Ukraine Criticised by UK's Cadogan

UK-listed Cadogan Petroleum said it has continued to diversify its E&P portfolio away from Ukraine, where all its modest production, mostly gas, is based.

In its annual report released on April 28, Cadogan reported a total 2016 loss of $6.9mn (2015 loss: $23.3mn) and criticised Ukrainian upstream policy. The company in January 2017 acquired a 90% interest in Exploenergy, an Italian firm that has applied for two Po Valley exploration licences which it says have unrisked prospective resources of over 60bn ft³ gas. A year ago Cadogan abandoned a takeover of UK-listed Slovenia gas producer Ascent.

Production in Ukraine for 2016 totalled only 42,495 barrels of oil equivalent (116.4 boe/d), up 7%. Instead four-fifths of Cadogan’s 2016 gross revenues of $19.7mn (2015: $75.4mn) were generated from trading gas in Ukraine of Polish, Slovakian or third-party Ukrainian origin.

“Reforms to improve and revitalise [Ukraine’s] energy sector were still timid and a real, strong commitment for their take-off was not evident,” said non-executive chairman Zev Furst: “There have been setbacks, some of them particularly damaging for Cadogan, which has remained subject to a punitive tax regime on its gas production and has not yet been awarded the conversion of its eastern licences from exploration to production.”

Other independent producers in Ukraine have faced worse, with larger but also loss-making JKX last month facing a writ from Kiev to overturn a recent arbitration award in the company’s favour and accusing police of harassment.

As well as producing conventional gas, Cadogan has kept its 15% interest in Westgasinvest which has Eni-operated shale gas exploration licences in western Ukraine. Cadogan is carried by Eni on any exploration there, but there seems little imminent prospect of exploration being undertaken.

Despite the 2016 loss, Cadogan’s seven directors received total remuneration of $1.5mn, of which just under half went on CEO pay.

Another UK-based independent gas producer in Ukraine, Regal Petroleum, announced April 28 a 2016 $1.3mn loss, similar to its year-before $1m loss.

Mark Smedley