Ukrainian gas supplyPJSC “Ukrgasvydobuvannya” Sep, 2016

Model's outputs - CTM 22jan15-Main slides_with Enrique comments.pptx 2

Contents

• Overview

• UGV deep dive

• Strategy 20/20

Model's outputs - CTM 22jan15-Main slides_with Enrique comments.pptx 3

Upstream,

gas processing

• 16 bcm gas produced

• 230+ oil, gas,

condensate fields

• 39 gas processing

plants

• 294 bcm 3P reserves

Gas transportation

& storage

Wholesale

gas trading

• 178 bcm exit capacity

• 150+ bcm transit

capacity to Europe

• 21 bcm entry from EU

• 67 bcm transit volume

• 34 bcm local

transmission

• 31 bcm storag

• 93 % market share in

imports

• 75 % market share in

production

• 100 % supplier to

households

Gas business

Naftogaz – a vertically integrated company

Model's outputs - CTM 22jan15-Main slides_with Enrique comments.pptx 4

Diversification and

security of supply

• 2.4 times

reduction of

gas imports

from Russia

• Stable gas

supplies for

Ukraine and

the EU

Gas market

reform

Operating

efficiency

Transparency and

accountability

• 3EP-compliant

gas market law

• Deregulation of

commercial

market

• 7.5 times

growth in

private imports

• US$11m profit

for 9m15 vs.

US$4bn loss

for 9m14

• Improved debt

collection and

revenues

• Largest taxpayer

• First detailed

annual report

• Quarterly

audited stand-

alone accounts

• Corporate

governance

reform launched

Naftogaz key achievements in 2015

Model's outputs - CTM 22jan15-Main slides_with Enrique comments.pptx 5

0,0 0,2 0,4 0,6 0,8 1,0

Uzbekistan

Ukraine

Trinidad & Tobago

Turkmenistan

Iran

Belarus

Russia

South Africa

Saudi Arabia

Vietnam

Primary energy consumption in Ukraine, by fuel type, mtoe

19 12 14 13 10

7471 69

5235

4239 37

38

33

1618 20

20

20

0

20

40

60

80

100

120

140

160

180

1995 2000 2005 2010 2014

Oil (m tonnes) Natural Gas CoalNuclear Energy Hydro electric Renewables

0 20 40 60 80

Poland

Belarus

Spain

Netherlands

France

Ukraine

Turkey

Italy

United Kingdom

Germany

Source: BP Statistical Review of World Energy 2015. * – excluding RussiaSource: BP Statistical Review of World Energy 2015, World Bank, own calculations

Source: BP Statistical Review of World Energy 2015, own estimates

45%

World’s most energy-intensive economies, 2014

Primary Energy

Consumption (koe/ $

of nominal GDP)

Ukrainian economyheavily dependent on natural gas

Major gas consumers in Europe*, bcm/y, 2014

one of the most

energy inefficient

countries

Ukraine

• High share of industry and residential sector

• 45% of primary energy consumption is oil & gas

• 4th in Europe by gas consumption

• 5th in Europe in gas consumption by

households

Model's outputs - CTM 22jan15-Main slides_with Enrique comments.pptx 6

Exploration Drilling Extraction Processing Sales

72%exploration in

Ukraine

~70 wellsin drilling annually

14.5 bcmof natural gas

600 th tonnes/ per yearof nominal capacity

• Gas is sold to Naftogaz at regulated prices

140depositsexplored & operated

500th tonnesoil & condensate

• Production of diesel fuel, gasoline, LPG, fuel oil, etc.

