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Financial Times: Coronation delayed

By Andrew Hill
Published: November 22 2007 02:00 | Last updated: November 22 2007 02:00

Royal Dutch Shell’s net capital spending regularly exceeds $20bn a year, so in its very grand scheme of things, $360m (£175m) laid out on the development of gas fields in Ukraine, plus $50m for a majority stake in Regal Petroleum’s Ukrainian subsidiary, is almost pocket-change.

For Regal, however, Shell’s investment would be significant, possibly even crucial. The convoluted legal wrangling that ended with confirmation of Regal’s title to the Ukrainian gas assets took its toll on the group in 2006. Administrative costs linked to finding a partner there exacerbated its losses for the first half of this year. In spite of the celebration of Shell’s interest in the Ukrainian venture, yesterday’s statement also delivered the less welcome news that talks with the first suitor – MND, a private Czech group – had fallen through, and that it could take another eight weeks before the Shell agreement was secured.

At a burn rate of about $1.8m a month, and based on the figures published at the time of the interim statement in September, Regal would run through its cash (it had negligible debt at the end of June) at some point towards the end of that eight-week period and would have to start tapping its Bank of Scotland loan facility. The group apparently has sufficient backing to last at least nine months, but it badly needs Shell to sign on the dotted line and pay the first $50m so that it can accelerate the development of the Ukrainian fields.

Under such circumstances, it’s no wonder that the group has welcomed the reappearance of the oil major as a potential partner with such enthusiasm. But it is a stretch to say, as Regal’s chairman did, that mere interest from the Anglo-Dutch group “demonstrates the underlying value of our assets in Ukraine and further underpins [their] future potential”, when the “underpinning” from the MND negotiations crumbled so easily.

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