Ukraine Markets Daily (November 13, 2014)

Market comment

The UX Index was down by 1.5% in UAH terms on Wednesday, and down by 0.3% in the US dollar terms. At the same time, the PFTS index was down by 3.9% in UAH terms. Nine out of ten companies in the UX index were down in the UAH terms, with the largest decrease in prices observed for Alchevsk MP (-10.1%), Ukrnafta (-6.1%) and Bank Aval (-2.8%). 


UX Index performance

On the interbank exchange market, the USD/UAH spot rate was down by 1.2% with the closing price of 15.89 (mid price), according to, while the average exchange rate reported by the NBU was 15.75. 

Exchange rate dynamics

Ukraine 5-year credit default swaps were up by 6.6% on Wednesday. 

Market news

  • The European Commission disbursed EUR 260 mn of support to Ukraine
  • Serinus’ oil & gas production up 15% y/y, net income down 53% y/y in 3Q2014

The European Commission disbursed EUR 260 mn of support to Ukraine

The European Commission, acting on behalf of the EU, provided Ukraine with EUR 260 mn as part of the EU Macro-Financial Assistance Program (MFA). The objective of the MFA is both to support Ukraine financially in current economic conditions and to encourage structural reforms that will improve governance, raise sustainable economic growth and allow legislative harmonization with the EU. The EU's MFA supports a program of reforms in public finance management, anti-corruption, trade, taxation, energy and financial sectors.

The EU MFA loan support for Ukraine currently amounts to EUR 1.61 bn. Earlier this year EUR 600 mn of the EU MFA support were disbursed to Ukraine. Further disbursements of EUR 500 mn and EUR 250 mn are expected to be made by the end of the year and by spring 2015, respectively, if Ukraine shows satisfactory progress with the reforms.

Our view

This news is positive for the Ukrainian economy. While the overall economic situation seems to be not as gloomy as it was earlier forecasted, Ukraine desperately needs fast and efficient reforms, especially in the public sector. The ongoing financial support from the IMF and the EU will bring additional motivation to the Ukrainian officials to implement reforms as soon as possible.

Serinus’ oil & gas production up 15% y/y, net income down 53% y/y in 3Q2014

Serinus [SEN PW], an international upstream oil & gas company with assets in Ukraine, today reported its financial results for 3Q2014. The company’s net revenues (excluding the KUB-Gas interest) were down by 2% y/y to USD 35.6 mn in 3Q2014. Net income for the quarter, before the currency charges, was down by 53% y/y to USD 3.79 mn in 3Q2014 (portion attributable to SEN shareholders). The major contributing factors were the higher Ukrainian royalties (royalties on natural gas increased to 55% from 28%, and on liquids to 45% from 42%) and anomalously low operating costs in Q3 2013.

Total working interest production (consisting of the Company’s production in Tunisia plus its 70% interest in Ukraine) was up by 15% y/y to 5,640 boe/d in 3Q2014 (and up by 14% q/q). The company’s Ukraine production (net to Serinus) for the quarter rose by 34% y/y to 4,470 boe/d (26.8 MMcfe/d).

Operating cash flow (attributable to Serinus) was down by 7% y/y to USD 14.3 mn in 3Q2014. Capital expenditures for the quarter were USD 15.6 mn in 3Q2014, almost half as much as in 3Q2013 (USD 30.5 mn). According to the company’s press-release, much of the reduction was due to the cessation of drilling and workover activities in Ukraine during 3Q2014 over security concerns. At the same time, the company’s cash balance as of 30.09.2014 was USD 27.2 mn, up by 32% y/y.

The company’s average sales price of oil was down by 14% y/y to USD 98.1 / Bbl, while average sales price of gas fell by 10% y/y to USD 10.4 / Mcf in 3Q2014. Thus the company’s average sales price of boe decreased to 15% y/y to USD 66.8 / boe.

Our view:

The news is moderately NEGATIVE for Serinus. A substantial decrease of profitability due to increased royalties and falling oil and gas prices negatively affected the company’s bottom line. However, Serinus also reported a significant expansion of production volumes, which might improve its financial outlook for 4Q2014. Moreover, if the increase in royalties for gas production is not prolonged after January 1, 2015 (the ending term provided in the Tax Codex of Ukraine), the company’s operating margins will improve in 2015.