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Ukraines ambition to wean itself off gas supplies from a hostile Russia has never seemed so distant.

Foreign explorers that are key to Ukraines future energy independence are fleeing the nation as a war against pro-Moscow insurgents in eastern regions sends the economy into freefall. Even government measures aimed at shrinking consumption of Russian gas have helped drive some international companies away.

JKX Oil & Gas Plc (JKX) halted investment last week, citing a 55 percent tax imposed on gas production and a government decision to secure supplies for households by imposing restrictions on sales to industrial customers. The company joined Chevron Corp., Royal Dutch Shell Plc, Exxon Mobil Corp. (XOM) and Eni SpA, which quit Ukraine or froze projects in the past year. Others are set to follow, according to Bloomberg Industries.

JKXs decision to suspend its planned natural gas field development investments in Ukraine may be followed by peers also active in the country, Philipp Chladek, an analyst at the London-based researcher, said on Jan. 7. With the states curb on sales to industry and gas production tax, economic parameters appear insufficient to justify further drilling.

The Parliament, sworn in six weeks ago, has passed a draconian budget to unlock the next tranche of a $17 billion International Monetary Fund-led bailout and prevent a default. At the same time, Ukraine is trying to reduce dependence on gas from Russias OAO Gazprom, which until last year supplied more than half of demand. A 48 percent slump in Ukraines currency against the dollar in 2014 also cut its ability to fund imports.

Its very difficult for us but were repaying our foreign debts, Prime Minister Arseniy Yatsenyuk said in Kiev on Jan. 9. If the world sees that Ukraine is repaying debts, then investors will be back. The government didnt immediately respond to Bloomberg calls seeking comment.

The Russian annexation of Ukraines Crimea region in March dealt a first blow to hopes of energy self-sufficiency. Ukraine lost control of the potentially gas-rich offshore fields in the Black Sea it had planned to explore with Exxon and Eni.

The conflict that followed in eastern Donetsk and Luhansk provinces has claimed more than 4,700 lives, crippled transport infrastructure and prevented coal production. It forced Shell to recall all personnel from operations at the Yuzivska field in June and abandon plans to drill 15 exploratory wells.

The government is in an impossible position, Otilia Dhand, an analyst at political risk adviser Teneo Intelligence, said in Brussels. Its hard to convince investors that the economy will improve when you have a war raging.

Even away from the violence, international producers have left. Chevron pulled out of an agreement to explore the Oleska field in western Ukraine, more than a thousand kilometers (620 miles) from the fighting as economic conditions worsened. The economy is expected to shrink 6 percent this year, according to Moodys Investors Service, after tumbling 7.5 percent in 2014.

Original post:
Ukraines Effort to Cut Russian-Gas Reliance Sees Explorers Exit

The foreign ministers of Russia and Ukraine failed to make progress at a meeting in Berlin on Monday night with their counterparts from France and Germany, prompting cancellation of a four-party peace summit that had been planned for Thursday in Kazakhstan.

As fighting has flared anew in eastern Ukraine after a brief lull over the holidays and European diplomats have been distracted by recent terrorist strikes, German Chancellor Angela Merkel warned over the weekend that the two sides in the Ukraine conflict needed to demonstrate their willingness to resolve their differences through negotiation.

But at a Monday night gathering in Berlin at the invitation of German Foreign Minister Frank-Walter Steinmeier, his counterparts from Russia and Ukraine failed to make sufficient progress to justify the four countries' leaders traveling to Astana, Kazakhstan, for a summit with little prospect of success.

"Hopes have collapsed for a crisis summit in the Ukraine conflict in the Kazakh city of Astana," the Sueddeutsche Zeitung of Munich reported. It cited a statement by the four foreign ministers that they were unable to get the Ukrainian and Russian officials to commit to the conditions of a Sept. 5 cease-fire.

That tentative truce signed by both sides as well as separatist rebels at a meeting in Minsk, Belarus, was supposed to be followed by a full exchange of prisoners, withdrawal of heavy weaponry, delineation of the front lines and a complete cessation of hostilities to allow negotiation on a permanent settlement.

With those conditions still unfulfilled and gunfire and artillery exchanges accelerating, there are no grounds to expect a positive outcome at another meeting, German Foreign Ministry spokesman Martin Schaefer told journalists after the four-hour Berlin meeting.

Instead, Steinmeier told journalists, working-level diplomats from the four countries will continue to meet and discuss the unresolved "core problems" and report to the foreign ministers if any progress is made.

Fighting over territory in eastern Ukraine between government forces and pro-Russia separatists broke out after Russia annexed Ukraine's Crimea territory March 18. That land grab ignited international protest for its violation of postwar treaties recognizing national boundaries.

More than 4,700 have died in the conflict area since April. Ukraine and its Western allies accuse Russia of arming and instigating the separatists. Russia denies it is involved, calling the violence a civil war spurred by the threat of Ukrainian repression of the country's Russian-speaking minority.

Follow @cjwilliamslat for the latest international news 24/7.

Excerpt from:
Ukraine peace summit scratched after diplomacy fails to break impasse

Ukraines foreign-currency borrowing costs rose for a second day amid speculation Russia will demand early repayment of a $3 billion bond, exacerbating the war-torn nations financing difficulties.

Ukraines dollar-denominated debt maturing July 2017 fell 2.5 cents to 60.01 cents on the dollar by 1:27 p.m. in Kiev after rising 2.2 cents last week as the European Union pledged further financial aid. The yield on the notes rose 217 basis points to 34.08 percent, nearing the record 36.10 percent reached last week.

The threat comes as International Monetary Fund representatives visit Kiev to review Ukraines austerity measures before releasing additional funds from a $17-billion bailout package. The government in Moscow really has every reason to demand early repayment of the loan because Ukraines public debt has exceeded 60 percent of gross domestic product, Russias state-run RIA news service reported Jan. 10, citing Finance Minister Anton Siluanov.

The threat of Russia demanding an early repayment is more direct now, Sergey Fursa, a Kiev-based fixed-income trader at Dragon Capital, said by e-mail today. Ukraine may not meet the demand as it may have the legal means to avoid paying ahead of the December deadline, he said.

A mission from the IMF will work in Ukraine until Jan. 29 on an upgraded memorandum on economic policies, the countrys central bank said on its Facebook page today.

The Kiev-based cabinet wants to expand the standing $17 billion loan agreement by a further $15 billion to help meet debt payments and increase foreign-currency reserves. Ukraine depleted its foreign cash pile as the central bank sought to shore up the hryvnia and as the country paid for natural gas imports from Russia. Economic output dropped an estimated 7.5 percent last year in what central bank Governor Valeriya Gontareva has called a full-blown financial crisis.

Meeting the increased financing needs still appears a very tough ask at present, given the strained political and security outlook, Timothy Ash, the London-based chief economist for emerging markets at Standard Bank Group Ltd., said by e-mail. I cannot see any new IMF disbursements unless the Fund feels comfortable that sources of the new $15 billion in financing have been secured.

To contact the reporter on this story: Marton Eder in Budapest at meder4@bloomberg.net

To contact the editors responsible for this story: Wojciech Moskwa at wmoskwa@bloomberg.net Alex Nicholson, Matthew Brown

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Ukraine Eurobonds Drop on Bets Russia to Seek Early Debt Payment

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