The government of Ukraine has approved a draft agreement with Chevron Corp. for shale gas extraction in the country's western region in a deposit that could produce as much as 10 billion cubic meters of gas annually.
Chevron won the tender to explore the Olesska deposit in the Lviv region in February 2012, and the signing of the agreement is set for tomorrow, 5 November.
For Chevron, it means exploration in one of the most promising shale plays in Europe.
For Ukraine, it could mean the creation of up to 15,000 new jobs and tens of billions of dollars in revenue. It could also result in new competition for Ukraine's shale plays if junior exploration and production companies catch on to the potential here.
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The government's production-sharing agreement with Chevron provisions an initial investment of $350 million in exploration work to establish commercial viability at Olesska, which is a 5,260 square kilometer play. Total investments, including extraction after exploratory drilling, could reach $10 billion.
It was a hard-won battle that saw signing delayed due to opposition from local lobby groups who had expressed concerns over the possible environmental impact of fracking in Olesska-but regional lawmakers finally acquiesced.
Investment is picking up in Ukraine, as Kiev works to loosen the stranglehold Russia's Gazprom has on the country and to build its energy independence as well as that of Europe as a whole.
In January, Kiev signed a production-sharing agreement with Royal Dutch Shell, which pledged to invest up to $10 billion to explore Ukraine's unconventional gas potential.
Kiev is also hoping to close negotiations by the end of this year with a consortium led by ExxonMobil-again including Shell-to explore for oil and gas offshore Ukraine in the Black Sea.
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There are three key shale plays Ukraine is looking to develop with the help of foreign companies. Together, the three plays contain an estimated 3 trillion cubic meters of gas.
The exploration deal comes as both Moscow and Kiev raise the stakes, with Moscow threatening Kiev over unpaid gas bills and sparking fears of another gas war that could leave Europe in the cold, and Kiev preparing to sign association agreements with the European Union later this month.
By. Joao Peixe of Oilprice.com
Joao is a writer for Oilprice.com More