Slovak Nafta to Invest $200mn in Ukraine Field

Slovak producer Nafta is planning to invest in a gas production project in eastern Ukraine despite the conflict near the region, taking over Shell's rights to a tight gas field that now belong to the government.

Nafta's upstream boss Josef Levoca told the Association of Gas Producers of Ukraine (AGPU) February 22: "Your country has a huge resource potential for implementation of petroleum projects, and we are confident that Ukraine can soon become an energy self-sufficient state. Our company is the exploration and production leader in Slovakia, we are using advanced technologies in our operations and we are ready to share the successful experience to develop Ukraine’s gas production." Nafta is planning to drill at least 15 new wells on the Yuzivka field and invest up to $200mn in the first five years.

AGPU chairman Daniel Maydanik said Ukraine’s gas production sector in the past few years has not seen any new credible investors willing to take on such large obligations and risk. "The interest of the Slovak company is also a good signal for other potential investors. We are certain that stimulating taxation for gas production, which is active starting this year, will facilitate the attraction of a growing amount of foreign market players and advanced technologies in the industry, which should significantly increase performance," Maydanik said.

Ukraine's energy ministry has asked the government to approve the transfer of 90% of the rights and responsibilities of state-owned Nadra Yuzivska under the production sharing agreement (PSA) for Yuzivska area (Kharkiv and Donetsk region) to Yuzgaz, a Dutch-registered company. “The ministry of energy and coal considers  that the best chance for successful gas exploration and production within the Yuzivska area lies with Yuzgaz, which has modern operational methods and can apply them much more cheaply than Shell since it has lower production and administrative costs,” the supporting documents read.

Nafta is ready to become a 50% shareholder of Yuzgaz as soon as the cabinet approves the transfer of rights and obligations from Nadra Yuzivska – which owns Shell's portion – to Yuzgaz. In July 2016, Yuzgaz won a tender to develop a tight gas project at the Yuzivska area in eastern Ukraine, where Shell had planned to produce, but the area is also near the conflict zone with Russian-backed troops. Yuzgaz, if approved by the government as a PSA participant, could have 90% in the project, while the share of the state-owned Nadra Yuzivska would be reduced to 10% from 100%. The other shareholder in Yuzgaz is private equity fund Emestone Energy.