• Liquefied petroleum gas, gasoline, diesel fuel – at auctions

Largest

technological

base

Approximately 285 bcm of 2P reserves

285 107 10275

42

UGV Petrom PGNiG Romgaz MOL

International 2P reserves

+166% +179%

+280% +575%

Oleg Prokhorenko, CEO

~73% of gas extraction volumes in Ukraine

14.51 (73%)

1,5 (8%)

3,8 (19%)

UGV

Ukrnafta

Other companies

In bcm, 2015

1 - incl. joint activity agreements

with companies of Naftogaz Group

Our ambitious goal is to produce 20 bcm of natural gas

by 2020. Under favorable conditions, it is possible to

meet Ukraine’s demand within five years, and within

10 years it is possible to start exporting

In bcm,

Ukrgazvydobuvannya - upstream and processing

Model's outputs - CTM 22jan15-Main slides_with Enrique comments.pptx 7

Contents

• Overview

• UGV deep dive

• Strategy 20/20

Model's outputs - CTM 22jan15-Main slides_with Enrique comments.pptx 8

270 bcm of reserves1

• 140 fields2

Production is 14.5 bcm - 74%

of total Ukrainian gas production• +512 thsd t of oil and condensate

(21% of market)

Vertically integrated company• Full operational cycle from exploration

to distribution

~4% of state budget receipts of

Ukraine• 20 bn UAH in taxes - #1 in Ukraine3

Overview of UkrGasVydobuvannyaKey facts

Notes:1.Calculated by Ryder Scott and production of 2015 2. In development and development and exploration 3. 2015

• 2-3 bn UAH – annual leaching of

money due to corruption schemes

• Non-transparent procurement –

prices х-times more than market‒ Contracted coil tubing

~2.3 mln USD/unit more expensive

than market price

‒ Contracted equipment for

Shebelynka for 51 mln UAH with

fair price 17 mln UAH

‒ Drill pipes

‒ Methanol

‒ other

• Distribution of petroleum to

affiliated companies

• Withdrawal of assets through JA –

210 wells in JA’s, approx. 40% of

all gas produced by UGV, pumped

through privately controlled

booster compressors

Strategically important state-owned enterprise…

…but was chronically riddled with

corruption

Model's outputs - CTM 22jan15-Main slides_with Enrique comments.pptx 9

UGV is the pillar of Ukrainian energy security – its gas

provides heating and hot water to 42m of Ukrainians

4,849

1,5901,5901,5901,590

350350350

2014 1q152013 3q15 2q16F1q164q152q15

50

70707070

202020

Royalty rate, %

6

35

Import

13

Other ukr.

players

Supply

17

UGV

3

15Ind. and other

costumers

Undergr.

storages2

Demand

17Households and

heating enterp.

35

Gas market balance, Ukraine, 2015, bcm

USD 1921

USD 72

Notes: 1. USD/UAH average rate for 2Q 2015 -22.046; as of 1.05.2016 UAH/USD 25.185 2. Incl. underground storages, ATO zone., etc. 3. Incl, underground storages

75%

UGV ensures

~75% of resi-

dential needs

UGV manages to ensure security of supply

for citizens …despite unstable fiscal regime

…and prices of gas on path to market levels

Gas price, UAH/mcm

SOURCE: UGV

Model's outputs - CTM 22jan15-Main slides_with Enrique comments.pptx 10

There are high achievements in the past

20

08

14.8

20

07

20

06

20

11

20

10

20

12

15.0

20

14

20

13

14.8

20

09

9.7

+0.5%

9.7

14.7

26.0

68.7

19

90

19

75

8м

іс’1

6

4х

14.5

8м

іс’1

5

20

05

20

04

14.4

…

20

15

Production has been stagnating recent

years after 4x fall…

…which led to import energy

dependency

UGV gas production, bcm

5

34

15

Import

14

(41%)

Domestic

supply

20

Consumption

UGV Other producers

Gas market balance1, 2015, bcm

UGV has already

over achieved

results’15

Notes: Does not include gas for underground gas storage facilities, Gazprom balancing volume and take-up / filling of gas pipelines. 2. Under the condition of fulfilling of production

plans by UGV and private players.

