Interview with Robert Bensh, managing director of Pelicourt Ltd., a company which holds a majority shareholding in Cub Energy Inc. (KUB)

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What restrains foreign direct investment from entering Ukrainian energy sector?

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Interview with Robert Bensh, managing director of Pelicourt Ltd., a company which holds a majority shareholding in Cub Energy Inc. (KUB)

U-E: How important in your opinion is  the development of small oil & gas fields in Ukraine?

RB: Very! Small oil and gas field development can put new production into the system rapidly. What Ukraine suffers from more than anything else is investment. That investment can come primarily from Canadian and US. Ukrainian oil & gas sector really suffers from lack of investment. It does not have the capability of implementing best practices. The CEO of Naftagas, the CEO of Ukrnafta, - their daily concern is delivering production into the system. They’re less concerned with best practices and more concerned with keeping production flat, to getting it to slightly increase. Without best practices being implemented, without new technology being implemented into the country, they can’t bring on new production; they can’t significantly increase production – they have to rely on 3rd parties to do this for them in the form of other oil and gas companies and the most rapid way to effect that is through the development of small oil and gas fields.

U-E: Why with the raising gas price, there is no increase of own production in Ukraine?

RB: State companies don’t have time. They don’t have access to the significant investment. The Ukrainian state companies aren’t making any money, they’re supplying gas into the system and they’re not getting paid for it, that’s because Ukraine is still an importer of gas. They’re not selling gas they are providing gas. There are only two or three independent companies that are truly coming in and increasing production and they’re beginning to spend more money, but their impact on Ukraine is 1 of 3% overall of the country’s needs.

There needs to be significant attraction of capital by Ukraine to bring in oil and gas companies - and the attraction is the gas price. The secondary attraction is there are significant reserves within Ukraine, however the formations are deep, the formations are very tight, which means that they have to be fracted.

There are a lot of drilling opportunities, none of things are being consistently done, if at all, in Ukraine at present. Once done, there will be a significant increase within the country’s net production

U-E: What is the plan for Tizagas? Will they also be looking to exit at high level?

RB: Well, plan for TizaGas – right now there are 10-14 drilling locations that we’ve identified on the 100% owned fields. So the plan for Tiza Gas, for the next 3 years, is to drill wells, increase production, shoot additional seismic, develop more of a prospect inventory and CUB can either drill on its own or can partner up with some other parties, which we certainly would consider.

U-E: How often are you approached by the Ukrainian licence owners asking to sell their assets?

RB: I am often approached by Ukrainian companies to sell their assets quickly. Typically I only work for Ukrainian side. It’s my preference, I prefer to work with Ukrainian entities. I’ll do anything for them: sell them, get additional investment for them, help them bring in management teams that can implement best practices.

Only occasionally  I’ll work for a Russian firm that wants to come into the West. Its usually a very specific task: strategic or M&A advice, political risk advisory work and that’s it. The reason I’m approached by these groups is because I have been quite fortunate be successful with KUB Gas and with Cardinal in creating a significant amount of value over relatively short periods of time in both businesses.

What we did in all cases was really quite simple – we focussed on our assets, we ensured that there were no issues – no financial issues, no legal issues and we were able to develop through seismic and other means a pretty healthy inventory of prospects and we brought that to the market and were able to sell that to firms.

U-E: Are you looking at producing companies to choose the next investment project?

RB: Most of the foreign investors are looking for producing assets now.  I think over time you’ll see the shift towards exploratory projects as investors get comfortable with Ukraine as an investment opportunity. But at the moment for a company to come in and justify to their shareholders the Ukrainian acquisition - they need to be getting some production.

If you are going to do something with the country, with the ministry or one of the state businesses, you would have to participate in a joint activity agreement and that joint activity agreement would allow you to come in and develop a licensed area with the state.

The oil and gas companies that are operating in Ukraine have not really attracted much in the way of investment over the past few years, we have seen some investments done obviously in KUB Gas and CUB Energy, Geo Alliance, Regal and Cadogan - The Geo Alliance and KUB deals have been very successful, the Regal and Cadogan deals have not been successful so the market has a real mixed view toward the industry as a whole.

While investors are looking for producing deals they are also looking for solid contracts. The PSAs that Ukraine has put into place are very good contracts, - they are going to do very well for Ukraine. Ukraine has done something right in that sense. The ministry, I know. is looking at changing ways in which investors can come in to participate in development oil & gas projects. That will be good, this is something that they want to improve and that’s very good for the country.

U-E: What is a good project in your opinion?

RB: I’ve never seen a good project. Yet. And you don’t bring me a good project, you bring me a mess and I make a good project – that’s why you hire me. If you have a good project, the chances of you needing me are slim. You bring me your mess and I create a good project for you through fixing the tax structure, fixing the legal structure, fixing the financial structure, creating an oil and gas company.

Largely what happens here, especially with Ukrainian clients, is they have assets they don’t know what to do with them – they know that they have something of value, they don’t know how much of value and the reason they don’t know what to do with them is because there isn’t an oil and gas industry within Ukraine.

And honestly there isn’t a Ukrainian, or Westerner for that matter, that’s been in the country as long as I have working and operating oil and gas properties that can be trusted. I’ve been here longer, I’ve done more than the Ukrainians who are here. I’ve always done well for my clients and I will continue to do that. I work for my clients, so I am trusted in that sense and that’s why I continue to attract clients.

U-E: Why are there a lot of licences “on hold” in Ukraine?

RB: They don’t know what to do with them. Those are my clients. They don’t know what to do with them, they know that they have something, they don’t know what they have… and the biggest problem that have is that first phone call. To ask for help is a pretty big deal and once they realise that I am there to help them, work for them and not take their asset or sell their asset to somebody else then, you get some pretty good cooperation.

But that’s really it, it’s not like in Texas where even if you’re a regular land owner you can figure out pretty quickly what needs to be done on your land – in Ukraine there is nothing like that at all. There’s no oil and gas industry within Ukraine. Ukraine has very good oil and gas professionals but their focus is keeping production steady and because there hasn’t been new investment in the country, because there isn’t new technology within the country you have an industry full of engineers, geologists and geo physicists within Ukraine who are excellent but don’t have exposure to new technologies. It’s a crime. It really is – you have really good people that have not been exposed to 21st century technology and when they are – I mean look at KUB Gas: KUB Gas is 500 Ukrainians and there are maybe two Westerner’s out there. You have 500 Ukrainians implementing the Western 21st best practices of technology because those 500 Ukrainians have been trained that way. It’s an all Ukrainian group using Western technology and best practices, it really is an excellent model for the industry to look at.




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