
The history of the field's development dates back to 2010, when the state invested about UAH 1 billion in the project.
In early 2010, the Ministry of Ecology issued a new licence for the development of the Sakhalin field to Ukrnaftoburinnia (UNB). The company had been trying to obtain it for more than four years.
Until 2009, according to Liga.NET, the main shareholder of Ukrnaftoburinnia was former Minister of Ecology and Natural Resources Mykola Zlochevskyi. At the end of 2009, he resold his stake to the structures of the Privat group of Ihor Kolomoiskyi and Hennadii Boholiubov, who after the transaction concentrated almost 90% of the company.
However, after Viktor Yanukovych's victory, the Ministry of Ecology and the State Service for Geology and Mineral Resources, headed by Mykola Zlochevskyi and Eduard Stavytskyi, revoked the license.
The company was facing problems until two British companies, Ariana Business Ltd and Ares Systems Ltd, became the new shareholders of Ukrnaftoburinnia. In December 2012, these companies bought out 45% of Ukrnaftoburinnia from the "private" offshore company Deripon Commercial Ltd.
"Golden Derrick
In 2012, Golden Derrick LLC became one of the owners of UNB. Prior to that, the latter was a partially state-owned company owned by Nadra Ukrainy. In other words, in fact, it was through it that subsoil contracts were obtained, so to speak, by people "understandable" to the authorities.
Golden Derrick LLC first gained notoriety in 2011, when it was granted more than two dozen special permits for subsoil use on a non-competitive basis. Such successes were attributed to lobbying of the company's business by Energy Minister Eduard Stavytskyi, Mykola Prysiazhniuk and People`s Deputy of Party of Regions Yurii Ivaniushchenko.
In 2013, Golden Derrick LLC (the new name of East Europe Petroleum LLC) became the successor to all rights and obligations that belonged to Ukrnaftoburinnia and Poltavnaftogazgeologiia, a subsidiary of NJSC Nadra Ukrainy, in the development work of the Sakhalin oil and gas condensate field, and PJSC MC (Private Joint Stock Company Mining Company) Ukrnaftoburinnia has been included in the joint venture due to the special subsoil use permit.
In 2014, the state terminated the contracts with Golden Derrick through the courts. Kolomoiskyi tries to regain control of the asset. But to no avail. Since the situation in the courts could not be reversed, another game familiar to Ukraine began - new people "understandable" to the authorities appeared among the company's shareholders.
In 2016, Vitalii Khomutynnik, a former People`s Deputy and partner of Ihor Kolomoiskyi, became a shareholder in Ukrnaftoburinnia.
"We have a 50% stake in Deripon Commercial Limited, which is part of Ukrnaftoburinnia. Ukrnaftoburinnia produces about 30 million cubic metres of gas per month," the politician told Novoe Vremia at the time.
Also in 2017, it became known that 67% of Golden Derrick was owned by Hartlog Limited, an offshore company from the sphere of influence of MosCityGroup owner Pavlo Fuks. The latter had a good relationship with Poroshenko's entourage, so Golden Derrick began to receive permits for subsoil development again.
Who developed the Sakhalin field
In recent years, alongside Ukrnaftoburinnia, the Sakhalin field was also operated by Sakhalinske LLC, which was linked to Ihor Kotvitskyi (Arsen Avakov's business partner). The latter extracted gas under police protection with machine guns, according to our interlocutors who worked in the field.
As of 2024, Ukrnaftoburinnia has several owners: 22.4% is owned by the UK's Ares Systems Ltd, 45% by Cyprus-based Deripon Commercial Ltd, 22.4% by the UK's Ariana Business Ltd, and another 10% by the Netherlands-based JKX Ukraine.
However, in 2023, all these assets were transferred to the National Agency of Ukraine for Finding, Tracing and Management of Assets Derived from Corruption and Other Crimes (ARMA). In February 2023, the State Bureau of Investigation (SBI) reported that it had, together with the Security Service of Ukraine (SSU), exposed the illegal activities of former high-ranking officials who received illegal excess profits from gas production from state subsoil.
At the same time, searches were carried out at the defendants' actual residences. As the media suggested at the time, it was Pavlo Fuks and People`s Deputy of People's Front Ihor Kotvitskyi.
Court proceedings around the Sakhalin field
On 5 April, the court arrested only Sakhalinske LLC, Sirius-1 LLC, East Europe Petroleum LLC of Fuks and Kotvitskyi, and on 11 April, the arrest was imposed on Ukrnaftoburinnia MC.
The Cabinet of Ministers issued a decree on 23 May 2023 transferring the seized assets to the state-owned company Ukrnafta.
But the litigation around the field did not stop there.
