29 May 2019, Kyiv – JSC Ukrgasvydobuvannya, a part of Naftogaz Group, and Vermilion Ukraine Exploration B.V., a subsidiary of the Canadian oil and gas company Vermilion Energy Inc., signed a memorandum of joint participation in tenders for production sharing agreements (PSAs), which will be held at several sites in accordance with the decisions of the Cabinet of Ministers of December 18, 2018, as well as about the prospects for further cooperation.

UGV and Vermilion agreed and on May 28, 2019 submitted joint applications for participation in 4 tenders for concluding PSAs, namely, for Balakliiska, Ivanivska, Zinkivska and Sofiivska areas, to the Interdepartmental Commission on PSAs Conclusion Organization and Implementation of the Ministry of Energy and Coal Industry of Ukraine.  In case of winning the tender for a specific area and successful negotiations with the Ukrainian government, UGV and Vermilion are obliged to make investment and share the gained profits in the proportion of 50/50.

In the case of winning the tender and signing PSA, Vermilion will be an operator of works at the site geological exploration stage. Ukrgasvydobuvannya will have the preferential right to provide its services and perform works for Vermilion, in particular drilling rigs and other services, subject to their procurement at the exploration stage, compliance with industry standards and competitiveness of supply.

Participants undertake significant commitments to involve and develop a national working resource. At the exploration stage, at least 50% of Ukrainian personnel will be involved in the works, at least 75% at the development stage.

“This is the first large oil and gas company since the times of Shell, which decided to invest in Ukraine to produce natural gas. Cooperation under the PSA of the largest state-owned gas company in Ukraine and Eastern Europe, Ukrgasvydobuvannya, with the world's leading oil and gas company Vermilion Energy, which owns the latest technologies, can give the necessary impetus to achieve Ukraine’s gas independence. The Dnipro-Donetsk Basin is a first-class gas-bearing basin, which will receive extraordinary benefits from the new stage of exploration and development technologies. If our applications are recognized as the best, we expect these areas to be developed in cooperation with Vermilion according to the highest standards of sustainable eco-friendly, social development and management”, concluded Andrew Favorov, Head of the Integrated Gas Business Division of Naftogaz of Ukraine.

Additional information

1. 1. NJSC Naftogaz of Ukraine is one of the largest companies in Ukraine and a leading enterprise in the country’s fuel and energy complex. Naftogaz is a vertically integrated oil and gas company engaged in a full cycle of operations in the sphere of gas and oil field exploration and development, production and exploratory drilling, gas and oil transportation and storage.
2. 2. Ukrgasvydobuvannya (UGV) is the largest gas production company in Ukraine, producing 75% of Ukrainian gas. The company’s sole shareholder is Naftogaz. UGV is a vertically integrated company engaged in a full cycle of operations from prospecting and exploration to development, production, transportation, processing of hydrocarbons, and sale of finished petroleum products.
3. 3. Vermilion Energy is an international oil and gas company shares of which are traded on the New York and Toronto Stock Exchanges. Its activities are concentrated in three main regions: North America (Canada, USA), Europe (France, Netherlands, Germany, Ireland, Croatia, Hungary, Slovakia) and Australia. The company has significant experience and technology in hydrocarbon production on land and sea, and in particular semi-traditional and non-traditional deposits.

2. Other terms and conditions of the memorandum of cooperation:

The time until obtaining the first gas, from the date of signing PSA, is on average 2.5-3 years or less, depending on the site.

The participants undertake to ensure free access of Ukrainian producers and suppliers to the supply of goods, works and services and to give preference to them, taking into account the requirements of Ukrainian legislation and observing the above principles during procurement, and provided that they meet the requirements of the tender documentation and are offered on an equal or better terms with regard to price, terms of performance/provision, quality and compliance with international standards.

 3. Unique technology that will be used in production, including Vermilion Energy’s unique technology:

• - performing advanced analysis of core material, including mineralogy, concentration of total organic carbon content. When taking core sample, modern core samplers will be used.
• - processing and interpretation of seismic data using the latest methods (PreStack Time Migration) and technologies (Midland Valley), inversion procedures (in Hampson Russell software), AVO analysis.
• - 3D seismic survey by a wide-azimuth technique.
• - latest drilling technology: use of clay-free water-based solutions, use of non-cable telemetry systems, use of rotary steerable system (RSS), use of drill bits manufactured by leading companies Baker Hughes, Schlumberger (Smith Bits), National Oilwell Varco (Reed Hycalog), Halliburton (Security DBS), Varel International, equipment of new generation (accelerators, downhole drilling motors and near-bit dampers), PDC-drillable casing equipment.
• - use of modern top-drive drilling rigs (including new Bentec rigs of UGV).
• - use of modern geological and technological studies with use of modern geological and technological control stations.
• - modern logging studies in open hole (Cross-dipole broadband acoustic scanning, Gamma spectrometry, Compensated neutron logging, Nuclear magnetic logging, etc.).
• - development technology: multi-stage systems for completion of open and cased holes, multi-stage hydraulic fracturing technology (based on Linear, Hybrid or Slick Water fluids, microseismic studies, DFIT).
• - conducting modern laboratory tests.
• - comprehensive geological and engineering data evaluation to create optimal prospects of exploration and development planning, well design and implementation at site.
• - ecologically safe technologies: pit-free drilling, waterproofing of sludge pits, bentonite mats for preventing soil contamination at drilling sites, use of geomembranes, dewatering technologies for drilling mud cleaning and neutralization of drilling sewage, solid fraction of drilling waste, return of associated oil-field water in underground horizons, use of reverse fluids.