Cub Energy Capitalizes on High Netbacks on Ukrainian and Turkish Gas Plays

Share Article

It’s been a very busy October for the drilling rigs of Cub Energy

It’s been a very busy October for the drilling rigs of Cub Energy [TSXV: KUB ]. Most recently, the company announced its latest accomplishment of hitting and casing to total depth its shared O-24 well, it does not overshadow the company’s first 100% owned well in Ukraine, the RK-22.

Both wells target multiple potentially highly-profitable gas zones in a country desperate to increase its domestic supply. Defined by high netbacks, recycle ratios, and prices on average that are three-times those in North America, the race for the world’s most profitable natural gas plays continues for Cub.

The strategy is not new for Cub’s management team, which has been involved in Ukraine, producing from a region near the Russian border for more than the last 8 years. The group has since expanded itself and spent approximately $35 million in private equity prior to going public in Canada a year and a half ago. With a recent acquisition of Anatolia Energy and its properties in Turkey, Cub has built a portfolio in two regions that offer extremely profitable natural gas prices.

“Right now we have 12 licenses in Ukraine,” says Chairman and CEO Mikhail Afendikov. “Out of those, 7 licenses are 100% owned by Cub, and the other 5 are a 30% interest joint venture.

Right now we produce a little more than 1,700 barrels of oil equivalent, most of which is dry gas, and 3% liquid.”

If Afendikov’s team were operating in North America, they’d have lost the audience long ago. Given the state of prices for natural gas, both in the United States and Canada, when a company announces results that are dry in nature it can be a deal breaker.

“Usually when you say ‘natural gas’ they’re jumping out of their seats and leaving the room in North America,” says Afendikov. “But we’re talking about different barrels equivalent here.”

Most of Cub’s production today is coming from its 30% working interest properties shared with Serinus Energy. In the second half of October, the joint venture team reported production highs on two wells (the “O-4” and “O-5”), after a successful stimulating campaign.

In fact, Cub and its partner also own the rigs that drilled them, and the gas-processing facility that collects and sells the production.

“Most of our production now is coming from our partnership, which we see as a money producing machine,” says Afendikov. “Now, with our first well being drilled on our 100% property, we’ve got a substantial business on our hands.”

“The prices in Ukraine are close to $12/Mcf, and our netback is about $7/Mcf. They used to be even higher before the royalty taxes went up a bit recently. Basically it’s very similar to what we have in Turkey. In Turkey it’s an even better royalty structure, with 12.5%, compared to Ukraine’s current 22% (where it used to be 17%).”

Cub foresees that gas prices in both countries will be high for at least the next few years, giving impetus to their drive to develop their properties as fast as possible. Gas prices in Ukraine are determined by Russian/Ukrainian agreements that seem to unfairly favor Russian interests.

Ukraine remains a large importer, however, in the past was once a very large producer on its own. The result is a culture built around natural gas, with gas heating in homes, stoves, and throughout its industrial sector.

“Over the last 50 years, every apartment in the country has been fitted with natural gas, as have many large businesses become gas oriented,” says Afendikov. “We’re talking all chemical industries, fertilizer plants, the dependency is quite large.”

“It’s an exciting market that can literally swallow as much gas as you can sell. The government is determined to increase domestic production as much as possible, because it doesn’t currently have a good relation with big brother, the Russians.”

The governments of both Ukraine and Turkey are engaged in strategies to increase domestic production. Given its dominance over the entire region, Russia also dictates pricing in Turkey.

Hence Cub is tackling the natural gas problem for both countries. Earlier in October the company announced that it had hit total depth on its 50% interest Y-1 exploration well in Turkey. The well itself fulfilled Cub’s drilling activity obligation with the government to remain in the western Anatolian District. The Y-1 is the first of two prospects the company has on a structural trend near the Sambayat oilfield, which is Turkey’s largest oil discovery of the last 10 years. As such, Cub and its partner continue to hold 11 licences covering nearly 1,200,000 gross acres within the Anatolian Basin.

Coming up for the company will be the announcement of hitting total depth on Ukraine’s RK-22. With an expected 25 days to drill, news on the well should likely come after mid-November. Given that it’s the company’s first 100%-owned Ukraine well, Cub’s management and investors will be very intrigued to see the results.

Legal Disclaimer/Disclosure:
A fee has been paid for the production and distribution of this Report. This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. No information in this article should be construed as individualized investment advice. A licensed financial advisor should be consulted prior to making any investment decision. Financial Press makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of the author’s only and are subject to change without notice. Financial Press assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this article and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, we assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information, provided within this article.

Share article on social media or email:

View article via:

Pdf Print

Contact Author

Lionel C. McBee
Visit website