Regal, the AIM-listed oil and gas exploration and production group, provides an update on its Ukrainian operations.

As previously announced, on 21 May 2010, the Company received an order, dated 30 March 2010, signed by the Minister of Environmental Protection identifying certain matters requiring rectification in relation to Regal’s compliance with certain legislation in Ukraine relating to its operations at its MEX-GOL and SV gas and condensate fields, and requiring a suspension of operations whilst such matters were rectified (the “Ministry Order”).

On 2 July 2010, the Company received notification of an injunction order made by the District Administrative Court of Kiev suspending the Ministry Order pending a further hearing of the action in the District Administrative Court of Kiev. This action, challenging the Ministry Order, was brought by OJSC Ukrzakordongeologia (the Company’s sole gas customer under a long term gas offtake agreement) against the Ministry of Environmental Protection.

On 9 August 2010, the District Administrative Court of Kiev ruled that the Company should be substituted as the claimant in the action brought by OJSC Ukrzakordongeologia. On 11 October 2010, the District Administrative Court of Kiev found in favour of the Ministry of Environmental Protection in the action. On 18 October 2010, within the statutory time frames permitted, the Company filed an appeal of this ruling. A hearing of this appeal is currently awaited.

Since it received notice of the Ministry Order on 21 May 2010, the Company has continued its dialogue with the Ukrainian Government, and the Ministry of Environmental Protection, regarding the Ministry Order with a view to fully resolving the issues raised by the Ministry Order following the Ministry’s own standard legislative procedures. During this period the Company has provided certain clarifications and, where appropriate, implemented required actions. On 8 October 2010, the Ministry of Environmental Protection carried out further inspections of the Company’s operations, which resulted in written confirmation that all matters referable to the Ministry Order had been rectified and eliminated.

However, despite receiving such confirmation and despite the expectation that this would lead to the matter being resolved expeditiously, to date the Company has not received a definitive timeframe from the Ukrainian Authorities for the progression of the Ministry’s standard procedures required to bring this matter to a conclusion. Given this continued uncertainty, the Company now considers it prudent to commence the shut-in of its operations at its MEX-GOL and SV fields in Ukraine, which will result in a suspension of production. It is envisaged that such shut-in operations will be substantially completed today.

The Company continues to review the situation with its legal advisors and, based on such advice, will take appropriate steps to protect the status of its MEX-GOL and SV fields and to seek a resolution of the issues raised by the Ministry Order. A further update will be made as appropriate.

Tags: Regal Petroleum