Ukraine - Oil and Gas potential is large - A market for minor and medium sized oil and gas companies to explore and produce?

Ukraine represent a market for minor to medium sized oil and gas companies as no major international player has made permanent presence there yet in the exploration or production phase

This article is only meant to give a brief overview of activities within the oil and gas sector in Ukraine. If you would require more details into activities in the country, either on a company basis or asset basis, please feel free to contact me at sak@ec-ba.com and we can discuss it further.

There are at the present many players in Oil and Gas Exploration sector within Ukraine. Some international companies like Shell and Lukoil have found a niche within the downstream part of the oil and gas business, as there is yet to be found such major players within the upstream segment of the oil and gas industry of Ukraine.

Ukraine, being a net importer of energy, is well endowed with its own resources. The oil and gas reserves in the country are estimated at the level of 2,3 billion barrels of oil equivalent, with natural gas contributing 87% of the total. Ukraine's gas reserves account for 0,6% of total world proven gas reserves and 0,2% of oil reserves.

Hydrocarbon resources of Ukraine are estimated at 7-8 billion tons of fuel equivalent. Average annual oil and gas production amounts to 18 billion cubic meters of natural gas and 4 million tons of crude oil and covers 25 % of the demand for natural gas and 13 % of the demand for crude oil in Ukraine. Crude oil and natural gas are imported primarily from Russia, or through Russia from Turkmenistan (natural gas) and Kazakhstan (crude oil). Oil and gas make up to 60 % of the primary fuel consumption in Ukraine, including 40 % natural gas and 20 % oil.

Several major international oil and gas companies have exited this country for various reasons. But still there are some medium to small sized companies left in Ukraine. Most companies have bought themselves into production assets with potential for brown field exploration opportunities. Some companies have expanded their exploration efforts to maintain and to expand their proven resources within the country.

Companies like. Total, ExxonMobil. Shell and other majors like Chevron. Wintershall and OMW have all tried to venture Ukraine oil and gas production and exploration, without any success. It is not the lack of opportunities given by Mother Nature. Geologists have reported of several good opportunities both onshore and offshore.  Please contact me for more details if you want to have some. However the political regime and the business environment have not been in favor of these companies. And they have either decided not to enter or already have exited the country.

Up to 250 enterprises of various types of ownership operate in the oil and gas sector: in exploration, production, refining or pipelines. The largest companies are subsidiaries of state owned holding company Naftogaz Ukrainy.

Companies left in the country pursuing production and exploration opportunities are a mix from various countries around the world as well as some domestic players.

Naftogaz`s subsidiary Ukrgazvydobuvannya and subordinate companies Ukrnafta and Chornomornaftogaz produce 97% of domestic natural gas and 96% of domestic crude oil and condensate. Chornomornaftogaz extracts oil and gas in Crimea on the Black and Azov Sea shelves, while Ukrgazvydobuvannia and Ukrnafta operate on land. Ukrnafta itself, a 50% state-owned company, is the largest oil producer in Ukraine (94% of domestic oil production.) Despite the high level of state control, there is a number of successfully operating international companies in oil and gas extraction. They are mostly working in joint ventures or under joint activity agreements with Ukrnafta or with Naftogaz`s subsidiaries. The Law on Production Sharing Agreements and the Oil & Gas Law were intended to simplify the procedure of obtaining licenses for oil & gas exploration and extraction and provide additional guaranties for the investors.

I list below some of the companies involved in the upstream part of the oil and gas business in Ukraine. If you need further details, please do not hesitate to contact me on email sak@ec-ba.com. As seen from the list below there is 9 players from Ukraine, 8 from UK, 6 from the U.S.A and 8 from Russia. There are several companies from other countries as well, but they are only present with minor amounts.

