Global Energy giant Chevron terminated its contract with Ukraine to extract shale gas in western Ukraine after trying for more than a year to get the government to simplify taxation for this type of business.
The termination is a setback to Ukraine’s twin efforts to achieve energy independence from Russia and create a more inviting business climate for Western firms.
“We have just terminated that PSA (product sharing agreement),” says Peter Clark, Chevron’s country manager. “When it was signed, things had to be done, but not all of them got done.”
Ukraine signed a deal with Chevron on Nov. 5 to extract shale gas in Lviv and Ivano-Frankivsk oblasts in an attempt to cut its dependence on Russian gas supply.
Under the agreement, Chevron was obliged to invest $350 million into exploration under the production sharing agreement. Altogether, the company’s investment could run up to $10 billion over 50 years of lease it had in the Oleska field.
But for the agreement to work, Ukraine’s Finance Ministry committed to changing a taxation law and a number of sub-legal acts such as tax forms that would allow this type of complex business to operate more easily. The deadline for those changes ran out on Nov. 18.
Clark said that despite the termination of the contract, the “dialogue with the government is ongoing.”
Ukraine has Europe’s fourth-largest shale gas reserves of about 1.2 trillion cubic meters, according to the U.S. Energy Information Administration.
Clark said the company was still looking for business opportunities in Ukraine, and had a number of meetings with government officials on Dec. 12, including ecology ministry which oversees the process of licensing for gas companies.
“We’re going to see what’s available,” says Clark. He also said that the full staff of his company will continue to work in Ukraine at this time.
Ukraine’s deal with Chevron to extract shale gas was the second of its kind. In January of the same year, a similar agreement was signed with Royal Dutch Shell.
The company plans to extract gas from tight rock in eastern Ukraine, but most business operations are frozen in that area because it’s located close to the zone where active warfare has continued since spring.
Another international giant, ExxonMobil, suspended its participation in a consortium of companies to explore offshore gas in the Black Sea close to the Crimean coast after annexation by Russia of the peninsula.
Royal Dutch Shell and Romania’s OMV Petrom SA were part of the same consortium along with a Ukrainian company. Shell also pulled out of that project.
Kyiv Post deputy chief editor Katya Gorchinskaya can be reached at [email protected]
