Vermilion Bids for Ukrainian PSA Blocks

Ukrainian producer Ukrgazvydobuvannya (UGV) and Canadian producer Vermilion submitted a joint application May 28 to participate in four upstream blocks with the aim of securing production-sharing agreements, Naftogaz Ukrainy said May 29.

The blocks are Balaklei, Ivanov, Zinkov and Sofiev and in the "highly advantaged" Dnepr-Donetsk basin. If the bids win, and subsequent talks with government progress to a final agreement, then UGV and Vermilion will have to invest and share any income on a 50-50 basis.

Vermilion will be the operator at the prospecting stage and UGV will have first refusal to supply the equipment and services and work for Vermilion. This include rigs and other services, as long as they meet the standards and are competitively priced.

During the prospecting stage, at least half the employees must be Ukrainian, and if it moves on to development, this rises to three quarters.

Naftogaz’ head of gas Andrei Favorov said this is the first major oil and and gas company since Shell to invest in Ukraine in order to produce gas. Co-operation under a PSA agreement with Ukraine’s and eastern Europe’s biggest gas producer can give the necessary impetus to achieve gas independence for the country, he said. The Dnepr-Donetsk basin is a first-class gas resource, which will benefit from an "extraordinarily high level of geological prospecting technology." Naftogaz is the sole owner of UGV.