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Ukraine Edges Toward Cheaper Gas With Chevron, Exxon Deals

Nov. 5 (Bloomberg) -- Ukraine announced natural gas deals with Chevron Corp and Exxon Mobil Corp in a push to cut costs by two-thirds and reduce its dependence on Russia.

The Ukrainian government signed a production-sharing agreement with Chevron for extraction of shale gas in the Oleske field, Energy Minister Eduard Stavytskyi said today at a press conference in Kiev. Another production-sharing agreement with an Exxon-led group for exploring the Skifska field in the Black Sea may follow by the end of the month, he said.

Ukraine, dependent on expensive Russian gas imports for more than 60 percent of its needs, is accelerating efforts to diversify supply. Royal Dutch Shell Plc signed a production-sharing agreement in January to develop shale in the Yuzivska field in the eastern part of the country.

“The cost of gas production will be at least three times lower than what Ukraine is paying for the imports,” Stavytskyi told journalists during the press briefing.

Representatives of Exxon and Chevron weren’t immediately able to comment when Bloomberg News made calls to their offices in Kiev.

Chevron will initially invest $350 million in geological surveys and then “billions of dollars” as it plans to drill at least 2,000 wells, the minister said. The production could yield 5 to 10 billion cubic meters of gas a year, he estimated.

Ukraine has been trying to renegotiate a gas contract with Russia since 2010, saying it pays the highest prices in Europe. The two countries have not reached an agreement, and Ukrainian President Viktor Yanukovych had said the nation will seek to enter a free-trade agreement with the European Union.

The Ukrainian government has also recently met with representatives of Eni SpA and Electricite de France SA, who have also expressed interest in a production-sharing agreement for exploring the shallow shelf of the Black Sea, Stavytskyi said.

To contact the reporter on this story: Ladka Bauerova in Prague at lbauerova@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

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