Model's outputs - CTM 22jan15-Main slides_with Enrique comments.pptx 11

Strategy 20/20 will allow Ukraine to cover 100% of

consumption by domestic gas in 2020

Government aims to cut imports by 2020 to ensure

energy security of Ukraine

5

34

15

Consumption Domestic

production

20

Import

Other producersUGV

26

20

Domestic

production

26-27

6-7

Consumption Import

2015

Notes: UGV/McKinsey estimates. Does not include gas for underground gas storage facilities, Gazprom balancing volume and take-up / filling of gas pipelines. 2. Under the condition

of fulfilling of production plans by UGV and private players. 3. Calculated based in Ryder Scott as of 01/01/2015 on 73 major fields and production 2015.

SOURCE: UGV

Gas market balance, bcm1Gas market balance, bcm1

14

(41%)

~0

(0%)

2020

Model's outputs - CTM 22jan15-Main slides_with Enrique comments.pptx 12

New management has already demonstrated significant

success in reforms

~200

mln USD

~120

mln USD

Total effect from reforms,

incl.

~4 mln USD for

Ukrainian budget

+40-50%

salary

+47

MMcm

~761

mln USD Procurement savingsPlan overfulfilment

of own gas production2

Minimum salary

increase across the

Company 1-Aug-16

vs 1-Aug-15

Purchases through

e-tender system

ProZorro

Notes: USD/UAH x-rate 1/25 1. Including ProZorro. Including 120 mln UAH effect on methanol purchases 2. Excluding JAAs and ATO zone

+393

MMcm

Y2015

8m’16

Model's outputs - CTM 22jan15-Main slides_with Enrique comments.pptx 13

Long-term transformation

(Strategy 20/20)

Roadmap of UGV transformation by new management High-level

Quick wins

Jul

2015

Sep

2015

Development of long-

term transformation

plan (Strategy 20/20)

Dec

2015

Oct

2016Dec

2016

May

2016

Achievement of goals requires

sustainable and professional support of UGV

Source: UGV

Model's outputs - CTM 22jan15-Main slides_with Enrique comments.pptx 14

New management has already implemented significant

changes (I/II)

Technical

• Stabilized production and exceeded plan of own production in 2015 by +0.4 bcm

‒ 8m16 vs 8m15 +47MMcm of gas

• Accelerated commissioning of new wells – 18 wells overall (+35% to plan in 2015)

• Accelerated acquisition of reserves – planned 36 licenses in 2016, scale of seismic x5 vs

2014 and obtained 4 new licenses in 2015 – UGV has already got 14 new licenses

• Discovered 2 new deposits– reserves of 2.4bcm, 290 thsd t of oil

• 3 new booster compressor units put into operation (Hrestyschynska, Letnya and Swidnica)

with 4.6 bcm capacity per year. 9 new compressor units planned for 2016

• Ran tender for 100 hydrofracking operations – got 2x lower price comparable to private

companies

• Developed rig fleet strategy - modernization of 7 rigs already in 2016

• Started modernization program , purchases, repairs

‒ Repaired own fracking fleet and coil tubing units

• Strengthened team by professionals with wide experience in industry (Shell, Chevron, BP,

McKinsey, BCG, Halliburton, Weatherford, etc.)

• Created UGV-service unit for WO and stimulation operations

• Capacity for third-party supply or processing in downstream increased to 10 thsd t/month

• Modernization of Shebelynka - started production of gasoline Euro-4 standard and

Eurodiesel (by August 2016)

SOURCE: UGV

Model's outputs - CTM 22jan15-Main slides_with Enrique comments.pptx 15

New management has already implemented significant

changes (II/II)

Financial/

Anti-

Corruption

Process/

Capabilities

• Changed almost all procurement procedures - total effect >76 mln USD – UGV is one of

leaders on e-procurement ProZorro

• Avoided default for credit line

• Revised agreements - rates decreased for majority of loans

─ Negotiated ~30 mln USD discount on main sum, interest, penalties for credit

• Launched the process of returning wells from JV to UGV

• Lawsuits filed to terminate JAAs contracts in case of breach of investment commitments by

