After five years of legal battles, Vanco Prykerchenska might start exploration works in Black Sea, Ukraine this year
Vanco Prykerchenska Ltd has had a turbulent time in Ukraine since the signing of the Prykerchenska Production Sharing Agreement with the State of Ukraine in 2007 for the exploration and development of oil and gas deposits from the deep water Prykerchenska Block of Ukraine’s Black Sea.,
Following a change in the Ukrainian Government in 2007, the license for subsoil use issued to Vanco Prykerchenska Ltd. was revoked whenthe Government withdrew from the Prykerchenska Hydrocarbons Sharing Agreement (HSA). Since 2008, the PSA has been the subject of an international arbitration in
The Ukrainian Government has now approved the negotiated Settlement Agreement with Vanco Prykerchenska Ltd.
According to Jim Bown, President of Vanco Prykerchenska Ltd, - “this is a welcome and essential part of the resolution of the long-standing dispute between VPL and the State of Ukraine. The next stage of this very long journey is for the VPL Shareholders to give their approval. This may sound rather simple but unfortunately the documentation for each Shareholder is very complex, and preparing all the necessary documents is a very time-consuming process. However the settlement of the dispute is close – but not yet finalised”.
VPL’s exploration area (the Prykerchenska Block) is a little under 13,000 km2 in area and has water depths from around 700m in the northern parts down to 2100m in the central and southern areas. The Prykerchenska Block is still the only hydrocarbon area in the Ukrainian Black Sea (or indeed across the whole of
Jim Bown notes: “Vanco International Ltd was awarded victory in an open international tender concerning the Prykerchenska Block way back in April 2006. Following the tender victory which granted Vanco the right to negotiate a Hydrocarbons Sharing Agreement with the State of Ukraine, the HSA was finally signed after 18 months of hard negotiations on 19 October 2007. Now almost 4½ years later, VPL still has not been able to start the exploration programme in the
After a long period of negotiation, the Settlement Agreement should be signed within the next few months. Soon after this, a Consent Award will be issued by the Stockholm Arbitral Tribunal to bring the current arbitration case to an amicable conclusion. Under a Consent Award there are no winners or losers and the Parties pay their own costs. VPL is confident that exploration of the Prykerchenska Block of
Jim Bown comments: “From VPL’s point of view, this is a triumph of patience, persistence, and determination – all attributes that investors in
The Prykerchenska exploration programme covers 8 years in three distinct periods of 3 years, 3 years and 2 years and involves a large 3D seismic acquisition project and the drilling of 6 deep water exploration wells. The total cost of the 8-year exploration programme was originally estimated to be $330 million. However, over the last 4 or 5 years the exploration costs have escalated dramatically. Only the first three years of the Prykerchenska Exploration Programme are now estimated to cost almost $400 million. This is more than the entire 8 year programme as previously estimated in 2006/2007. VPL now estimates that each deep water exploration well in 2000m of water will cost in excess of $120 million, and is likely to cost nearer to $150 million. In addition, the global success rate (that is the chances of finding commercially producible hydrocarbons) from a deep water well is something between 17 – 20%. Clearly, deep water exploration is an extremely risky and very expensive business.
Based on the terms of the Prykerchenska Hydrocarbons Sharing Agreement, over the 30+ year life of the Project, Ukraine will receive in excess of 70% of the total value of the project and Vanco under 30%. Jim Bown comments: “the State of Ukraine will pay nothing and will take no risks. This seems to be a very good deal for Ukraine.” A successful Prykerchenska Project will lead to more extensive exploration and development of