Police searches Ukraine subsidiary of JKX

Police visited on June 14 the offices of the Ukrainian subsidiary of JKX Oil & Gas (JKX LN), Poltava Petroleum Company, and the homes of its two managers, the company reported on June 15. The police was “searching for documents in relation to the investigation of claims of alleged underpaid taxes which have been made by a local prosecutor,” the company said. The company claims the prosecutor’s actions are “completely unjustified” and the search is in violation of “emergency awards” that were granted to JKX in international arbitration court in July 2015 as a part of its legal claim against the Ukrainian government. The event did not lead to any disruption in business, JKX said.

Alexander Paraschiy: It looks like Ukrainian authorities have strong motivations to pressure JKX as the total amount of potential tax claims against the company exceed USD 40 mln. Most likely, the recent search is related to JKX’s refusal to pay the natural gas production tax between July 2015 and end-2015, which led to an accumulation of tax debt of USD 24.0 mln (including USD 9.0 mln in penalties).

The pressure on JKX can be also related to the company’s court filing to international arbitration, where it is seeking up to USD 180 mln in compensation from the Ukrainian government. The hearing on this case may happen in July 2016, as JKX earlier indicated. The outcome of such a court hearing is uncertain, and there’s even less clarity on how JKX will be able to enforce the international ruling if it wins this case.

The pressure on the company in Ukraine is likely to continue unless JKX management is able to find common ground with Ukrainian authorities.