OREANDA-NEWS. May 27, 2010. Ukraine’s largest oil company Ukrnafta <UNAF UK HOLD> failed to sell oil and gas condensate through an auction at the Ukrainian Stock Exchange due to lack of bids. In total, 187.305 ktons of oil were up for sale, of which Ukrnafta offered 180.185 ktons. The starting oil price was UAH 5680 per ton, which is higher then the previous auction (April 22) value by 62-89% and is more than USD 80 per barrel (crude oil market price is USD 68-70 per bbl). Gas condensate bidding, at the starting price of UAH 6000 per ton, which is 1.5 times more than the previous auction’s value, did not take place either. An additional auction will be held on May 31st , 2010 at the Ukrainian Stock Exchange.

Millennium Capital: this is clearly negative news. According to the State Budget for 2010 year, the auction’s starting price for crude oil should be calculated on the basis of customs value but also should include premium for quality. Also, in case the actual oil sells at a lower value than the starting price, the seller is to pay to state budget 100% of the difference between the starting and the actual price. We believe that in the case when all the allowances established by the government will force the Ukrainian producers to sell their products above market value will significantly affect the financial results of Ukrnafta in the second quarter. On the other hand, such measures may be aimed by the Government to squeeze Private Group from Ukrnafta. Please note that the entities affiliated with the group own 42% of Company’s shares and, in fact exercise operational control over the Enterprise.