Ukraine's Leading Producers: "How we do it"
Ukraine is a promising market, has strong demand, and its oil and gas industry is going through an evolution, according to Adelmo Schenato, COO, Cadogan Petroleum, who appeared at the Ukrainian Energy Forum in Kiev.
"There's a big need in terms of energy demand," he said, "although Ukraine is adopting all the measures to save and reduce energy consumption.
Out of the 60 bcm needed, noted Mr. Schenato, only 20 bcm would be produced.
He commented, "There is a huge potential in reserves and, more or less, we have 300 years of current consumption as a potential production in the country, so it's a huge expectation."
Infrastructure, he said, was available in a country that had a plethora of experience in the industry, not to mention people and institutions. "We are absolutely confident in our business. The private sector is growing and this is a positive factor for an industry in which the the majority interests are under state control. So the chance for our industry to be here safely in the future is absolutely there," he said.
Of unconventional gas prospects in Ukraine, he said there was a very great and challenging opportunity in estimates of Ukraine's Dnipro-Donets basin, which he described as 'high opportunity' as there was a lot to be done there.
At the end of February, it was reported that Cadogan planned to sink its first well with Italy's Eni, and that the two companies planned to explore for shale gas in Ukraine.
Of Ukraine in the context of exploration and production, he said, "It's at the crossroads of Europe, a country for both east and west. There's a very good industrial culture in which over 12,000 wells have been drilled. It has great potential in production, exploration and unconventionals, with all the basic ingredients for a successful story.
"Can our industry accept the challenge and be proactive for the future as well?" asked Mr. Schenato.
But, of course, there was a caveat, as it wasn't always so easy to utilize those characteristics and much updating was needed in terms of drilling technology. He noted that things like language and culture could be a barrier, "But we need to be flexible enough to find a common value."
"So far, shale gas is still a dream in Europe, because of the environmental concerns and social perception, and the oil industry representation - sometimes we're not so accepted," he explained. "And, at the same time, we need to have competitive production and on the shelf technology that is not always present."
Mr. Schenato noted that European natural gas production was in decline, and there was increased demand with the reduction of nuclear, and renewables not were filling the gap, making a need for increased O&G activity. Meanwhile, he said that the infrastructure investments which are ongoing - pipelines like TAP, South Stream, etc. - favored the dominants' positions.
Among the exploration challenges, he considered the level of ease of transferability as questionable and said that a 2-3 year exploration period was necessary.
"We could have a big boom in the near future, but have to think about what will be here when we leave, concluded Cadogan's Adelmo Schenato. "We have to develop our business with this type of future vision and can't miss the environmental and social aspects - we must be ready for booming but also for the natural deflating."
Jakub Korczak, Managing Director, CEE, Kulczyk Oil Ventures, was another of the natural gas producers featured in Kiev. He showed Kulczyk's assets in Ukraine, saying the company had seen continuous growth and that it would receive a new reserves report for Ukraine by the end of March 2013.
As to how Kulczyk was running its operations in Ukraine, he explained: "It's a combination of local people here who know the asset, the geology, who know the operating environment and have knowledge of western technologies that are not here."
A Polish company, Mr. Korczak said Kulczyk had only two non-Ukrainian workers, a technical director and a deputy director.
He spoke of efficiencies achieved by the company, depicting the money and time saved regarding a moving rig. Drilling times, he said, had been reduced from 60 to 35 days; rig moves had been cut in half from 30 to 15 days. "Drilling rates have increased and downtimes have decreased," he reported.
As to where Kulczyk was headed, he spoke a bit about the company's plan for 2013.
"We've recently finished drilling our first well this year; we have up to seven more and are planning five fracking operations, and doing some more seismic," said Mr. Korczak. "So 2013 is a busy year for us."
He concluded that Kulczyk was looking to produce 27 bcf/day in 2013.
Representing yet another producer in Ukraine, Zenon Potoczny, President, Shelton Petroleum, explained that Shelton was a Canadian E&P, which was founded in 2007, that had transformed into a Swedish company and had potentials in Ukraine and Russia.
He joked that the move to Sweden had improved the company's financials, as they looked like bigger numbers in Swedish kroner.
Shelton, he said, had moved from exploration to profitable production, which had increased liquidity and strengthened the company's position on financial markets.
He spoke of the "old and proven field" that Shelton had in Ukraine, the Lelyaki field. "We have a healthy profit at current production levels," reported Mr. Potoczny. "The production is not very high, but it's important that it's profitable.
"The tax regime in Ukraine and Russia are quite reasonable now," he mentioned.
Of the large, unexploited Black/Azov Sea potential possessed by Shelton, he said: "We have drilled in the Azov Sea a few years back. I'm proud to say we were the first western company to have drilled in offshore Ukraine. The fact that we drilled a dryhole is not something to be proud of, but as our geologists say, 'There are more dryholes in the world than producers, and as long as you learn something from it,' and we have definitely learned something from it and will go back more aggressively on the offshore properties."
Production was quite small, he explained, at just over 500 barrels per day, and an operating margin of 25%.
Shelton, he explained, also had investments in pan European terminals and tank capacity, with facilities in Rotterdam, The Netherlands as well as in Denmark.
Of Shelton's projects in Ukraine, he mentioned the joint venture with oil and natural gas extracting company Ukrnafta with which the company had production of 800 barrels of oil/day. "Shelton's working interest," he said, "is 45%, Ukrnafta's is 55%."
Then, there was a joint activity agreement with Chornomornaftogaz, which involved offshore properties and three licenses. He commented, "Despite the great potential, the progress on this has not been very quick, as joint activity agreements are not the best way to go; we're negotiating on this and would like to change it to a joint venture or a PSA," said Mr. Potoczny.
He described Lelyaki concession as a "classic redevelopment case" - an old and proven field.
According to him, Shelton had recently drilled two new wells, one of which was being tested.
"There's a lot of excitement about oil and gas production in Ukraine again," he remarked. "Obviously, there's political pressure to increase production in Ukraine, and you hear every minister talking about it.
"The recent shale gas tenders that were awarded to Shell and Chevron obviously increased that interest, and then ExxonMobil offshore property got everybody excited," noted Shelton Petroleum's Zenon Potoczny, who mentioned that one of the company's plans for 2013 would be shooting some seismic in offshore Black Sea.