A leading gas production holding company belonging to the former environmental minister under ex-President Viktor Yanukovych is expanding operations in Ukraine.
Burisma Holdings, an independent producer that mined 773 million cubic meters of gas last year, purchased a majority stake in Kub-Gas LLC and gained control over five production and one exploration license in eastern Ukraine, according to the company’s emailed statement. Four of the licenses are capable of gas production, although two are currently shut due to security issues in the area.
Serinus Energy Inc, the
seller ultimately controlled by Luxembourg-registered Kulczyk Investments S.A.,
is selling its 70-percent share in the gas producer for “$30 million plus
working capital,” according to a news release published on its website. “The
first $13.5 million has been released from escrow, and the final closing is
expected to occur on or before Feb. 8, 2016, after which the remaining funds
will be released,” Serinus said in the release.
Toronto-listed Cub
Energy Inc. reportedly waived its right of first of refusal to purchase the
70-percent stake, according to Serinus. Having offices in Houston and Kyiv, the
gas producer owns 30 percent of the company and will get an additional
5-percent stake, according to the terms of the transaction. Cub Energy will receive an additional 2.5-percent stake once the Burisma-affiliated company receives $25 million in dividends from Kub-Gas and has an option to within one year to purchase another 2.5 percent.
The deal was first
announced on Dec. 23 after Serinus said it reached an agreement with an
undisclosed private buyer to sell the stake for $30 million. Then Cub Energy
said it would exercise its right to purchase the majority stake.
The
initial announcement came a day before parliament reduced royalty taxes to
their previous levels as part of a legislative package to pass the 2015 budget.
On Dec. 24, lawmakers voted to cut royalties to 29 percent from 55 percent for
extraction depths of up to five kilometers, and to 14 percent from 28 percent
for lower depths.
American-citizen Robert
Bensh, a shareholder in Cub Energy, couldn’t be immediately reached for
comment.
Last year, private firms
produced 3.9 billion cubic meters of gas accounting for nearly 20 percent of
total domestic production volume, according to state-owned Naftogaz Ukrainy.
Kub-Gas mined about 240
million cubic meters in 2015, according to Kyiv-based investment house Concorde
Capital.
Four principal companies
comprise Burisma, which were consolidated into a holding company in 2006-2007.
Ex-Ecology Minister Mykola Zlochevsky, who is wanted by Ukrainian authorities
for illicit enrichment and abuse of office, is the founder and ultimate
beneficiary of Burisma Holdings. Zlochevsky has denied the charges and last
year won two court cases, in the United Kingdom and Ukraine, that unfroze his
assets, including $23 million on accounts, two luxurious properties and a Rolls
Royce.
Burisma is also known for its high-profile board
members. U.S. Vice President Joseph Biden’s son and Washington, D.C. lobbyist,
Hunter Biden, sits on the board, as does former Polish President Alexander
Kwasniewski. Burisma in 2015 mined 773 million cubic meters of gas, 13 percent
more than the previous year. It had 20 production licenses prior to the
announced transaction.