VikOil (Ukrainian)

Ukrnafta VAT (Ukraine)

Ukrgazbydobuvannya Affiliated Company (Ukraine)

Naftogaz of Ukraine NJSC (Ukraine)

Shebelinkagazvydobuvannya (Ukraine)

Poltavgazvydobuvannya (Ukraine)

Kharkivgazvydobuvannya (Ukraine)

L'vivgazvydobuvannya (Ukraine)

Ferroexpo (Ukraine)

CanArgo Energy (UK)

Poltava Petroeum Company JV (UK)

Europa Oil & Gas Ltd (UK)

Cadogan (UK)

Cardinal Resources plc (UK)

JKX Oil & Gas plc (UK)

Nostra Terra Oil and Gas Company plc (UK)

Regal Petroleum plc (UK)

Hunt Oil (U.S.A)

Vanco (U.S.A)

Chevron (USA)

USENCO (USA)

JV UkrKarpat Oil (USA)

JV Karpatsky Petroleum Corporation (USA)

TNK-BP Holding (Russia)

RAO Gazprom (Russia)

TNK (Russia)

Lukoil (Russia)

SlavNeft (Russia)

TatNeft (Russia)

Gruppa Alliance (Russia)

Alliance Oil Company (Refineries) (Russia)

Kuwait Energy (Kuwait) – Asset was previously owned by Cardinal Energy Ltd (UK)

Kazakhoil (Kherson refinery) (Kazakhstan)

Itera International Energy Company USA and Ukraine)

Itera-Ukraine (USA and Ukraine)

JV Eurogas (USA and Germany)

Polish Oil &Gas Company (Poland)

JV Plast (Greece-Cyprus)

Epic Energy Ltd (Canada)

Capital Oil (Swedish)

Tiway Oil (Norway)

According to the 2008 gas balance, in the current year, the country will consume 75 bcm of this fuel, with 55 bcm being imported, while 20 bcm is of domestic extraction. The level of annual oil consumption in Ukraine is some 20 million tons with the domestic extraction of some 4.5 million tons of oil and gas condensate.

The hydrocarbon resources in Ukraine are estimated at 7-8 billion tons of fuel equivalent. Average annual oil and gas production amounts to 18 billion cubic meters of natural gas and 4 million tons of crude oil and covers 25 % of the demand for natural gas and 13 % of the demand for crude oil in Ukraine. Crude oil and natural gas are imported primarily from Russia, or through Russia from Turkmenistan (natural gas) and Kazakhstan (crude oil). Oil and gas make up to 60 % of the primary fuel consumption in Ukraine, including 40 % natural gas and 20 % oil.

There are three petroliferous regions in Ukraine: in the west (the Carpathian region), in the east (the Dnipro-Donetsk region) and in the south (the Black Sea - Azov Sea region). The Dnipro-Donetsk basin is a major producing region of Ukraine accounting for 90% of Ukrainian production from over 120 oil and gas fields. The cumulative production from the basin is estimated at over 52 trillion cubic feet of gas and 1,3 billion barrels of oil. Over 3,000 wells have been drilled in the basin to date. The basin holds potential for deep gas exploration (deeper than 3.8km). The Carpathian basin is relatively large - over 700 million barrels of oil and 8 trillion cubic feet of natural gas. The Carpathian foredeep has been explored to depths of 4.0km to 4.5km. Despite the extensive activities, deeper parts of the basin offer very good potential for further exploration. The Black Sea - Azov Sea basin is predominantly gas-prone and includes natural gas fields. The Ukrainian part of the Black Sea shelf may have substantial oil and gas reserves, with mild weather and maximum water depth of 100 m. The hydrocarbon potential of the Ukrainian Black Sea shelf is substantial and it has been inefficiently explored, i.e. large structures in deeper waters have been bypassed due to the lack of offshore technology during Soviet times.

Amongst oil industry specialists working in Ukraine there is a widespread belief that, in spite of the challenges, the benefits both for investors and for the country from successful oil and gas exploration/production projects are potentially very substantial. Currently a great deal of work is being done in Ukraine by many dedicated individuals in government and in state organizations to maintain and extend the improvements in the legal, fiscal and business regimes. Such effort is now being rewarded by a steadily improving climate for upstream investment. As a result the future for Ukraine’s oil and gas sector is now brighter than at any time previously.

I have written several articles and books about Ukraine business environment and law, as well as about the oil and gas potential within Ukraine. You will find most of these in lulu.com. Here is a reference to one of the books i have written;

http://www.lulu.com/content/paperback-book/ukrainian-onshore-and-offshore-oil-and-gas-potential-increases/2459366

You can find more of my books by go to;

www.lulu.com/stig

In addition we are constantly updating our virtual dataroom for Ukraine at www.ec-ba.com