Shell pulls out of east Ukraine gas exploration project

Citing
“circumstances beyond” the company’s control, a shell spokesman told the Kyiv
Post in an e-mailed statement that it has “been prevented from performing its
commitments under (the) Yuzivska production sharing agreement” in war-torn eastern
Ukraine.

The
Anglo-Dutch oil and gas company added: “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.”

Last
summer Shell declared “force-majeure” on the project which was supposed to
develop a vast natural gas field in Kharkiv and Donetsk oblasts close to where
Ukraine has for more than a year battled invading combined Russian-separatist
forces.

Ukraine’s
government signed the production sharing agreement with Shell in January 2013.

According
to the 360-page agreement released by Ivan Varchenko, a Kharkiv city councilman
on Jan. 25, 2013, Shell was obliged to pay a $25 million bonus to the state for
signing the agreement, then $50 million more when extraction starts, $25
million when the first gas starts to come, and $100 million when peak
production is reached.

The
field, with proven reserves of around 70.8 trillion cubic feet, was discovered
in 2010, and production was supposed to begin in 2017.

U.S.-based
Chevron also had earlier notified Ukrainian officials that it was quitting a
gas exploration project in western Ukraine that was also touted as a potential
$10 billion project.

Shell
still has other down and upstream investments in Ukraine, including a chain of
gas stations.

Kyiv Post editor-at-large Mark
Rachkevych can be reached at rachkevych@kyivpost.com.