More than a year after three international energy giants won tenders to extract gas from unconventional sources, none of them is drilling, even for tests. In fact, only one of them, Royal Dutch Shell, has signed a production sharing agreement (PSA) – an extensive document that regulates all aspects of the company’s work for 50 years and allows them to start operations. The others, Chevron and ExxonMobil, are holding their fingers crossed and hope to sign in coming months. All three face a multitude of problems.
Shell
Royal Dutch Shell signed its PSA with much fanfare in January in Davos, under the supervision of Ukraine’s President Viktor Yanukovych. Shell won a tender to develop the Yuzivska field in eastern Ukraine, which is believed to contain at least 2 trillion cubic meters of gas, and could provide 15 billion cubic meters annually by 2020, according to government estimates.
Although the company is drilling a conventional well now and preparing to drill another one, it’s doing it under the agreement that preceded the PSA and applies to an area outside the Yuzivska field. Company director Graham Tiley recently told Den newspaper the well is being drilled in Vesele, Kharkiv Oblast, in partnership with Ukraine’s gas producer Ukrgazvydobuvannya.
Meanwhile, a local court in Kharkiv opened a case initiated by Batkivshchyna regional lawmaker Ivan Varchenko. He is challenging the legality of the procedure by which the Kharkiv regional council approved the PSA in January.
The first hearing in the case is scheduled for July 23.
Approval by regional councils is an essential legal precondition for signing the PSA. Varchenko’s suit is the second such challenge.
Also, Shell is fighting back against bad press. In end-July it will take a group of 17 Ukrainian environmentalists, activists and academics to the U.S. to demonstrate the shale gas extraction process from the Marcellus shale, one of the biggest reserves of hydrocarbons in the world.
“Primarily we expected applications from the civic organizations and activists in Kharkiv and Donetsk regions who have been critical about unconventional gas,” the company said in a statement on its website on July 4. “We’re interested in a dialog with them, and are ready to give maximum information and demonstrate the level of our work in the whole world and Ukraine.”
Chevron
After finalizing the text of the PSA with the central government last month, the company is now hoping for its approval by local councils in Ivano-Frankivsk and Lviv Oblasts, home to the Oleska field.
The field covers an area of nearly 6,500 square kilometers and is thought to contain between 0.8 and 1.5 trillion cubic meters of shale gas reserves. But prospects of gas extraction there have faced fierce resistance by some civic and political groups, primarily the Svoboda party which enjoys a majority in both councils.
The PSA went to regional councils in June, and its full text was soon leaked to the media. The same had previously happened to the Shell PSA, although both documents were supposed to remain confidential.
“Both councils said they were going to create commissions to study the PSA, and then vote on the issue at their next regular meetings,” said Peter Clark, Chevron’s director for Ukraine.
On July 11, Ivano-Frankivsk regional council created a working group to study the PSA, indicating that its approval is nowhere in sight.
ExxonMobil
After winning the rights for offshore gas exploration last summer along with four other companies in the pool it leads, ExxonMobil has been struggling to sign a PSA. The deadline has repeatedly been pushed back, puzzling both company officials and observers, who note that no regional council approvals or other cumbersome procedures are required for this particular PSA.
Even a signing bonus of $325 million for Ukraine does not seem enticing enough.
Eduard Stavitsky, the energy minister, told Kyiv Post on June 13 that the PSA with ExxonMobil will be signed in late July-August, but observers say the deadline is unrealistic.
Sources familiar with negotiations expect the deal to be signed by end-September, during President Viktor Yanukovych’s visit to New York for the United Nations general assembly.
Kevin Biddle, director for exploration at ExxonMobil International Ltd., recently told Kommersant newspaper that Ukraine’s Skifska field has many similarities to a promising Romanian deposit just across the border. A three-dimensional seismic study of the Romanian field was completed last month, and commercial exploration is set to start late this year or in 2014, Reuters reported.
“Ukraine has the same high potential as Romania,” Biddle said.
Kyiv Post editor Katya Gorchinskaya can be reached at gorchinskaya@kyivpost.com
