Ukrnaftoburinnya, one of the country's largest gas producers, has not been producing for almost three months now, as its special permit has been revoked. NV Business asked Oleh Malchyk, CEO of UNB, about the reasons for the suspension and the prospects for resuming production.

PrJSC MC Ukrnaftoburinnya (UNB) is one of the largest private gas production companies in Ukraine. It produced about 500 million cubic meters of natural gas per year at the Sakhalin field in Kharkiv region. Until 2023, the company was owned by at least three groups of shareholders associated with Ihor Kolomoisky, Vitaliy Khomutynnik, and Pavlo Fuks.

However, last year saw huge changes in its history. First, the corporate rights of UNB were arrested and transferred to the national Asset Recovery and Management Agency (ARMA). Then, by the government's decision, they were transferred to the management of PJSC Ukrnafta, which, in turn, also came under state control at the end of 2022, according to the decision of the Supreme Commander-in-Chief's office.

After that, Khomutynnik and Fuchs admitted that they were no longer shareholders of the company, without specifying when exactly they ceased to be.

At the end of last year, events accelerated. UNB's minority shareholder, the British company JKX Oil & Gas, which was linked to Ihor Kolomoisky and Gennadiy Boholyubov, announced that they were no longer its shareholders. Their share went to the British crown.

And on November 28, 2023, on the initiative of the State Service of Geology and Subsoil of Ukraine, the Sixth Administrative Court of Appeal revoked the special permit No. 6349 of July 10, 2019. This document gave Ukrnaftoburinnya the right to produce at the Sakhalin field. On December 1, the company was forced to suspend the field's operation.

But the most important thing is that the company does not produce hydrocarbons, and the state loses about UAH 400 million in taxes every month.

NV Business asked Oleh Malchyk, Chairman of the Board of Ukrnaftoburinnya, about the situation and the courts, ways out of the situation, who benefits from the shutdown of a large production company, and what Mykola Zlochevsky has to do with it.

Courts and appeals

- Let's start with the most pressing issue. What is the status of the company and the courts over the special permit?

- The field is currently idle, there is no production, and employees are monitoring equipment and environmental safety.

We continue to fight in the legal field for the company's right to produce at the Sakhalin field. At the same time, we keep the entire team, pay salaries, because we believe in victory.

- How many lawsuits have you filed?

- I would not want to be tied to the number of lawsuits initiated as an indicator of the effectiveness of the fight. We filed a cassation appeal against the ruling of the Sixth Court of Appeal, but we were denied permission to open proceedings. Since we are not the only ones who consider this court decision illegal, ARMA filed cassation appeals, as well as, as far as we know, JKX (minority shareholders of Ukrnaftoburinnya - NV Business).

However, the result is the same. Production at the Sakhalin field has been halted, and the state is losing money in all aspects - taxes, natural gas, etc.

- But the company's shares have been seized and transferred to Ukrnafta, so why are the previous owners being active?

- Not the shares, but the corporate rights were seized and transferred to the state. Therefore, technically and legally, the owners have not changed. And they are also defending their rights.

The special permit and engineering communications with equipment and wells are two components of the company's assets. And they should be together. Because separately, a special permit and equipment are like two suitcases without handles.

If someone else gets a special permit to develop the Sakhalin field, they will have to come to the UNB as the owner of the wells and utilities and negotiate cooperation. No one will drill 20 new wells, the average cost of each of which is 350-400 million hryvnias. This is a lot of money.

- Hypothetically, if such a situation happens, would you be interested in such cooperation?

- The question is a bit broader. The ARMA, which was given the seized corporate rights of UNB, hired Ukrnafta to manage it.

As a manager, our team aims to preserve the transferred property and ensure profit.

- And sell the equipment?

- No, we must do everything possible to preserve and increase the property.

- reported that UNB leased some of the wells. What is their share?

- We lease 11 out of 44 wells from NJSC Nadra of Ukraine and joint ventures Sakhalin and Devon. However, the wells that provide the largest production are owned by UNB.

- Are these wells also shut down?

- Yes, they are shut down. We have agreed with the landlords to reduce the rent to reduce the company's costs.


2009 р. Ukrnaftoburinnya applied to the State Service of Geology and Mineral Resources for a special production permit, which was not properly considered. The courts of first and appellate instances ruled that the State Service of Geology and Subsoil of Ukraine's actions were unlawful and ordered it to issue the special permit.

