Chevron pulls out of Ukraine shale gas venture

By bne IntelliNews December 15, 2014

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US energy group Chevron has pulled out of a project to explore for shale gas in West Ukraine's Olesska field, after trying for more than a year to get the government to simplify taxation for this type of business, writes TASS, citing the press service of the American company. 

"We have just terminated that PSA [product sharing agreement]," said Peter Clark, Chevron's country manager. "When it was signed, things had to be done, but not all of them got done."

The termination is a blow to Ukraine's efforts to achieve energy independence from Russia and create a more inviting business climate for Western firms.

It comes against the background of economic uncertainty in Ukraine, plummeting global energy prices, corruption worries regarding the original deal signed with the discredited former administration of ousted president Viktor Yanukoyvch, local fears over ecology, and disillusionment about shale gas prospects in Europe. The Olesska field shares geological features with Polish shale fields which have proved a major disappointment.

On November 5, 2013, Ukraine finally signed a Production Sharing Agreement (PSA) with Chevron and Kyiv-based Nadra Olesska company for the Olesske gas field (Lviv Region and Ivano-Frankivsk Region) after months of wrangling over the terms and strong opposition by the West Ukrainian nationalist Svoboda party on ecological grounds.

Under the Agreement, Chevron was set to invest $350mn in geologic exploration. Total investments in gas production was estimated at round $10bn. Chevron and state-owned Nadra Olesska held equal stakes in the venture.

In November, Ukraine's government informed Chevron that it had fulfilled all the conditions necessary for the US company to begin exploration and production of shale gas in the west of Ukraine. “We have sent a letter to Chevron, and now we are expecting a reply within 30 days. We are interested in signing the operation agreement as soon as possible," Yaroslav Klimovich, head of Nadra Ukrainy, said then. Under the production sharing agreement, Chevron  was to complete geology exploration and drilling within five years.

In May 2012, Ukraine, hoping to reduce its dependence on imports of expensive Russian gas, had selected foreign partners in shale gas production. Chevron was declared the winner of a tender for the exploration and development of the Oleske deposit in western Ukraine and Shell was declared the winner of a tender for the development of the Yuzivske deposit in the east of the country.

The US Energy Information Administration estimates the Ukrainian shale gas reserves at 1.2tn cubic metres, which makes the country the third largest in Europe after France and Norway in terms of the reserves of this fuel. 

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