Ukraine, US to drill for oil in the Black Sea

Other News Materials 9 December 2006 12:01 (UTC +04:00)

(ForUm) - Negotiations are continuing between the Ukrainian government and the Houston-based Vanco Energy Company for the right to drill for oil in the Black Sea, RFE/RL reported.

Talks on the tender, which would be the first granted to a Western investor in Ukraine's oil-and-gas sector, took place on December 6 in New York on the sidelines of a business forum aimed at attracting U.S. investors to Ukraine. Negotiations are expected to end in January 2007, reports Trend.

Ukraine could net billions of dollars if the deal goes through. If signed, Ukraine would get at least 51 percent of the future profits from the production-sharing agreement (PSA). But there has been speculation that the negotiations have stalled and that Russia's state-controlled gas giant, Gazprom, may become Ukraine's partner in the project.

Ukraine's Fuel and Energy Minister Yuriy Boyko denied that the Ukrainian government is interested in Gazprom's participation.

"There are always topics of dispute when negotiating a project of such magnitude but I do not doubt that we will find a compromise," Boyko said. "The negotiations with our partners [Vanco Energy] have demonstrated that we are close to [a deal]. By the end of January [2007] we will sign an agreement."

Vanco Chairman Gene Van Dyke also downplayed rumors of significant differences between his company and the Ukrainian government.

"I think there are only rumors, I've heard nothing of that from the official point of view, we've been awarded the tender and you've heard what the minister [Boyko] said. We're negotiating constructively to finish an agreement within the time allowed," Van Dyke said.

Vanco itself does not have the capacity to conduct seismic-exploration drilling at a depth of over 600 meters below sea level. Instead, it will hire subcontractors for the job.

"The type of terms we hope to achieve once it's agreed -- and it's not yet agreed -- would fall in the middle range of production-sharing agreements around the world," Van Dyke said of the project. "It will be certainly compatible with other agreements in what I would call 'frontier exploration areas' and 'areas of deep water,' which has additional mechanical risks and cost involved."

The tender is being negotiated for a period of at least 30 years with possible 10-year extensions.

But questions have been raised about Ukraine's business environment -- in particular, corruption.

Western investors are eying the Vanco tender as a test for Ukraine's commitment to liberalize its economy and to introduce much-needed transparency.

Van Dyke says that he doesn't see political risks because the contract is too big and too important for Ukraine.

As for Ukraine's high place on the annual Transparency International Corruption Perceptions Index, Van Dyke says that he sees no problem with that either.

"I'm aware of that, I've seen that index," Van Dyke said. "I don't feel the influence of that in this project. This contract has the advantage of being very large and very visible and very important to the government and to us, so, that adds transparency."