Exxon, Shell bid for Black Sea oil to get a "green light"
Ukraine plans to announce that a group of oil & gas companies including ExxonMobil, Royal Dutch Shell, Romania’s OMV Petron and Ukraine’s Nadra won a tender to explore the Skifska field in the Black Sea today, the Financial Times reported yesterday. The winning bidders promised to pay almost twice as much as the minimum of USD 200 mln called for by initial exploration phase plans and USD 300 mln upfront to sign the production sharing agreement within a year. Earlier this year, Ukraine selected Chevron and Royal Dutch Shell to develop onshore exploration projects.
Concord Capital comments on the news: The granting of rights to global oil & gas majors is an important milestone for the Ukrainian government, which has traditionally tightly held on to energy projects. In turn, the fact that these players are willing to play ball in Ukraine is clearly a positive signal in terms of Ukraine’s investment climate.
CMS Cameron McKenna LLP comments on the Tender terms: On 23 May 2012 the Cabinet of Ministers of Ukraine (CMU) adopted two Resolutions on Holding Tenders for the Award of Production Sharing Agreements (PSA) for the Extraction of Hydrocarbons within the Foros and Skifska Areas (Resolutions No. 454 and No. 455 respectively, hereinafter the “Resolutions”). The Resolutions became effective on 30 May 2012 and contain the main conditions on which the PSA tenders for the above mentioned areas will be held.
On 2 June 2012 both tender announcements were published in the state newspaper “Uryadovyi Kuryer” (No. 98). Tender bids must be submitted within two months from the date of their publication (i.e. on or before 2 August 2012).
The Skifska and Foros areas are oil and gas fields, located on the Black Sea shelf near the Ukrainian-Romanian border and the Crimean Peninsula respectively. The estimated recoverable reserves are expected to be 3 to 4 billion cubic meters of natural gas per year at Skifska and 2 to 3 billion cubic meters at Foros areas.
Skifska Area (Resolution No 455)
Type of special permit combined: exploration, pilot and commercial production of fossil fuel resources (natural gas, oil and condensate).
Period 50 years (may be further extended, if and as provided by Ukrainian law)
Acreage: 16698.2 km2
Depth: 10,000 meters below the surface or at the depth of a geologic basement (whichever comes first)
Minimum investment at the exploration stage: UAH 1.6 billion (USD 200 million).
Investor’s production costs shall not exceed 70%
State’s share in the production profit shall not be less than 20% percent.
Main bidding parameter: the attractiveness of the investment terms and conditions, in particular the amount to be paid by the investor to the State Budget within 10 days after execution of the PSA (the so-called “signing bonus”, which may not be less than UAH 2.4 billion (USD 300 million)).
Other bidding parameters:
(i) efficient use of natural resources;
(ii) efficiency of the technological solutions;
(iii) efficiency of the HSE protection program;
(iv) attractiveness of the investment terms;
(v) financial capabilities and experience in the light of the work program and investment terms of the tender;
(vi) attractiveness of the State-bidder profit share split suggested by the bidder;
(vii) experience of the bidder in real life projects for exploration and/or production of fossil fuels at a deep marine shelf;
(viii) the extent to which the use of local goods, works and services of Ukrainian origin is ensured.
Description of the work programme:
1) 1st exploration stage, which includes the geological survey and the drilling of at least one exploration well – to be completed within 5 years;
2) 2nd exploration stage (if any) which includes a further geological survey and the drilling of at least one exploration well;
3) pilot production stage (if any) which includes the drilling of the exploitation wells and the development of the deposits;
4) submission of the report (based on the results of the exploration stages) to the State Information Geological Fund;
5) estimation of the mineral deposits and successful approval by the State Commission on Reserves of the Mineral Resources
Disclosure of information concerning the investor’s methods for the efficient use of subsoil resources:
1) measures intended to be adopted in order to start the commercial production and to reach the peak volumes of the extracted hydrocarbons as soon as possible;
2) evidence of safe and modern technology and equipment capable of ensuring the implementation of the most effective methods of exploration and production of hydrocarbons;
3) availability of technology to protect water resources and ecological system of the Black Sea continental shelf;
4) availability of technology to protect the atmosphere and prevent air pollution
Participation fee: UAH 1 million (USD 125,000)
Price of the tender documentation (comprising: (i) tender terms and conditions; (ii) a cartographic layout of the area, (iii) general and geological description of the area, (iv)geological data; (v) list of the geological data which can be further purchased): UAH 12 million (USD 1.5 million)