JAAs participants

• Started changes of mid-management team – if evidence of bribes/corruption schemes or

technical incompetence

• Strengthened security team and controls

• Revised and won court cases with SAP– full turnaround of situation: resolved court case,

channeled into constructive cooperation with SAP for ERP system

• Started gradual increase of salaries (+ 40-50% av across UGV) (also anticorruption

measure)

• Revised tolling strategy, prices on petroleum and channels of distribution ~+8 mln USD

effect

• Revised refinery modernization program – savings ~50 mln USD

• Started grading project to compensations and salary survey to identify and achieve fair

compensations (with help of one Big4 company )

• Created departments: IT, IFRS, PMO, Strategy, International projects, HR, PR, Controlling

• Reanimated implementation of SAP

SOURCE: UGV

Model's outputs - CTM 22jan15-Main slides_with Enrique comments.pptx 16

Today UGV has new experienced management and

cooperation with international institutions

New management from international and

Ukrainian well-known companies…which is supported by

international partners

Model's outputs - CTM 22jan15-Main slides_with Enrique comments.pptx 17

Contents

• Overview

• UGV deep dive

• Strategy 20/20

Model's outputs - CTM 22jan15-Main slides_with Enrique comments.pptx 18

UGV’s new management has formulated ambitious vision to become

a production and technological leader in Ukraine’s O&G industry

MISSION:Ensure energy security and energy independence of Ukraine through

developing its gas resources potential, domestic technological competence

and robust industry ecosystem

VISION:Production and technological leader in Ukraine’s O&G industry with full fledged

capabilities and at par with market standards in operating and HSE practices

GOAL 1:Achieve

sustainable

increase of

production scale

and reach

20 bcm by 2020

SOURCE: UGV

GOAL 2:Increase

economic

efficiency and

keep cost of gas

below import

price

GOAL 3:Transform

company culture

and implement

world-class

management,

operational and

HSE practices

Model's outputs - CTM 22jan15-Main slides_with Enrique comments.pptx 19

Current strategic vision of UGV is focused on sustainable

growth, while effectively resolving existing issues

Imp

rovem

en

t o

f o

pera

tio

nal

an

d

investm

en

t eff

ecti

ven

ess

Unlocking organization potential by removing historical legacy

Deregulation and legislation improvements

5

6

Production – 20 bcm by 2020

Strategy “20/20”

3

Develo

pm

en

t o

f cap

ab

ilit

ies a

nd

o

pti

miz

ati

on

of

op

era

tin

g m

od

el

2

Incre

ase o

f p

rod

ucti

on

an

d r

ese

rves

1

4 Reform of internal functions

SOURCE: UGV

Model's outputs - CTM 22jan15-Main slides_with Enrique comments.pptx 20

Strategy 20/20 will allow Ukraine to cover 100% of

consumption by domestic gas in 2020

Government aims to cut imports by 2020 to ensure

energy security of Ukraine

5

34

15

Consumption Domestic

production

20

Import

Other producersUGV

26

20

Domestic

production

26-27

6-7

Consumption Import

2015

Notes: UGV/McKinsey estimates. Does not include gas for underground gas storage facilities, Gazprom balancing volume and take-up / filling of gas pipelines. 2. Under the condition

of fulfilling of production plans by UGV and private players. 3. Calculated based in Ryder Scott as of 01/01/2015 on 73 major fields and production 2015.

