August 15, 2012 / 9:45 AM / in 7 years

Exxon, Shell-led group win $10 billion Ukraine gas project

KIEV (Reuters) - Ukraine has picked a consortium led by ExxonMobil (XOM.N) and Royal Dutch Shell (RDSa.L) to develop its Skifska gas field in the Black Sea, it said on Wednesday, as it seeks to wean itself off increasingly expensive Russian gas imports.

The project, whose total costs have been estimated by the government at $10-12 billion, is part of the former Soviet republic’s plan to ease its dependence on gas imported from Russia, which amounted to some 40 billion cubic meters last year and accounted for nearly two thirds of the country’s consumption.

“Thanks to state projects aimed at increasing domestic production we will be able to produce at least 45 billion cubic meters domestically,” Environment and Natural Resources minister Eduard Stavitsky told reporters in announcing the winner of the Skifska tender.

Skifska, predominantly a gas field, is estimated to hold reserves of 200 to 250 bcm of gas, he said, and is expected to eventually produce 5 bcm a year.

Stavitsky said the winning consortium, which also includes Romania’s OMV Petrom and Ukrainian state company Nadra Ukrainy, would start work on the field this year.

ExxonMobil and Shell could not be reached for comments.

As a condition of the tender, which had also been contested by Russia’s Lukoil (LKOH.MM), the winner must pay the government 2.4 billion hryvnias (about $300 million) after signing the 50-year production sharing agreement.

Ukraine already has an extensive gas pipeline network which could ship gas from the Black Sea coast to consumers elsewhere in the country.

The price of Russian gas imports has been rising steadily over the past three years but Kiev’s attempts to renegotiate the supply agreement have so far been unsuccessful and the government is now trying to cut imports instead by switching to coal, cutting overall consumption and developing domestic gas deposits.

In May the government picked Shell and Chevron Corp (CVX.N) as partners in projects to explore and develop two potentially large onshore shale gas fields.

Writing by Olzhas Auyezov; Editing by Greg Mahlich

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