Monday, August 4, 2014

Selling the stock of the Year Cub Energy (KUB.V)

Stupid government strikes again. The Ukrainian government passed legislation last week to raise the royalty on natural gas produced in the country to 55% from the current 28%. This is beyond stupid and shows a lack of economic common sense. The country is on the verge of a natural gas crisis this winter because it has not paid its outstanding gas debts to Russia. Ukraine has an enormous endowment of natural gas. You would think they would go out of their way to incentivize the development of this resource by lowering taxes and royalty rates. Instead they raise them which lowers the incentive to take risk and will lead to less gas production. Notably Cub Energy in a press release said as much.


Mikhail Afendikov, Chairman and CEO of Cub said: "We understand the economic difficulties that Ukraine is facing and, while we are disappointed with the temporary royalty increase, we will comply. However, given that this will reduce our netbacks and resulting cash flow for the next five months, we will be re-evaluating our work programs for the remainder of 2014 to preserve our capital options."


This is too much for the stock to handle coupled with the continued fighting in the eastern part of Ukraine. Time to bail out with a loss and move on to other opportunities.

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