US-based energy investment company Trident Acquisitions has announced that it has won a public competition to explore and produce oil and gas from Ukraine’s offshore Dolphin block at the northwestern corner of the Black Sea’s continental shelf. Ilya Ponomarev, company CEO talked to Globuc about the oil & gas industry prospects in Ukraine and his company plans.
The first question is about the overall situation in the Ukrainian oil and gas production in the context of the situation in other countries of the Black Sea region with a focus on the advantages and disadvantages of investing in this industry.
The current legal structure and business practices in the oil and gas sector of Ukraine has become better not just in the entire Black Sea basin, but in Europe as a whole. The country enjoys low royalty rates while authorisation procedures work very fast, if not always transparent.
The loose legal framework is Ukraine’s main problem. The country was formed not long ago and decisions can often be revisited as a result. Some people can sue you out of the blue, and you’re going to have to stand trial, wasting time and energy. A local council, for one, might throw a spanner in the works over environmental or other commitments.
Everything is resolved in the final run but plain vanilla Western investors can be at a loss sometimes, as this is not what they are used to. That’s the downside.
These things, however, do not dampen our company’s positive outlook on investing in Ukraine.
Romania has traditionally been seen as the leader in the region. Ukraine is now increasingly hitting the news, but there is still ambiguity about what exactly should be produced there.
Romania has been thought of as leader in Romania, but in Ukraine it is Ukraine that has been considered the leader. Romania is rich in oil whilst Ukraine is rich in gas.
According to our geology experts, doubling this volume with the modern technology should not be a problem at all.
The technological capacity in Ukraine is not up to scratch and there is a shortage of personnel because qualified geologists and reservoir engineers have been leaving for Russia over the past 30 years to work on larger projects and better salaries. Therefore it is hard to source qualified staff within Ukraine now. Lots of people have to be recruited elsewhere. And it’s a challenge.
Ukraine is not a country for large companies, it seems. It is better suited to small and medium-sized companies with a production under 5 MBOE. An ExxonMobil would not work there, but several successful players can handle a few million tons of production.
What challenges and difficulties can the development of the Dolphin block present?
Legal wrangles are still on going around it. Our company has been nominated the preferred provider alongside San Leon (Ireland) and GSP (Romania). The [Ukrainian Energy and Coal Industry Ministry] Interagency Commission submitted its conclusion on the winners of the bidding process but the Cabinet of Ministers has not yet approved the results. There is still time to do this, two months till the end of September.
The new Ukrainian government believes that large companies like ExxonMobil may resume working in Ukraine, although the said ExxonMobil has just withdrawn from Romania where it developed a field just a few kilometres from the Dolphin.
The block contains three areas licensed to Chernomorneftegaz seized in the run-up to Crimea’s forceful annexation by Russia. We believe that these areas will become available after Ukraine wins the case against Russia over the annexation of Crimea. The case has been submitted to an international tribunal, and the adjudication of Naftogaz’ 5-billion-dollar claim against Russia has begun
We want to include these areas in the overall development scope; they can have quite a significant yield.
Do geopolitical challenges play an important role then?
They play virtually the primary role. We suspect that some participants of the tender, which was rather intense and competitive, were backed by Russia, attempting to prevent Ukraine from starting the development of this block.
We are insured against war risks by the United States government, and we believe that the Russian Federation can be into some funny business in that area. This block is beyond Russia’s claims even theoretically, as it is closer to Romania than to Crimea, but you never know. The events of the last five years demonstrate that it’s all very complicated.
What are your company’s strategic plans for the near future?
We were established three years ago. A little over a year ago, we got a listing at the NASDAQ stock exchange, pulled off an IPO, raising 200 million USD in the process.
The original strategy was to acquire a core company in Eastern Europe, most likely in Ukraine. The next step would be to inject American oil and gas production technologies into this company and to invest into the development of the Black Sea shelf. We have followed this strategy so far and are in takeover negotiations with several Ukrainian and American companies.