Naftogaz Group (JSC Ukrgasvydobuvannya) has submitted the draft production sharing agreements (PSAs) for four oil and gas sites (Balakliyska, Ivanovska, Buzivska and Berestyanska) to a special Interdepartmental Commission for final approval. Amid the crisis the Company affirms its readiness to invest 3.6 billion UAH in the development of these sites during the first 5 years.
Naftogaz gained the right to conclude PSAs following the open tenders in June 2019. Since then, the texts of the agreements have been agreed for almost 1.5 years.
“Since late October, the work on the agreements has become faster and more productive owing to the participation of the Prime Minister of Ukraine. In fact, it took us a month to resolve all fundamental issues and reach the final stage. Now we have to agree on the formalities of the agreements and the law requires this to be done no later than the beginning of January. The development of new, promising assets cannot be postponed any further given that the critical Ukrainian deposits are depleted.” said Oleksandr Romanyuk, Director of the Naftogaz Exploration and Production Division.
Under the agreements, Naftogaz agrees to carry out 3D seismic exploration covering an area of 1.55 thous. sq.km in the first 5 years and to drill 12 exploratory wells. The total amount of investment should be 3.6 billion UAH.
In addition, Naftogaz will assume the entire scope of obligations for the development of Balakliyska and Ivanovska blocks, which the Company had previously planned to develop jointly with a foreign partner. Vermilion Energy (Canada), another successful bidder for these sites apart from Naftogaz, decided not to participate in the projects given the significant decline in gas and oil prices compared to 2019, the coronavirus pandemic and the global economic downturn.
“Over the past year and a half, Vermilion Energy has developed a close working relationship with Naftogaz. We are impressed with the technical expertise of Ukrainian specialists, their deep insight into joint projects and their results-oriented approach. While Vermilion Energy has decided not to continue the negotiation or signing of the PSAs, we hope this will not adversely affect Naftogaz's plans to develop the sites under the agreements. We look forward to future cooperation and express our hope that Ukraine will be successful on its way to energy independence,” said Jenson Tan, Vermilion’s Vice President of Business Development.
The Ukrainian Cabinet of Ministers may conclude agreements with Naftogaz without the participation of Vermilion Energy in accordance with Art. 12, Part 2 of the Law of Ukraine “On Production Sharing Agreements”. The law states that “if one of the investors refuses to conclude an agreement, said agreement may be concluded with its other participants by agreement of the parties and following appropriate changes to the text of the agreement.”