18th May 2015 10:55
LONDON (Alliance News) - JKX Oil & Gas PLC on Monday said Ukrainian authorities have awarded an extension to the company's Elizavetovskoye production licence to include the West Mashivske prospect, but said its drilling operations remain suspended due to "punitive" government policies.
JKX said the West Mashivske prospect is immediately west and contiguous with its existing Elizavetovskoye licence. The additional award increases the licence area by 33.9 square kilometres, making the total licence area 104.7 square kilometres.
"This further award is a recognition of our ability to develop the potential of our Ukrainian licences," said Paul Davies, JKX's chief executive.
"However, we have been forced to suspend drilling operations in Ukraine because of the current punitive levels of production tax and restrictive currency controls," Davies added.
In January, the company said it had suspended its capital investment plan in Ukraine for 2015 until the economic conditions in the country had improved, citing legislation in the country that was restricting sales of gas to industrial clients and a hiked production tax.
The suspension of its capital investment in the country followed a statement in September 2014, which said the company was to reduce capital expenditure after the Ukrainian government passed legislation in August which substantially increased production taxes on the oil and gas industry for the period between August 1 and December 31, 2014. The most significant increase, according to a JKX statement at the time, was the tax increase on gas production, which will approximately double to around 55%.
JKX had restarted full production in Ukraine in March following the end of a temporary gas sales restriction put in place in the country. It had been forced to shut-in a proportion of its oil and gas production after the Ukrainian government in November issued a decree which required all industrial gas customers in the country to buy the gas solely from state-owned Naftogaz for three months ending February 28.
A spokeswoman for the company on Monday said that the drilling suspension is separate from production and confirmed that production in Ukraine continues as normal, but could not provide any guidance about when drilling operations would resume in the country.
In February, JKX said it has started arbitration proceedings against Ukraine under the Energy Charter Treaty, a bilaterial investment treaty, to seek compensation for what JKX called Ukraine's violation of the treaty.
The company is seeking compensation from Ukraine over the country's alleged violation of the treaty, including its failure to treat JKX investments in a "fair and equitable" manner and failing to comply with commitments the country made with regard to JKX's investments in the country. The company said it is, in particular, seeking the repayment of more than USD180 million in rental fees paid by its Ukrainian subsidiary on the production of oil and gas in the country since 2011.
Shares in JKX were down 4.7% to 28.60 pence on Monday.
By Sam Unsted; [email protected]; @SamUAtAlliance
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