On 28 November, the Sixth Administrative Court of Appeal cancelled the special subsoil use permit No. 6349 dated 10 July 2019, under which PJSC MC Ukrnaftoburinnia operates. Production at the Sakhalin field has been suspended since 1 December.
The most interesting thing is that the SBI did not demand that the permit be cancelled. But it was this decision of the Sixth Administrative Court that became the key to the fate of the field.
Thus, the newspaper's sources in the gas market have several versions of why this could have happened.
- The old owners influenced this decision so that no one else would get the field.
- Mykola Zlochevskyi, who used to own the company, has the Vodianivske field nearby. And he may want to expand his production.
- The current situation is the result of both of the previous factors.
And what about the state, you may ask? Doesn't it need its own gas production? Can 1 billion cubic metres of gas be replaced by imports?
Leonid Unihovskyi, Chairman of the Expert Council for the Development of the Gas Industry and Natural Gas Market, believes that the suspension of production in the Sakhalin field is a threat to the country's energy security.
On 20 May, the Sixth Administrative Court of Appeal refused to satisfy UkrGasvydobuvannya's appeal, which offered a chance of the operation return of the Sakhalin gas field.
What the country loses by stopping
In response to a request from Gwara Media, ARMA said that the following amount of energy resources is lost every month due to the field's downtime, which could be used to ensure Ukraine's energy security:
- natural gas - 47.3 million cubic metres;
- condensate - 3,326 tonnes;
- light hydrocarbon gas condensate - 1903 tonnes.
"The projected figures for 2024 for Ukrnaftoburinnia's net profit, which is the source of state revenues from asset management, based on the average performance of the company for 11 months of 2023, amounted to UAH 6.5 billion," ARMA said.
The agency also added that the losses of the local and state budgets of Ukraine from the shortfall in revenues due to the suspension of production amount to UAH 410.45 million per month. This is without taking into account personal income tax, unified social contribution and military duty.
On 1 April 2024, ARMA and Ukrnafta issued a joint public statement to the National Security and Defence Council of Ukraine with a proposal to support Draft Law No. 11137 "On Amendments to the Subsoil Code of Ukraine to Prevent Crises Threatening the National Security of Ukraine".
The issue of the Sakhalin field was discussed at the level of the NSDC. But the situation did not go further than that.
Possible solution to the situation
On 9 May, the National Security and Defence Council sent a letter to the Verkhovna Rada Committee on Environmental Policy and Nature Management on the need to accelerate legislative regulation of the issue of increasing domestic energy production to ensure the sustainable functioning of the country's fuel and energy complex and to take this position into account when working out draft law No. 11137.
The draft law provides for amendments that allow for the possibility of granting a special permit without an auction during the martial law regime by a decision of the NSDC on the basis of an asset management agreement concluded with the ARMA.
Thus, amendments to Article 162 of the Code of Ukraine on Mineral Resources are proposed, according to which the NSDC will be able to decide on urgent measures to resolve crisis situations that threaten the national security of Ukraine, in particular, to avoid disruptions in heat, power, electricity or natural gas supply.
According to the potential changes, a special permit without electronic bidding will be granted to business entities if:
- corporate rights were transferred to the management of a state-owned enterprise on the basis of an asset management agreement concluded with the National Agency of Ukraine for Finding, Tracing and Management of Assets;
- corporate rights are forcibly alienated or seized from the owner under martial law;
- property or corporate rights are forcibly seized from the ownership of the Russian Federation or its residents.
The special permit for subsoil use is proposed to be issued for the period of martial law and for 12 months after its expiration. It should be issued within 3 working days from the date of receipt of the application.
The draft law to unblock production at the Sakhalin field is currently being considered by the relevant committee of the Verkhovna Rada.
Alternative draft law
The Verkhovna Rada Committee on Environmental Policy and Nature Management has three People`s Deputies representing the Kharkiv region. They are Pavlo Yakymenko, Oleksandr Feldman and Oleh Bondarenko. The latter is the chairman of the committee. Since 2 April, draft law No. 11137 has currently been under their consideration.
However, on 16 April, Bondarenko and Yakymenko also submitted an alternative draft law No. 11137-1 to the Verkhovna Rada, which is also currently being considered by the committee.
The authors explained that the problem requires more comprehensive regulation and additional amendments to the legislation, in particular, to the Law of Ukraine "On Oil and Gas".
The provisions of the alternative draft law further elaborate on the mechanism for renewing special permits for subsoil use. For example:
1) establish the procedure for reviewing applications and making decisions on renewal of special permits;
2) the grounds for renewal of permits are regulated;
3) it is established that renewal of the special permit shall be free of charge;
4) stipulates that the restrictions established by the Subsoil Code of Ukraine on persons who may be subsoil users do not apply to certain business entities with a special status.
Tetiana Nikolaienko,Censor.NET; Oleksandr Manchenko,Gwara Media
