THE HAGUE, June 8 - Shell Exploration Company B.V. will go ahead with a $100 million investment to start immediately searching for crude oil and natural gas in the Ukrainian soil, according to an agreement signed Thursday.
Shell and Naftogaz Ukrayiny, the national oil and gas company, signed the agreement that may help Ukraine to quickly increase production of natural gas by about 10%, reducing dependence on gas imports.
â€śWe want Shell to start actively operating in Ukraine,â€ť President Viktor Yushchenko said Thursday joining the ceremony of signing the agreement during his two-day visit to the Netherlands.
The agreement is the second major deal over the past two months opening the countryâ€™s energy sector to foreign investors. In April, the government selected Vanco Energy, an independent U.S. oil company, to explore for oil and gas at a Black Sea off-shore field that may generate up to $2 billion in investments, officials said.
The developments underscore Ukraineâ€™s attempts to develop domestic oil and gas sector and to reduce dependence on Russian energy imports amid fears that Moscow has been using its energy monopoly for political pressure.
During the next three years, Shell will focus its exploration effort on 31,000 sq km area between Dnipropetrovsk and Donetsk that is already operated by Naftogaz.
But Shell will bring in technology that will try to reach oil and gas at the depth of between 6,000 meters to 7,000 meters where Naftogaz hasnâ€™t so far been able to recover the resources.
Industry analysts said three gas wells that will probably be drilled by Shell may quickly generate up to 2 billion cubic meters of natural gas annually. This would effectively boost by 10% Ukraineâ€™s current natural gas output.
Shell will own 50% of resources that will be extracted from the wells it drills, while the government will obtain important seismic information from the sites of the drilling, Naftogaz said.
Ukraine counts on its off-shore and on-shore gas deposits as it seeks to boost its gas output to 30 billion cu m annually within the next several years, up from about 20 billion cu m/year currently, according to Prime Minister Yuriy Yekhanurov.
Ukraine has so far been relying on Russia and Turkmenistan for purchasing about 56 billion cu m of gas annually to meet domestic demand of about 76 billion cu m/year.
But following a brief stand-off with Russia in January, when Gazprom has completely cut gas supplies to Ukraine, the government decided to implement energy conservation to reduce the countryâ€™s gas consumption to 50 billion cu m/year by 2030.
Ukraineâ€™s explored reserves of natural gas have been estimated at about 1 trillion cu m, while total reserves could be as high as 5 trillion cu m of gas, Ukrainian geologists have said. The figures, however, rely on research made decades ago during the time of the former Soviet Union.
Rien Herber, the exploration director of Shell Exploration and Production in Europe, and Illya Rybchych, the head of Naftogazâ€™s gas extraction arm, signed the agreement.
Shell also signed a memorandum with Naftogaz on access to Ukraineâ€™s gas transportation network and guaranteed transit of natural gas it extracts via the Ukrainian gas pipelines.
Later in the day, Yushchenko, at the headquarters of Royal Dutch Shell in The Hague, met Jeroen van der Veer, the president of the Anglo-Dutch company, for undisclosed talks, according to Yushchenkoâ€™s press service. (tl/sb/ez)