Ukrnafta points out to Regal Petroleum the corruption risks related to acquiring Arkona Gas-Energy
Ukrnafta points out to Regal Petroleum the corruption risks related to acquiring Arkona Gas-Energy

PJSC Ukrnafta sent a letter to the management of Regal Petroleum plc recommending to refrain from acquisition of Arkona Gas-Energy due to the corruption risks related to Arkona’s obtaining the licence for Svystunkivsko-Chervonolutska.

According to the press release published on the official site of the London Stock Exchange on 24 March 2020, Regal Petroleum plc acquired LLC Arkona Gas-Energy for USD 8,630,000. Half of the amount was to be paid upon signing the agreement while the rest was to be paid upon Arkona resolving favourably Ukrnafta’s claims against the company relating to the licence.

In 2017, LLC Arkona Gas-Energy obtained the Svystunkivsko-Chervonolutska licence from the State Service of Geology and Subsoil of Ukraine without competition or auction for the amount equivalent to USD 144,000 which was significantly below its market value. In addition, the license issued to Arkona understated the reserves of natural gas indicating they were only a third of the reserves on the official books of the State Commission of Ukraine for Mineral Reserves. Ukrnafta which conducted the exploration of the Svystunkivsko-Chervonolutske field since in 2004-2010, assessed the license value at about USD 1.7 mln. In 2014 and 2016, Ukrnafta applied to the State Service of Geology and Subsoil of Ukraine to obtain a special permit for production exploration of the field, however, both applications were rejected without grounds by the regulator.

In the letter, Ukrnafta pointed out that LLC Arkona Gas-Energy was party to court case No. 826/14653/17 pending in the District Administrative Court of Kyiv where Ukrnafta is seeking to terminate the licence. Besides, the circumstances under which the Svystunkivsko-Chervonolutska licence was issued are under criminal investigation by the National Anti-Corruption Bureau of Ukraine (case no. 52018000000000182) in which Ukrnafta has been recognised as the injured party.

A journalistic investigation by Radio Liberty established that Arkona was connected to the interests of the individuals related to Oleksiy Malovatskyi, a lawyer of Petro Poroshenko during his presidential campaign in 2014 who later became a member of the High Council of Justice. During the trial of this case a number of instances were identified where Mr. Malovatskyi put pressure on the judges trying the case.

Ukrnafta drew attention of the management, the shareholders and investors of Regal Petroleum plc that in view of the risks of corruption, this acquisition deal could be subject to investigations under UK Bribery Act, FCPA, RICO and other international anticorruption procedures.

Also, it is highly likely that the first tranche received by the sellers from Regal Petroleum plc could be used by these sellers and their  accomplices for corrupt protection of unlawfully obtained asset before the court and state authorities of Ukraine under the cover of the reputation of the publicly traded British company Regal Petroleum plc.

Ukrnafta hopes that the National Anti-Corruption Bureau of Ukraine can accelerate the pre-court criminal investigation of Arkona within which the investigators and the Specialised Anti-Corruption Prosecutor’s Office will obtain access to the official papers related to the agreement on acquisition of 100% of Arkona’s share capital and will assess the real value of the license.

The acquisition agreement foresees the right of Regal Petroleum plc to postpone payments under the agreement and/or to request the return of the amount that has been paid already. Ukrnafta called on the management of Regal Petroleum plc to reconsider the decision to enter into the acquisition agreement or to refrain from its execution.

Ukrnafta retains the right to defend its interests by all means provided for by law.