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PM calls on state to develop offshore oil
Journal Staff Report

KIEV, May 12 Prime Minister Yulia Tymoshenko, days after canceling oil exploration and production license for a U.S. oil company, said Monday that state resources must be used to develop Ukraines vast offshore oil fields.

The controversial decision to cancel the license for Vanco Energy, a private U.S. oil company, illustrates Tymoshenkos increasing preference for the state sector.

Seeking to win public support, Tymoshenko went even further by comparing the U.S. oil company to a controversial Russian natural gas trader, RosUkrEnergo, which now supplies gas to Ukraine.

Concerning the offshore deposits, this is the RosUkrEnergo No. 2, but now in the much more terrible form, Tymoshenko said at a press conference.

Tymoshenko even sought to link President Viktor Yushchenko, who has been promoting attraction of foreign investment to fast exploration and development of Ukraines off-shore oil and gas fields, to the project.

What happened, had of course happened at the order of the president and against the national interests of Ukraine, Tymoshenko said. The president has personally initiated these things.

Tymoshenko insisted that state resources through Naftogaz Ukrayiny, the national oil and gas company, as opposed to private interests, must be used to develop the fields.

The most promising areas must go to Naftogaz and be developed with state resources, Tymoshenko said.

The plan is controversial because Ukraine lacks deep-sea oil drilling technology, while the government lacks money that must be invested in the off-shore projects.

The government move to cancel the license will probably be contested by Vanco Energy, but Tymoshenko said the government will fight the company in courts to nationalize the off-shore area.

We, as the government, are obliged to return the Ukrainian shelves back, Tymoshenko said, although suggesting that there was room for talks with Vanco.

I would like that Ukraine retains 65-70% of the extracted [energy] resources, while the rest to be owned by the investors, Tymoshenko said. If Vanco accepts such conditions, the talks may end up positively.

Vanco Energy, through its subsidiary Vanco International, won a tender to develop off-shore Black Sea area near Kerch in April 2006. At the tender Vanco outbid ExxonMobil and Shell, which filed a joint bid, but also Hunt Overseas Oil Company, the worlds largest privately-held oil company, and UkrNafta, Ukraines largest oil company.

In October 2007, Vanco and the Ukrainian government signed a production sharing agreement after more than 1.5 years of talks over the issue.

Tymoshenko estimated that the 13,000 square kilometers off-shore area near Kerch in the Black Sea contains 1.5 trillion cubic meters of natural gas worth about $450 billion. This is 30% of Ukraines estimated total energy deposits, according to Tymoshenko.

I would like to say that this is the biggest treasure of Ukraine, which could secure our political and energy independence, Tymoshenko said.

The Black Sea shelf has been earlier described by analysts as Ukraines most promising future source of energy that could help it reduce dependence on Russian oil and gas imports.

The Kerch area development project was expected to generate up to $15 billion in investments into exploration and production of oil and gas during the next 30 years.

The field near Kerch is 12,960 square kilometers, at depths of water from 70 to 2,000 meters, the depth level that make it impossible for Ukrainian companies to extract oil and gas.

Vanco Energy, a Houston-based independent oil and gas company, is engaged in international exploration, emphasizing deepwater.

Since 1997, Vanco has built a high-potential deepwater Africa exploration portfolio. The company now holds seven large licenses in six countries, including Morocco, Cote d'Ivoire, Ghana, Equatorial Guinea, Gabon and Madagascar. (tl/sb/ez)

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