JKX gas sales in Ukraine may halve in December due to new regulations

JKX gas sales in Ukraine may halve in December due to new regulations



2 грудня 2014 года
Конкорд Капитал

JKX Oil & Gas (JKX)


Natural gas sales by exploration and production company JKX Oil & Gas (JKX LN) may fall up to 50% in Ukraine in December, the company reported in its Dec. 1 filing. This will necessitate a shut-in of a proportionate level of gas production, the company warned. JKX blamed a Ukrainian government decree, validated on Dec. 1, which obliges the nation’s 168 biggest gas consumers to purchase gas exclusively from state holding Naftogaz during the winter of 2014/2015.



JKX supplied a large portion of its gas to the consumers that were included in the government’s list, as can be concluded from the company’s release. JKX produced 23.8 MMcf/d of natural gas in Ukraine in 3Q14, which was 44% of the company’s total gas output and 39% of all hydrocarbons output in the period.



Alexander Paraschiy: As we expected, granting exclusivity to Naftogaz will hurt smaller producers of natural gas and the scale of such an impact looks particularly worrying for JKX. If the company indeed will have to decrease its gas output, via closure of some of its wells, that will increase the risk of decreased gas flow once the wells are restarted. JKX shares fell 18% in the evening yesterday, just after the company’s release.



Other companies that that might suffer from the regulation are Regal Petroleum (RPT LN) and Serinus Energy (SEN PW), which dropped 7.0% yesterday. However, their exposure to large Ukrainian consumers is not necessarily as high as it is for JKX. The contribution of natural gas produced by Serinus’s Ukrainian assets to its total hydrocarbon output was 78% in 3Q14, while for Regal Petroleum this share was about 70%.

Источник: Конкорд Капитал

Аналитик: Александр Паращий
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