UKRAINE’S NADRA YUZIVSKA AND SHELL ENTERED INTO SHALE GAS PRODUCTION PSA
A production sharing agreement (PSA) between Royal Dutch Shell and Ukraine’s Nadra Yuzivska for the development of Yuzivske shale gas deposits located in Ukraine’s Kharkiv and Donetsk regions was signed in Davos on 24 January 2013 through the mediation of Ukrainian president Viktor Yanukovych and Netherlands prime minister Mark Rutte. The agreement was inked by Ukraine’s energy and coal industry minister Eduard Stavitsky and Royal Dutch Shell CEO Peter Voser.
Prior to the signing ceremony Yanukovych told journalists that Ukraine would benefit from the agreement since it would allow attracting investments, which Ukraine could use to increase the domestic natural gas production thus creating jobs, raising the level of the country’s economy as well as increasing the budget revenues and providing funds for social needs.
On 23 January Ukraine’s cabinet of ministers approved a draft PSA between Shell Exploration and Production Ukraine Investments B.V. and Nadra Yuzivska for Yuzivske shale gas field (7,886m2 acreage) development.
Yuzivske field prognostic resources are estimated at 2-4trln m3 of gas, which can be a viable alternative for costly natural gas volumes Ukraine imports form Russia. In the meanwhile US Energy Information Agency (EIA) estimates Ukraine’s shale gas potential at 1.2trln m3 in this way making the country’s shale gas reserves the 4th largest in Europe after Poland, France and Norway. Totally consuming some 60bn m3 of natural gas annually, Ukraine has to import 40bn m3 of natural gas from Russia priced $430 per 1,000 m3 based on the terms of agreements inked in 2009.
Ukraine’s prime minister Mykola Azarov stated earlier that Yuzivske field commercial development over the span of a decade could give Ukraine an additional 8-10bn m3 of gas annually.
As Eduard Stavitsky put it in Davos, Ukraine could possibly meet its domestic natural gas demand in full in about 5 years of shale gas production cooperation with Shell. “According to Shell’s optimistic scenario about 20bn m3 of gas could be extracted annually; according to the pessimistic one, at the very least 7-8bn m3. If the top forecasts were fulfilled, we would tackle the gas shortfall problem in Ukraine or might even go into surplus", Stavitsky was quoted as saying. He stated earlier that Shell saw investments under the deal of at least $10bn under the most likely scenario and possibly as much as $50bn.
In May 2012 Shell was chosen the successful bidder for 7,800km2 Yuzivske acreage (Kharkiv and Donetsk regions, Ukraine) development with projected reserves estimated at 4.054trln m3 of gas of various categories. The project calls for raising at least $20mn (UAH1.6bn) in investments for the geological study phase, and $3.75bn (UAH30bn) for the industrial production phase. The agreement envisages stage-by-stage exploration, development and hydrocarbons production. Both companies (Shell and Nadro Yuzivske) will hold a 50% participation stake, with Shell chosen the project operator responsible for carrying out works under the terms of agreement.
According to Shell press service, the mentioned PSA was signed for 50 years period. The initial geological study phase at Yuzivske field implies 2D and 3D seismics as well as 15 well drilling, which is expected to enable effective exploration and assessments of hydrocarbon deposits potential especially that of natural gas trapped in compacted sandstone. Yuzivske field development will be implemented in line with the highest international HSE standards. In this way Shell is to carry out comprehensive possible environmental, social and public health impact assessment of the project prior to launch.
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