Shell planning to quit shale exploration in Eastern Ukraine

Natural gas pump, Ukraine
Source: DollarPhotoClub

The Anglo-Dutch oil and gas giant Shell is considering following in the footsteps of Chevron and abandoning shale exploration in the war-torn Ukraine.

Shell said it “has been prevented from performing its commitments under Yuzivska [production sharing agreement] for an extensive period of time due to force majeure, i.e. circumstances beyond Shell’s control”.

The company added: “Due to the said events, project implementation conditions have been materially changed. Therefore, we have begun discussions with the Ukrainian government and our partner Nadra Yuzivska LLC on the way forward with the PSA, pursuant to its terms.”

In December last year, Shell announced that it had made no progress in the shale gas exploration work in the Yuzivska formation.

The Yuzivska field was discovered in 2010 and was expected to begin production in 2017. The initial assessment indicated that the field holds around 70.8 trillion cubic feet of natural gas and the production was expected to yield around 960 million cubic feet of gas per day.

However, despite these optimistic estimates, the actual exploratory drilling work carried out so far has not confirmed the presence of abundant shale resources in the eastern part of the country.

In February 2014, Kharkiv regional authorities announced that Shell has failed to find natural gas in the Belyayevskaya-400 well, which was drilled the previous year. So far two wells have been drilled in the formation, with neither of them yielding satisfactory results.

The ongoing hostilities between the Ukrainian forces and the pro-Russian separatists in the eastern parts of the country, have put Ukraine in a politically and economically precarious situation. A situation which additional revenues from the country’s shale deposits could greatly improve.

This is why Ukraine is committed not to give up on its shale deposits, which – at 42 trillion cubic feet – are estimated to be the 3rd largest in Europe.

In May this year, Ukrainian authorities awarded JKX Oil & Gas PLC a 33.9 square kilometre extension to the company’s Elizavetovskoye production licence to include the West Mashivske prospect.

Meanwhile, in February, the state-owned Nadra Ukrayny signed a memorandum of cooperation with Exalo Drilling, a subsidiary of the Polish state-owned exploration company PGNiG. As a part of the agreement, the companies were to co-operate on the exploration, evaluation, and eventual exploitation of oil and gas in Ukraine.

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