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Market Report, "Ukraine Oil & Gas Report Q2 2014", Published

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Boston, MA -- (SBWIRE) -- 03/13/2014 -- Sustained interest from major international companies in Ukraine's gas reserves provides some upside potential in alleviating a part of its import burden in the long run. However, a recent deal with Gazprom, which cuts natural gas import prices to Ukraine by 33%, poses risks to new exploration and production developments as the downward pressure on prices could weaken the profit margins of the exploration and production (E&P) activity.

The main trends and developments we highlight for Ukraine's oil and gas sector are:

- Ukraine refused to sign a far-reaching political and trade agreement with the European Union (EU) in late November 2013 and accepted Russia's offer that included a 33% reduction in gas prices among other economic largess. A deal formalised on January 10 2014 allows Ukraine to buy gas exclusively from Russia at two-thirds of the original price for Q114 - it now pays US$268.50 per million cubic metres (Mcm) for gas - or about US$7.20 per million British Thermal Units (mnBTU), compared to US$406.00/ Mcm (US$10.89/mnBTU) it paid in Q113.
- US oil and gas company Chevron signed a US$10bn shale gas production-sharing agreement with the Ukrainian government on November 5 2013. Under the terms of the agreement, Chevron will have the right to explore shale and gas reserves at the Olesska deposit in the western region of Ukraine. Chevron will spend US$350mn a year in the exploratory stage of the project, while total investment is expected to exceed US$10bn, according to the Ukrainian energy ministry.
- In November 2013, Ukraine signed an offshore oil and gas production-sharing agreement (PSA) with Eni and EDF. In a statement, Eni said that the agreement concerned a 1,400 square-km offshore area off of Western Crimea. It would include the Subbotina oil licence and the Pry Kerch block, where several oil and gas prospects have been identified. Eni would be the operator in the venture, with a 50% stake. Statecontrolled firms Vody Ukrainy and Chornomornaftogaz will have 35%, and EDF the remaining 5% stake.
- The EIA released new estimates of global technically recoverable shale gas in mid-June 2013. Ukraine appears to be one of the main beneficiaries of this revaluation as the EIA now estimates that the country holds 3.6trn cubic metres (tcm) of unconventional resources.
- Successful completion of a 10-stage hydraulic fracturing (fracking) programme by JKX Oil and Gas and Schlumberger in Q3 put Ukraine on the forefront of exploratory activity outside the United States. However, initial results from the well R-103 in October 2013 came in at the lower end of estimates at 0.3bn cubic metres (bcm)/year and 25 barrels per day (b/d) of condensates. The company is planning a second multi-frac well in its licence area.
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