January 7, 2015 / 11:25 AM / 5 years ago

UPDATE 2-Two gas producers in Ukraine warn policy changes to hurt

(Adds comments by Regal Petroleum, updates share movement)

By Mamidipudi Soumithri

Jan 7 (Reuters) - Two British energy companies with operations in Ukraine said their sales and investments in the country would be hurt by the beleaguered nation’s policies to address its energy shortfall.

JKX Oil & Gas Plc said it would suspend investments in Ukraine and that its sales would fall further, due to restrictions on selling gas to industrial clients and the continuation of high taxes on production.

Regal Petroleum Plc, which gets all its revenue from Ukraine, also blamed these regulation changes for its decision to review investments in the country.

Shares in JKX, which gets most of its gas from Ukraine, fell as much as 21 percent on Wednesday on the London Stock Exchange.

Russia’s Gazprom OAO cut gas deliveries to Ukraine for six months last year before agreeing last month to resume supplies until the end of the first quarter. Separatist fighting in eastern Ukraine crippled coal supply, exacerbating its energy supply worries.

In mid-2014, the country imposed rules mandating gas output be supplied to the population rather than to industries and almost doubled its tax on gas production to 55 percent. The higher rate stays in effect this year as well.

Regal Petroleum, whose gas output accounts for 45 percent of total production, said on Wednesday it expects gas prices to be less than before the supply restrictions and that the higher tax would likely “continue for the foreseeable future”.

“The situation cannot exist over a long time because otherwise Ukraine will find itself completely at the mercy of the Russian gas suppliers, and all Russia needs to do is turn the tap off to reduce Ukraine to a complete shivering wreck”, a JKX spokesman said.

U.S. energy major Chevron Corp said last month it planned to withdraw from a $10 billion shale gas deal with Kiev.

JKX said on Wednesday 80 percent of its gas production last month was sold to industrial customers and warned sales could fall to less than half its production capacity if the supply restrictions remained.

The company, which also operates in Russia, Hungary and Slovakia, had cut its 2014 capital expenditure programme for Ukraine in September.

Since then, the company’s stock has lost almost three-fourths of its value. They were trading down 7 percent at 12.32 pence at 13:38 GMT on Wednesday. (Additional reporting by Karolin Schaps in London; Editing by Gopakumar Warrier and Savio D’Souza)

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