The outlay comprises a $335 million signing bonus for Ukraine?s government and a promise to spend a further $400 million on seismic surveys and drilling two wells, according to an Energy Ministry official.
After making a natural gas discovery in neighboring Romania that may flow fast enough to supply half of that country?s consumption, Exxon plans exploration in Bulgaria, Russia and Ukraine.
The Black Sea is almost untouched by the oil industry, with fewer than 100 wells drilled, compared with more than 7,000 in the North Sea.
Improving drilling technologies and increased regional energy demand is drawing explorers to its challenging waters deeper than 1,000 feet (300 meters), said Philipp Chladek, a Bloomberg Industries analyst.
?If you think about where the unexplored areas in Europe are, you have the Black Sea and the Arctic,? said Iain Pyle, an analyst at Sanford C. Bernstein & Co. in London.
?The Black Sea is obviously far more accessible.?
Ukraine plans to sign a completed exploration agreement with Exxon later this year before offering more blocks to explorers, the Energy Ministry official said, asking not to be named because he?s not authorized to speak to the media.
The Skifska area covered by the license is adjacent to Romania?s Neptun block where Exxon and partner OMV Petrom SA (SNP) made last year?s Domino-1 gas find, which showed potential output at about 630 million cubic feet a day.
Domino-1 is so substantial that it may allow the country to become a gas exporter after 2018, Romanian Prime Minister Victor Ponta said yesterday at a conference in Bucharest.
Soviet Republics?
?In regard to the overall potential of the Black Sea, Domino-1 sets a good precedent,? Kevin Biddle, exploration director for Exxon in Europe, said in an e-mail.
?We expect to see exploration programs undertaken in Romania, Bulgaria, Ukraine and Russia in the next few years.?
Richard Scrase, a spokesman for Irving, Texas-based Exxon, said the company intends to start exploration works in Ukraine shortly after signing the license, which will include a bonus of more than $300 million.
With oil above $100 a barrel and onshore supplies waning, former Soviet republics and their ex-communist satellites surrounding the Black Sea are throwing their doors open to Exxon and competitors to search beneath the brackish waters that run as deep as 1.4 miles (2.2 kilometers).
The lack of exploration means the International Energy Agency and BP Plc (BP/) have no estimates for the sea?s reserves.
Billion Dollars?
Exxon and partner OMV Petrom said they plan to invest several billion dollars in Romania?s Neptun block.
The country plans a new bidding round for eight offshore blocks by the end of the third quarter.
?Deep-water exploration requires a huge capex, which none of the national companies could afford,? said Oleg Galbur, an oil and gas analyst at Raiffeisen Bank in Vienna.
?Oil and gas prices 10 years ago wouldn?t justify it, but now it?s different.?
The region had until recently been ignored by companies like Exxon and Royal Dutch Shell Plc (RDSA) because Ukraine, Romania and Bulgaria have in the past satisfied their demand for oil and gas through a combination of domestic onshore drilling and imports from Russia.
Now seeking to cut dependence on Russia, those countries need the international companies with their technology, cash and know-how for deep-sea drilling, Pyle said.
Turkish Boom?
Analysts credit the surge of interest in the sea to deregulation of local gas markets, proximity to fuel-hungry western Europe and rising energy needs.
Romania, where domestic gas prices are four times cheaper than imports, began to liberalize its gas market last year, Raiffeisen?s Galbur said.
Neighboring Ukraine is particularly eager to reduce its reliance on Russian export monopoly OAO Gazprom (GAZPROM).
The two countries? long-standing dispute over gas prices disrupted supplies to Europe in 2009 and left Ukraine vulnerable to decisions taken in Moscow.
In the past Ukraine was able to negotiate cheap gas prices because the only pipeline from Russia to western Europe ran across its territory.
That bargaining position was lost after the 2011 completion of the Nord Stream pipeline that linked Russia directly with Germany via the Baltic Sea.
The country imports about 55 percent of its gas consumption, most of it from Russia.
Black Sea exploration is also rapidly advancing in Turkey, where Exxon teamed up with Turkish state-owned energy company TPAO.
Shell, Petroleo Brasileiro SA (PBR) and Chevron Corp. (CVX) are all present.
The country, which has so far spent more than $2.5 billion on offshore exploration, will increase its exploration budget 13-fold, its energy minister said in April.
?The European Black Sea area now has a better chance to unfold its full potential,? Bloomberg Industries? Chladek said.
?The gradual liberalization of the local gas markets will enable companies to earn back justifiable returns.?
Source: Bloomberg
Source: http://news.kievukraine.info/2013/07/exxons-735-million-ukraine-pledge-shows.html
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