SOURCE: UGV

Gas market balance, bn m31Gas market balance, bn m31

14

(41%)

~0

(0%)

2020

Model's outputs - CTM 22jan15-Main slides_with Enrique comments.pptx 21

There is potential to achieve strategic goal of

20bcm in 2020; required CAPEX ~4bn USD

Capex

by 2020,

USD bn Comments

Baseline1 0.52

• Organic CAPEX needed for

maintenance of existing

infrastructure58.0

Well

availability0.1

• More than 1,000 WOs by 2020

(incl. 200 WOs to be outsourced)5.1

Pressure

optimization0.1

• 60 mini compressors to be

installed

• 8 new booster stations to be built

and 7 - modernized

2.6

Stimulation 0.2

• 250 fracks (wells) to be done until

2020 (significant level of

outsourcing required)5.9

Brownfield

drilling 1.4

• Up to 270 wells to be drilled by ‘20

(up to 30% of wells are completed

with frack)

• 25% drilled by external contractors

7.0

Greenfields 1.6• 55 exploration, 138 appraisal and

200 production wells are drilled

• First production well in 2017

6.0

Total 3.9 84.5

Effect

’16-‘20,

Bcm

18

14

4

12

22

0

8

2

16

10

6

2020.1

1.5

0.9

2020

9.7

2.3

ProductionBcm

0.40.3

2.8

0.5

1.4

0.71.0

1.20.60.4

1.70.3

10.7

2.0

11.6

1.1

1.7

1.0

2017 2019

12.5

3.0

0.6

15.2

0.7

16.5

2018

18.3

2016

13.5

14.5

0.1

14.5

2015

BaselineWell availabilityPressure optimizationBrownfield drillingGreenfield Stimulation

SOURCE: UGV, team calculations

Requires outsourcing

Notes: brownfield drilling first year adjustment factors of 0,25, 0,25, 0,3, 0,3 and 0,5 for 2016-2020 respectively

1. Baseline level is within +/-5% of Ryder Scott numbers

2 UGV financial plan

PRELIMINARY

Model's outputs - CTM 22jan15-Main slides_with Enrique comments.pptx 22

Execution of the target program requires significant UGV

operations scale-up; several factors are crucial for growth

1. # of existing

wells with

fracking

2.1. # of

Brownfield

wells

2.2. # of

Greenfield

E&A wells

• UGV needs to

significantly scale-up

operations to achieve

strategic targets

• Several key factors are

crucial for UGV to enable

required scale-up

– Strengthening-up UGV

capabilities, incl.

project management

team (see the next

section)

– Smooth and effective

procurement system to

allow quick and optimal

decisions on outsourcing

procurement (incl. high-

quality experienced

contractors)

– Fair fiscal regime and

predictable cash

position

– Quick and efficient

license acquisition

process3. # of WOs

(incl.

outsourcing) 280275 202802

18

340

80

2020

300

19

60

355290

250

172016

23340

233

0

2.3. # of

Greenfield

prod. wells100603010-

4343434816

5863583055

80804525201

1 Current UGV’s plan of 45 wells is under risk due to execution issues (procurement delays, regulatory issues etc)

2 Number may decrease after implementations of preventive measures (inhibitors, tubing metallurgy etc.)

SOURCE: UGV, team analysis

2. Total wells

drilled, incl.

2011661318871

WOs outsourcing plan

250

657

264

193

200

1,518

Total number

of wells

1 year of delayed implementation

of the program costs up to UAH

10bn in NPV

PRELIMINARY

Model's outputs - CTM 22jan15-Main slides_with Enrique comments.pptx 23

UGV’s Strategy will have significant effect for market

overall

Ramp up outsourcing

market of main

services

Entry of international

players and bringing

new technologies

Increase efficiency of

gas sector

• UGV plans outsource significant volumes of services/ difficult work:

• Workovers

• Hydrofracking

• Drilling

• UGV’s scale of need in services(commitment in demand) should

be a significant anchor for international companies to entry the

market

• Growth of the market and entry of international companies should

create competitive environment, which will ensure effective pricing

and optimization and development of effective legislation for O&G

sector

Source: UGV

Model's outputs - CTM 22jan15-Main slides_with Enrique comments.pptx 24

THANK YOU