RUS | ENG | All
Enter the email or login, that you used for registration.
If you do not remember your password, simply leave this field blank and you will receive a new, along with a link to activate.

Not registered yet?
Welcome!

2014-06-25 18:30:00

SHELL & CHEVRON UPSET

SHELL & CHEVRON UPSET

Getting caught up in a war zone ranks among the worst-case scenarios for an oil company. This has happened to Royal Dutch Shell in eastern Ukraine, where heavy fighting between pro-Russian separatists and Ukrainian military forces continues.

Shell has a hydrocarbons production-sharing agreement at the 8,000 sq km Yuzivska field, which lies across Donetsk and Kharkiv regions. A map of the field shows it covers Slovyansk, the heart of the pro-Russian military uprising.

Such proximity has affected Shell's Ukraine operations, but only up to a point, according to the company. Simon Henry, Chief Financial Officer said on Bloomberg TV in early June that the oil giant is taking "time out on the actual drilling activity on the ground", for security reasons.

On the other hand, Shell has no intention of amending its plans to explore for shale gas in Ukraine. "We are preparing for exploration works on the Yuzivska area. Currently the environmental baseline survey is ongoing," Shell said in a statement send to beyondbrics.

In the view of Mikhail Gonchar, the president of the Centre for Global Studies Strategy XXI, a Kiev-based think-tank, the current military crisis is slowing down Shell's activities in Donetsk region but there is no serious threat to the shale gas project.

"Some adjustments in the schedule of activities in Donetsk region will be made, but it will not have a significant effect on the project at its current stage – the stage of the primary geological survey," Gonchar told beyondbrics.

Chevron, the US oil major, appears to be in a better position in Ukraine. The company signed a shale gas production-sharing agreement with the previous Ukrainian government at the 5,260 sq km Olesska field, which lies in the western regions of the country that have avoided military confrontation.

"We have yet to conduct field exploratory work in Ukraine, such as seismic or drilling, as we're still in the early stages of developing a presence there. Following signing the production sharing agreement in November in Kiev, we are working with the government in accordance with its terms and conditions," Chevron said in a statement to beyondbrics.

Meanwhile, the ousting of president Viktor Yanukovich and the change in government in Kiev could lead to a reshuffle of the Ukrainian side of the production-sharing agreements (PSA) with Shell and Chevron.

The new Ukrainian authorities have announced their intention to strip SPK Geoservice, a Kiev-based privately-run company, of its shares in Nadra Yuzivska and Nadra Olesska. Both are partners of the two western oil giants in the production-sharing agreements.

SPK Geoservice currently controls 10 per cent in Nadra Yuzivska and Nadra Olesska, while 90 per cent of both companies are controlled by state-owned Nadra Ukrainy.

It appears that neither Shell nor Chevron are particularly worried about the possible changes from the Ukrainian side. Shell's statement to beyondbrics said that:

SPK Geoservice remains a shareholder of Nadra Yuzivska. Participation of Nadra Yuzivska as a local investor was mandated by the Ukrainian government in the PSA tender conditions. Shell's internal policies require a due-diligence to be conducted with regard to its intended partners in all ventures, and Yuzivska PSA is not an exception. We have performed extensive due diligence of our partner, as well as the project. The PSA and Joint Operating Agreement (JOA) between Shell and Nadra Yuzivska contain contractual commitments on business integrity, for example the JOA requires compliance of the parties with Shell Group Business Principles, other manuals and standards, and with applicable Ukrainian and international laws. It is not our place to comment on the Ukrainian government's intentions with respect to SPK's continued involvement in the project.

And this from Chevron's media office:

Chevron abides by a stringent code of business ethics, under which we comply with all applicable laws. Ultimately, the ownership structure of our partner in this endeavor is an issue to be decided by the Government of Ukraine and the shareholders of Nadra Olesska, in accordance with Ukrainian law.

Commenting on this situation, Gonchar tells beyondbrics that at present, it is only possible to talk about "suspicions" of possible corruption in SPK Geoservice's involvement in non-traditional hydrocarbons projects.

ft.com

Tags: SHELL, CHEVRON, UKRAINE, OIL