Regal Petroleum acquires related gas company for deposits

Ukraine’s natural gas and condensate producer Regal Petroleum (RPT LN) reported today on the acquisition of its peer, Prom-Energo Produkt (PEP), from its key shareholder Vadim Novinsky. The asset was acquired by using UAH 305 mln (USD 12.3 mln) that Regal deposited in Novinskiy’s Unex bank. Regal had not been able to withdraw or reduce this deposit since May 2015.

PEP is a company fully controlled by the Smart Holding that is owned by Novinsky, who in turn controls 54% of the shares in Regal. According to Regal, PEP currently produces 615 boepd of hydrocarbons, including 87 tcm of natural gas and 5 tons of condensate per day. Its proven reserves were 0.66 mln boe and 2P reserves were 1.8 mln boe as of end-2015. In comparison, Regal has 1.8 mln boe in proven and 11.7 mln boe in 2P reserves.

Regal produced 27.679 mcm of natural gas and 4,741 tons of condensate in 5M15, according to Energobiznes. That is close to 1,485 boepd, based on our estimates. For the same period, PEP produced 13.195 mcm of natural gas and 808 t of condensate, which is close to 600 boepd.

Alexander Paraschiy: This event is a bargain for Regal shareholders, who apparently lost their hope that the company would be able to withdraw its cash from the related bank. Over the last couple of years, Regal’s market-implied EV was negative, probably due to the implicit restriction of its deposit. With PEP’s consolidation, Regal will increase its hydrocarbon output by about 40% and its 2P reserves by 15%.