Ukraine parliament fails to approve reduced gas production tax

Ukraine’s parliament approved on Dec. 20 legislation to revise tax and excise rates to boost 2017 budget revenue, but it didn’t include a reduced natural gas production tax that was stipulated in the first reading of that law.

The parliamentary tax committee decided earlier that day to reject the proposal to cut the gas production tax to 12% for wells drilled since 2017. The current tax rate is 29% and 14% for wells deeper than 5000m.

At the same time, parliament agreed to cut the production tax rate for crude oil to 29% (14% for wells deeper than 5000m) from 45% (29%). For condensate, the tax rate remained at 45% (29%).

Another idea of lawmakers was to set a 2% production tax for hydrocarbons produced from “hard-to-extract deposits,” though this proposal was also rejected due to a high corruption risk (no transparent mechanism of identifying hard deposits was offered).

Alexander Paraschiy: The initiative to reduce the gas production tax was mentioned in a press release of JKX Oil & Gas (JKX LN) on Dec. 12. If the initiative had been approved, JKX would have enjoyed a reduced tax rate for its new wells to 12% from 29%.

This prospect was among the main drivers of the JKX stock price surging by more than 50% since Dec. 9 (another driver was its news on nearly reaching a debt prolongation). As the final version of the law stipulates no tax cut, we expect selling pressure on JKX stock today.