Cub Energy exchanges first refusal right for 5% in KUB-Gaz

A company with a natural gas interest in Ukraine Cub Energy (KUB CN) declined to exercise its first refusal right to purchase a 70% stake in Ukrainian KUB-Gaz, the company reported on Feb. 1. Instead, Cub Energy will receive a 5% stake in KUB-Gaz as soon as Burisma buys a 70% stake from Serinus Energy (SEN PW). Cub Energy may receive another 2.5% if Burisma receives USD 25 bln in dividends from KUB-Gaz. It will also get a one-year option to purchase 2.5% for a price based on the NPV of KUB-Gaz’s reserves.

Earlier that day, Burisma, a private Ukrainian company, announced it was finalizing the purchase of a 70% stake in KUB-Gaz for USD 30 mln. Cub-Energy, which currently owns 30% in KUB-Gaz, had a first refusal right for the stake.

KUB-Gaz is a small private producer of natural gas in Ukraine, with assets located in the Ukraine’s easternmost Luhansk region, in the territory free from pro-Russia terrorists. In 2015, KUB-Gaz produced 238 mcm of natural gas (3,840 boepd). Cub-Energy’s other Ukrainian asset, Tysagaz (100% owned), produced 16 mcm of natural gas in 2015 (or about 260 boepd).

Alexander Paraschiy: Clearly, this news is positive for Cub Energy, which receives a 5% stake in KUB-Gaz for nothing. With this additional stake, Cub Energy’s (equity-based) production of natural gas increases by about 14%, automatically. The downside for Cub Energy is that now the company has a powerful player in the Ukrainian gas market as its partner in KUB-Gaz. With Burisma entrance, we expect the decision-making power of Cub Energy in KUB-Gaz may decline significantly.