Ukraine rolls out plans for further oil, gas tenders in 2020

Author: Aura Sabadus

2019/12/03

LONDON (ICIS)--Ukraine has rolled out plans to organise further tenders for oil and gas blocks in 2020 and streamline access to geological data as it seeks to ramp up production and attract more investors, ICIS understands.

Roman Opimakh, the recently appointed head of the State Service of Geology and Subsoil of Ukraine, told ICIS the national upstream regulator was planning to organise licensing rounds with an acreage covering over 15,000sq km for onshore and offshore oil and gas blocks in 2020.

The auctions will be for concessions and production sharing agreements (PSAs).

Opimakh, who will be in London for an EBRD-backed roadshow on 11 December, said the regulator was planning to attract, among others, companies from the US, Canada or China.

He said there were also plans to develop a virtual centralised catalogue of information on geological data.

Starting from December, state-owned geological information, which is located in the regulator’s data room has been available free of charge for review by potential investors. So far the data room covers geoscience information about three PSA tenders, which will take place in February 2020.

Ukraine has one of Europe’s largest oil and gas reserves, with conventional reserves alone estimated at 905 billion cubic metres. It is also thought to have close to 5 trillion cubic metres of shale gas and tight gas reserves, but most has been largely under-explored because the country had been dependent on Russian imports.

However, since the Euro-Maidan revolution of 2014, it took robust steps to reform its gas market, stopped Russian imports in 2015 and is now determined to increase production from 20.5bcm in 2018 to 35 billion cubic metres/year by 2030, of which 5bcm/year could be exported by that date.

In the upstream sector it brought more transparency by organising auctions on the ProZorro platform and opened up geological data, which had been hitherto confidential.

2019 TENDERS

As of November 2019, non-resident legal entities have been allowed to participate in online auctions for concessions, with the bidder being required to pay a refundable guarantee fee at 20% of the initial price of the bid.

In 2019 Ukraine organised concession and PSA tender rounds for 41 onshore and 1 offshore blocks with an acreage totalling 29,000sq km.

The watchdog organised five concession rounds in 2019 and awarded exploration and production (E&P) licences for a 20-year period for 19 blocks out of 29 that had been proposed. The total paid amount exceeded $14m.

The winners of nine PSA tenders were approved in June and included domestic as well as international companies such as Canada’s NYSE-listed Vermilion Energy or the US’ Aspect Energy.

The winners committed to invest anything between $430m-$1.5bn over a period of five years in drilling of new exploration wells and recovering idle wells.

An offshore PSA tender that was supposed to be held in October but cancelled will be relaunched in the near term.

Three more PSA tenders for three blocks covering 3,840sq km are scheduled for February 2020, Opimakh said.

Importantly, the concession agreements benefit from five-year stabilisation clauses, with royalties having been reduced from 55% in 2014 to 12% for production from depths less than 5,000m and 6% for production from depths below that threshold.

“This is a good time to buy assets as [gas] prices are at their lowest levels,” Opimakh said.

RUSSIAN IMPORTS

Since Ukraine stopped Russian gas imports in November 2015, domestic production has been covering nearly two-thirds of annual consumption, with the remaining volumes being imported from Hungary, Poland and Slovakia.

However, there are now indications that Ukraine may be looking to resume supplies from Russia, which has conditioned the signing of a long-term transit contract with Ukraine on the latter buying gas.

Russian producer Gazprom said it may sell gas at prices that would be 20-25% cheaper than European imports.

Companies interviewed by ICIS had raised concerns that the discounted Russian gas may undercut local producers and impact the country’s prospects of developing local resources.

Opimakh said Ukraine had alternatives, with domestic production being one of the most important.

He also added that even if Ukraine were to resume Russian imports, it may not do so in large quantities.