June 19th 2019 Interview: Majors expected back in hunt for Ukraine gas as activity picks up https://www.spglobal.com/platts/en/market-insights/latest-news/natural-gas/061919-interview-majors-expected-back-in-hunt-for-ukraine-gas-as-activity-picks-up
London — International energy majors will be tempted back to Ukraine to drill for gas in the future, according to the head of the country's gas industry association, on the back of a period of intense exploration activity in the eastern European nation.
Ukraine, whose gas production has been steady at some 20 Bcm/year for the past 25 years, has vast untapped potential in its onshore blocks -- both for conventional and unconventional resources -- as well as in the Black Sea.
New exploration has been hampered in the past by the lack of a transparent licensing process and concern over political instability. But Ukraine is now looking to attract international companies back to the upstream through a series of tenders and license rounds for blocks.
"The majors will come. It is just a matter of time," Roman Opimakh, the executive director of the Association of Gas Producers of Ukraine, said in an interview.
Big hitters such as Chevron and Shell came to Ukraine in the early 2010s in an attempt to develop the country's unconventional gas resources, but none remain.
Despite that, the upstream in Ukraine is enjoying a resurgence with 84 active rigs drilling exploration, development and production wells in the country -- almost half of the 186 rigs operational in Europe -- according to Baker Hughes.
"The number of wells drilled in Ukraine has increased significantly since 2017," Opimakh said. "Many positive reforms have been introduced for the upstream industry in the past two years."
Last year more than 150 wells were spudded, mostly in eastern Ukraine where reserves are located at deeper intervals of more than 5,000 meters.
"The domestic fleet of rigs has been modernized and sophisticated rigs are coming to replaced outdated equipment," Opimakh said, adding that foreign outsourced contractors were also contributing resources.
The increased activity could help Ukraine boost its domestic gas production as the government looks to eliminate imports, which currently all come from Europe after it halted direct Russian gas purchases in November 2015. Domestic gas production has edged up in recent years, reaching 20.9 Bcm in 2018.
Opimakh expected it would take "5-6 years" for Ukraine to become self-sufficient in gas -- meaning Ukraine could produce all the gas it needs by 2024 -- assuming annual demand remained in the range of 30-32 Bcm.
In a bid to boost exploration yet further, some 36 blocks have been offered in 2019 in two tenders for 50-year production sharing agreements and three license rounds for 20-year exploration contracts.
The PSA tenders have attracted the most international interest, with bids from Canada's Vermilion Energy, US-based Aspect Energy, Slovakia's Nafta and Poland's Unimot.
The deadline for bids for the nine onshore blocks was May 28 and for the offshore Dolphin block was June 12, with results of both expected within one month of their deadlines (June 28 and July 12, respectively).
Opimakh said four companies had submitted bids for the Dolphin block, located in the shallow waters of the Black Sea.
"There is significant interest, especially taking in account ongoing political elections in Ukraine," he said.
As well as the PSA tenders, three rounds of bidding for smaller exploration licenses have been held, hosted on an open electronic platform to ensure full transparency following accusations of wrongdoing in previous contract awards to upstream companies in the country.
A total of 26 blocks were offered, with 16 block licenses awarded. Some 10 of the blocks across the three rounds received no bids.
The big winner in the three bid rounds was Ukraine's state-owned UkrGasVydobuvannya (UGV), a subsidiary of Naftogaz Ukrayiny, with a total of 13 blocks awarded.
The other three were awarded to private Ukraine-based upstream companies: Burisma, DTEK, and Yedyna Oil & Gas.
A further six blocks were expected to be auctioned at a later date along with the 10 blocks not awarded in the first three rounds.
The 36 blocks offered so far -- including those in the PSA tenders -- cover a combined acreage of some 25,000 sq km and are all in well-developed petroleum provinces of Ukraine, Opimakh said.
"The chance of making a discovery is high," he said.
Asked what obstacles there were to even more upstream activity in Ukraine, Opimakh said the country still needed to "simplify the access to geological data" to attract more investors.
-- Stuart Elliott, firstname.lastname@example.org
-- Edited by Dan Lalor, email@example.com