Chairman denied news reports that the prime minister wants to review the company's agreement to explore for hydrocarbons in the Black Sea shelf.
Gene Van Dyke, chairman of gas and oil exploration company Vanco Energy, denied on April 15 news reports that Prime Minister Yulia Tymoshenko wanted to review the company’s production-sharing agreement to explore and drill for hydrocarbons in the Black Sea shelf.
The Interfax news agency reported that Tymoshenko was referring to Houston-based Vanco Energy when stating in her April 11 address to Ukraine’s parliament that she wanted the government to review an agreement with a company “registered in an offshore zone to four female students between 20 and 22 years old.”
“It’s possible this is a result of the prime minister being poorly informed by her advisors,” Van Dyke said.
Maryna Soroka, a Tymoshenko spokeswoman, also denied the prime minister was referring to Vanco Energy, stating she was not speaking of any particular company, but talking about productionsharing agreements in general and arguing Ukraine should receive 70 percent of extracted hydrocarbons in such deals.
However Tymoshenko clearly referred to a single company in her remarks, stating, “this entire national treasure (the Black Sea shelf) was given to this one company.”
The Ukrainian government’s agreement, reached in October between Ukraine and Texasbased Vanco Energy after a year and a half of tough negotiations, was to mark the first serious attempt to bring Western oil majors and boost hydrocarbon production in Ukraine, which remains heavily dependent on imports from Russia.
The agreement, now subject to scrutiny, was deemed as a landmark partnership with a foreign energy group and a test of the country’s willingness to bring in foreign partners for costly but potentially lucrative hydrocarbon exploration and production projects.
In April 2006, Vanco International Limited, a subsidiary of Vanco Energy Company, won a tender conducted by the Ukrainian government (headed at that time by Yuriy Yekhanurov) for the right to explore oil and gas in the Prykerchenska field, totaling 12,960 square kilometers in area, in the Black Sea shelf.
If significant hydrocarbon deposits are found in the field, comprising about 17 percent of all expected reserves in the Black and Azov Sea shelves, Ukraine could ease the Russian stranglehold on its energy supplies.
Due to the technical difficulty of the deepwater drilling involved, Ukraine has been unable to develop the Black Sea shelf on its own.
Volodymyr Saprykin, director of energy programs at the Kyivbased Razumkov Center for Economic and Political Studies, was cautious in commenting on the situation, saying the circumstances voiced by Tymoshenko need to be reviewed.
“It is necessary to analyze everything that happened,” he said, adding that Ukraine was gaining its first experience in such large projects from this deal.
If indeed there is a problem with registration of the company, as voiced by Tymoshenko, then the agreement needs to be terminated, he added.
“Such things are not allowed in business with hundreds of millions of dollars,” emphasized Saprykin, adding that he did not expect such problems with the deal.
Van Dyke, founder of Vanco Energy, said the information about Vanco Prykerchenska Limited’s registration on four students was not true.
“In principle, this productionsharing agreement should have become a litmus test to all companies” showing Ukraine’s capability to handle such serious projects, he added.
Should the productionsharing agreement be cancelled, the situation would raise questions for future investors eyeing exploration and production in Ukraine, according to Saprykin.
The 30year agreement states Ukraine will get 30 percent of hydrocarbons produced during the exploration phase, and 50 percent during fullscale production, the company saiod
Critics of Vanco’s development of the shelf have also argued that more than one company should have been selected, given the size of the shelf zone and the possibility that Vanco could resell rights for the field to other companies.
Vanco, whose projects have focused on deepwater offshore projects in West Africa, first submitted its productionsharing proposal to the Ukrainian government in July 2006, signing the agreement in October 2007 after lengthy productionsharing negotiations.
The government explained the delay by the scope of the productionsharing agreement, and the fact that Ukraine had never signed such a deal before. Another major hitch was determining which side would get what percentage of the oil produced and at which stage of production.
Vanco said it is prepared to invest “a minimum” of $100 million for the first three years of exploration, and has already spent well over $6 million in preparation for receiving the productionsharing agreement.
Vanco Energy received applications from seven companies to participate in a tender for conducting threedimensional seismic exploration in 4,200 square kilometers within Prykerchenska oil and gasbearing field of the shelf, according to a company’s press release.
The cost of such works, which the company plans to conduct from September 2008 until March 2009, will be about $52 million, Van Dyke said.
Ukraine currently imports the lion’s share of its hydrocarbon needs from Russia.
Developing the field will take several years, leaving Ukraine reliant on Russia for most of its energy needs in the near term. Ukraine has in recent years opened the gates to large hydrocarbon exploration and production rights to Western companies, hoping their expertise and financial muscle could help tap into deep or hardtoreach reserves.
