Ukraine picks Shell, Chevron to develop shale gas fields

Fri May 11, 2012 3:09pm EDT

* Firms to develop Yuzivska, Olesska fields

* Kiev wants to reduce dependence on Russian gas

KIEV May 11 (Reuters) - Ukraine has picked Royal Dutch Shell and Chevron Corp as partners in projects to explore and develop two potentially large shale gas fields, Prime Minister Mykola Azarov told the Euronews television channel on Friday.

A government source had told Reuters this week Anglo-Dutch Shell and Chevron of the United States were set to outbid Italy's Eni, Exxon Mobil and Russia's TNK-BP in the tender which Kiev sees as a step towards easing its dependence on Russian gas supplies.

"Chevron and Royal Dutch Shell have been chosen as winning bidders for Yuzivska and Olesska areas which have enormous gas reserves," Azarov told Euronews.

The Yuzivska area, won by Shell, is located in the eastern Donetsk and Kharkiv regions while the other, Olesska, is in the western Lviv region.

Ukraine has Europe's third-largest shale gas reserves at 42 trillion cubic feet (1.2 trillion cubic metres), according to the U.S. Energy Information Administration, behind France and Norway.

Ukraine's State Geological Service, which is more optimistic than the U.S. EIA, estimates the reserves of the Yuzivska area alone at 2 trillion cubic metres and those of Olesska at 0.8 to 1.5 trillion.

The geological service has also said the Yuzivska area would require $250 million-$300 million in exploration investment, while Olesska would need $150 million-$200 million. Tender application fees were $1.9 million for Yuzivska and $1.3 million for Olesska.

The winners of the tender will enter production sharing agreements with state firm Nadra Ukrainy and SPK-GeoService, a privately-owned Ukrainian company picked by the government as its partner in a separate tender this year.

Ukraine imports about two-thirds of its gas from Russia at a price that has been rising steadily for the last few years and is expected to average about $415 per thousand cubic metres this year.

Moscow says it would cut the price for Ukraine only if Russian gas giant Gazprom is allowed to buy into Ukrainian gas pipelines, which tranship the bulk of Russian gas to Europe, a trade-off Ukraine has so far refused to accept.

Talks on reviewing the price have lasted for over a year but so far failed to produce any results, prompting concerns among Russia's European consumers who in the past have suffered from supply disruptions due to conflicts between Moscow and Kiev.

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