In February 2010, pursuant to the court decisions, the first special permit No. 5139 was issued to the UNB. Derzhgeonadra continued to appeal the court decisions.

July 2019, the boundaries of the Sakhalin field were expanded, and UNB received a second special permit No. 6349, for a new area with a different area.

November 2019, the Supreme Court ordered the State Service of Geology and Subsoil of Ukraine to reconsider Ukrnaftoburinnya's application for a special permit.

May 2023. Ukrnaftoburinnya is transferred to the state, represented by ARMA.

June 2023 The State Service of Geology and Subsoil files an application to reverse the execution of the 2019 court decision by canceling the second special permit.

November 2023. The special permit is canceled, and the UNB stops production.

The role of the SBI that did not exist

- Tell us in more detail how the special permit was revoked.

- The State Service of Geology and Subsoil filed a petition with the court to reverse the execution, relying on the Supreme Court's decision of 2019.

But 3.5 years passed from the 19th to the 23rd. The law sets a deadline of one year for filing an application for reversal of execution. They missed the deadline by 2.5 years. And the 2019 Supreme Court decision did not mention a single word about the new special permit issued in 2019. But the State Service of Geology and Subsoil in its application for reversal of execution for some reason asks to cancel the new special permit, which was not issued pursuant to the court decision!

In August 2023, the court of first instance, realizing the absurdity of the claims, dismissed the application of the State Service of Geology and Subsoil for reversal of the decision. But they appeal.

Surprisingly for everyone, the Sixth Administrative Court of Appeal grants the application of the State Service of Geology and Subsoil and cancels the new special permit. Just as the State Service of Geology and Subsoil requested. Despite the fact that the 2019 special permit was not the subject of consideration in this court case and is not relevant to it.

This is an unprecedented violation!

- It seems that the State Service of Geology and Subsoil in its communication emphasized that the issuance of a new special permit could not be possible if the first special permit was not available.

- They are manipulating here. To be precise, back in 2004, Ukrnaftoburinnya received a special permit for [exploration and commercial development of] the Sakhalin field. The company has been exploring the field for many years and investing in its development. And the company received the next special permit in 2010, among other things, because it had been operating in this field for many years.

The stories that without the 2010 special permit, the 2019 special permit would not have been issued are, to put it mildly, untrue. The fact that the 2010 special permit and the 2019 special permit are different permits issued on the basis of different applications is confirmed by the conclusions of the Supreme Court.

Let's move on. If the State Service of Geology and Subsoil reviewed a new set of documents in 2019 and issued a new special permit, if they had no reservations then, what has changed now?

And most importantly, a special permit that was not issued to comply with a court decision cannot be canceled within the framework of a reversal of a court decision.

- How did the State Service of Geology and Subsoil motivate the filing of the application for reversal of the Supreme Court's decision?

- They justified the passage of 2.5 years by the appeal of the State Bureau of Investigation (SBI), which, according to them, demanded that the State Service of Geology and Subsoil revoke the special permit.

CONTEXT: After the interview, the news agency published the SBI's response to the request to suspend Ukrnaftoburinnya's special permit. It states that "the Main Investigation Department of the State Bureau of Investigation is conducting a pre-trial investigation into the improper performance of official duties by officials of the State Service of Geology and Subsoil of Ukraine due to their negligence, which led to serious consequences."

- Do I understand correctly that the court also annulled the Order of the State Service of Geology and Subsoil, which issued several other special permits to other companies?

- The State Service of Geology and Subsoil of Ukraine requested both to cancel the special permit and to cancel the order on the basis of which this special permit was issued in 2019. Everything was done so quickly that neither the State Service of Geology and Subsoil nor the judges of the Sixth Administrative Court of Appeal bothered to open and read Order No. 204. In addition to UNB, it issued 17 more permits to 15 companies, including Ukrgazvydobuvannya, Turboatom, and utilities.

- Do you know how these companies have reacted to the order's cancellation?

- Turboatom filed an appeal because their rights were violated. The court of appeal refused to open the appeal proceedings, saying that their rights were not violated.

As far as we know, Ukrgasvydobuvannya has asked Roman Opimakh, the head of the State Service of Geology and Mineral Resources, to provide a legal assessment of the situation. Because they have special permits, but there is no longer an order on the basis of which they were issued.

I don't know how other companies operate.

- Did you have direct communication with Opimakh about the reasons and consequences of the decision?

- Yes. My lawyer and I met with Opimakh after this scandalous decision. He said that he did not expect such a decision of the Court of Appeal.

