Who’s to Blame for Oil and Gas Losses?

The meeting of shareholders of the Ukrainian-British joint venture, the Poltava Gas & Oil Company, initiated by one of the founders, JP Kenny Exploration & Production Ltd., and scheduled for September 4 has failed to materialize yet again. The shareholders were to have approved a new version of the firm’s statutory documents, its main strategies, and the corporate budget, as well as to discuss JP Kenny’s new investment program. Instead, the participants engaged in the discussion over their shares in the company’s statutory capital, although JP Kenny Executive Director Paul Davis called the discussion constructive. The shareholders decided to put off the meeting indefinitely, pending final solution of the shares issue. It seems that the conflict involving the UK company and the State Property Fund has become endemic one and when it will be settled is anyone’s guess.

Meanwhile, the conflict has had a negative impact on extraction levels by PGOC, Ukraine’s largest oil and gas extracting joint venture which produced 86,000 tons of oil and 256 million cubic meters of natural gas in 2000. PGOC General Director Tymofiy Kaunov said that, due to the rejection by the SPF of the company’s work program for 2001, PGOC fell short of its 2001 extraction targets by 18,000 tons for oil and almost 8 million cubic meters for gas, with $3.5 million (US) in lost revenue and a $800 million shortfall in anticipated tax payments to the budget. The settlement of debts the oblast gas companies have to PGOC is another bottleneck, as there has been no significant reduction of the basic $12 million debt, he continued. The PGOC General Director confirmed plans to file a bankruptcy case against one of the largest deadbeats, Mykolayivhaz.

The State Property Fund has appealed the ruling by Ukraine’s Supreme Court of Arbitration, and the case will again be considered by the court. “Whatever the next court ruling might be, we will abide by it,” said Paul Davis. However, if the court passes a decision unfavorable to the UK investor, “We will have to make sure we can get our investment back,” he added. To date, the UK company has invested over $100 million in PGOC.

Earlier, the Supreme Arbitration Court redistributed the shares of investors in PGOC, raising the share of SPF to 33.8% and JP Kenny Exploration & Production Ltd. to 66.2%. But the SPF disagreed with this distribution, insisting on 51% interest. At the moment of its creation, the statutory fund of PGOC was $3.1 million, and 49% of shares were owned by JP Kenny, 25% by the SPF, and 26% was controlled by the state-run Poltavahazprom Company. The conflict between the SPF and JP Kenny erupted when, following its restructuring, Poltavahazprom was liquidated, and the issue of ownership over the 26% stake arose.