Article on prospects for Ukraine energy sector by Robert Bensh. Mr. Bensh is an advisor for my 2014 stock of the year pick Cub Energy.
There is only one certainty in Ukraine: The energy sector must and will be transformed, and how long this takes will depend on who ends up in the driver's seat and how serious they are about becoming a part of Europe and reducing dependence on Russia. But by then, investors will have missed the boat.
The driving factor for any energy investor in Ukraine is the pricing environment. There is nowhere else in Europe--or some would even argue in the world--where you are going to get significant access to resources and potential resources for the price. Gas is selling at $13.66/Mcf, while it costs $4-$5 to produce and operate. That means producers are netting anywhere between $8 and $9/Mcf.
Whether it likes it or not, kicking and screaming, Ukraine will have to transform its energy sector, if it hopes to see promised IMF money. Kiev will have to start selling off assets and making the industry much more transparent. Greater transparency coupled with an already-favorable gas price environment, will make Ukraine one of the best places to be over the next 5-7 years.
This is probably good for Cub Energy long term as they already are operating in Ukraine and have relationships with the decision makers in Kiev. In the interim the discounted gas from Russia has run out and gas prices have reverted to there previous higher levels. This of course benefits Cub Energy as they continue to increase production inside Ukraine.
Disclosure: I am long TPNEF.