- You have stopped mining. At the beginning of the interview, you said that UNB's minority shareholders, the British company JKX, also filed an appeal. The state stopped receiving taxes. It seems that everyone is in the red. Who is the beneficiary of this decision?

- Over the period of Ukrnafta's management, we have accumulated about UAH 1.8 billion in accounts. They are on deposit in state-owned banks. In addition, 243 million cubic meters of gas have been pumped into the underground. Even at today's prices, this is about UAH 3.5 billion. We use these funds to finance fixed costs and maintain the company in good condition. As a manager, we do our best to preserve the property transferred to us.

- What financial result do you expect for 2023?

- We planned a net profit of up to UAH 1.5 billion. However, due to the revocation of the special permit and the shutdown, this figure will fall to approximately UAH 1.1 billion. I will be able to give you the final figures after we close the reporting period. For now, these are approximate figures.

- Was the company profitable before?

- Yes, it was. However, when we audited the financial statements, we found UAH 18 billion of receivables that showed signs of being uncollectible. These were either prepayments for some goods or financial assistance.

We are now taking steps to analyze such receivables in more detail and work with them. At the same time, we have to state that bankruptcy proceedings were initiated against certain companies that owe almost UAH 5 billion to UNB in June 2023.

- Will you fight for these funds?

- Of course we will. In the bankruptcy cases, we filed applications for recognition of monetary claims and such claims were recognized by the court. As a result of these actions, UNB was included in the list of creditors of those companies that are in bankruptcy.

CONTEXT: In the Unified State Register of Court Decisions, there are two rulings of the Economic Court of Zaporizhzhia region that relate to the claims of Ukrnaftoburinnya against Guadiana Capital and Kresto Financial Company. Both companies are in bankruptcy proceedings.

The court decisions state that UNB is trying to recover UAH 2.4 billion and UAH 2.3 billion, respectively. In 2018-2022, these funds were transferred to Atilla Energy's accounts under a number of repayable financial assistance agreements. Subsequently, the debts were assigned to financial companies under cession agreements at a discount. All of this happened before the seizure of corporate rights and the transfer of UNB to state control.

Not if, but when...

- Let's get back to the special permit. What are the ways to legally resume production at UNB?

- Since the new special permit has been canceled, we appealed to the State Service of Geology and Subsoil with a demand to comply with the Supreme Court's decision of 19 December. Back then, the court overturned the decision of the previous instance to oblige to issue a special permit. However, it ordered the State Service of Geology and Subsoil to consider the UNB's application and make its own decision.

We have addressed the State Service of Geology and Subsoil in writing with a demand to comply with the Supreme Court's decision, but this has not happened yet.

- What will happen if this does not happen?

- We are moving into the category of "What will happen if we cannot defend our legal right".

I can only say my subjective opinion. Even if we assume that the State Service of Geology and Subsoil announces a new auction or grants the right to produce at the Sakhalin field to another company without holding an auction, it will take at least a year and a half to build the infrastructure and start gas production.

- Who can claim the field without an auction?

- These are subsoil users who have adjacent borders to the field. They can expand the boundaries of their areas by no more than 50% of their existing ones. [Here is Sakhalinske, which is quite small. Next to it are Kubashivska, Vodianivska, and Karaykozivska squares.

- Are these all plots owned by the Zlochevsky family?

- More accurately, the companies that hold special permits for these areas are related to his family.

- Do you understand how the State Service of Geology and Subsoil plans to act?

- No, I don't. But I can say as an engineer that it is wrong to stop gas and condensate production. Everything that we do not produce in Ukraine, we will buy abroad.

But this cannot go on for long. UNB produces half a billion cubic meters of gas per year. This is essentially 3% of the state balance.

- What does the state lose if UNB is shut down?

- Estimated monthly losses: UAH 190 million in rent, UAH 130 million in VAT and about UAH 80 million in income tax. And that's just taxes!

- If you succeed in renewing the special permit...

- Not if, but when...

- long will it take to resume operations?

- It will take about a day for the operators to go through all the wells and unscrew the valves. But it is difficult to predict the behavior of wells that have been idle for a long time. Some of them will definitely get used to it on their own, while some will need to be "helped".

- Will you pay dividends in 2023?

- Of course we will. But only after we close the reporting period, submit our accounts, and conduct an audit. After that, Ukrnafta as a manager will determine the amount and method of profit distribution at the general shareholders' meeting. We will coordinate all this with ARMA. That's the only way.