Cub Energy Inc. (“Cub”) (KUB) comments on the newly enacted law concerning gas royalty rates in Ukraine.
The Ukraine Parliament passed a new law increasing the royalties on natural gas production. The law was published on March 22, 2022 and entails a partially sliding scale royalty rate. The new royalty rates are retroactive to March 1, 2022 and shall remain effective throughout the military and/or emergency state. The royalty rates are applicable to the Company’s RK Field in Western Ukraine and are as follows:
Price per Mcf ($USD)
Below $4.25/Mcf:
Previous royalty rate: 29.0%
New royalty rate:14.5%
Between $4.25/Mcf and $11.33/Mcf:
Previous royalty rate: 29.0%
New royalty rate: 29.0%(1)
Above $11.33/Mcf:
Previous royalty rate: 29.0%
New royalty rate: 65.0%(2)
The royalty rate of 29% is applicable on the entire sales price. There is no sliding scale.
The royalty rate is a sliding scale where its 29% on the sale price up to $11.33/Mcf and 65% for the sales price above $11.33/Mcf.
The Company is closely monitoring developments in Ukraine following the unprovoked invasion of Russian armed forces into the territory of Ukraine and the implementation of martial law. The Company is continuing to assess developments locally and will prioritize the safety of its workforce. At the present time, the Company’s RK Field is operating and producing at a rate of 0.2 million cubic feet per day (“Mcf/d”). In light of the material royalty increase and unpredictable local market for natural gas, the Company is evaluating what impact this will have on the RK Field in the near term. The RK Field is located in Western Ukraine and near the Hungarian/Slovakian border. The company disposed of its Eastern Ukraine assets effective February 2, 2022. The situation in Ukraine remains volatile and unpredictable.
