Page 5 - FSUOGM Week 49 2019

FSUOGM COMMENTARY FSUOGM
Calgary-based mid-sized player Vermilion Energy at two more of the contracts, while another one was won by a US junior called Aspect Energy. Even so, if the commitments are kept, the PSAs will unlock an impressive $431mn of investment in exploration and devel- opment over a five-year period.
Ukraine also sought an investor for a PSA covering more than 9,500 square km of acreage in the Black Sea, with Lon- don-traded oil company Trident Resources, founded and led by former Russian opposi- tion politician Ilya Ponomarev, emerging as the winner. But authorities later cancelled the tender, stating that more time was needed to attract an IOC with sufficient expertise and financial clout.
All in all, only 28 of the 43 blocks offered in the licensing rounds were awarded, with only four going to international bidders. This result fell far short of what the government had been hoping for.
Undeterred
Ukraine shows no sign of giving up on its pur- suit of foreign investment, however. On Decem- ber 11, its state subsoil agency is due to present in London PSAs for a further three blocks in the prolific Dnipro-Donetsk Basin in eastern Ukraine, where many of the country’s largest gas fields are located. The deadline for bids had orig- inally been set last month but was extended until February 4, 2020.
Dnipro-Donetsk not only has proven poten- tial, but also boasts well-developed midstream infrastructure built during the decades that the region has been producing gas. Authorities hope the contest will be the first of several new offer- ings in 2020.
Beyond licensing out new acreage, Ukraine
has also invested more in exploration and pro- duction at existing fields. These efforts have been spearheaded by UGV, which has obtained 20 new rigs and hired an additional 15 from inter- national contractors. It has boosted drilling, from an accumulative 173,000 metres in 2015 to 313,000 metres last year, while also expanding the use of advanced production techniques such as hydraulic fracturing.
Even so, output has fallen short of expecta- tions. UGV had set a goal of ramping up annual output to more than 20bn cubic metres by 2020, from 14.5 bcm in 2016, as part of a government plan to raise national extraction to 27 bcm. But despite investing billions of dollars in new equipment and extra drilling, the company only managed to produce 15.5 bcm in 2018, up 1.6% year on year. National production meanwhile amounted to 21 bcm.
To its credit, UGV said it had been banking on receiving at least 80 new upstream licences between 2016 and 2018, but had instead secured only 18. It blamed the government for not launching its auction series sooner.
Ukraine’s ultimate goal is to minimise its gas imports, by scaling up production on the one hand and making its consumption more efficient on the other. National consumption totalled 30.6 bcm last year, from 56.1 bcm eight years earlier. The country relies on costly imports from the EU – mostly Russian gas that has been resold. It is reluctant to deal with Russia directly for political reasons.
While Ukraine’s investment drive may have underwhelmed, the country is clearly moving in the right direction to achieve its future energy independence. It must continue offering up fresh acreage to investors and analyse the results of each contest to determine how the process can be further improved. ™
Week 49 11•December•2019 w w w . N E W S B A S E . c o m P5