Ukraine considers repeating tender for offshore oil and gas block

London-traded oil company Trident Resources recently won a contest for exploration rights to more than 9,500 square km of acreage in the Black Sea, although the government has suggested it may cancel the award.

Authorities in Kyiv launched a tender in April offering a 50-year production-sharing agreement (PSA) to the Dolphin area spanning the northwest of Ukraine’s Black Sea shelf. A government energy commission voted in favour on July 26 of awarding the contract to Trident – a company founded and led by former Russian opposition politician Ilya Ponomarev.

“It was a difficult struggle, but our application was significantly more profitable for Ukraine,” Ponomarev, who was granted Ukrainian citizenship earlier this year, wrote on his Facebook page on July 26 confirming the win. “We promise not to let you down and to do everything possible to start production as soon as possible.”

The deal is controversial and while some have hyped it, saying it will attract as much as $1bn in investment, other commentators believe it will attract no more than $50mn.

Ponomarev is a controversial figure. A child prodigy who started his career at the Institute for Nuclear Safety of the Russian academy of sciences at the age of 14, he went on to become an executive at Yukos oil company and  then a Russian Duma deputy. He was the only Russian MP to vote against a decision to annex the Crimea in 2014. However, he fled Russia after getting caught up in a corruption scandal when it transpired he was paid hundreds of thousands of dollars by the state controlled innovation fund of the Skolkovo Fund for a series of lectures that reportedly he never gave. He left Russia after the Russian Investigative Committee opened a criminal investigation into the case and has been a vocal critic of the Kremlin while in self-imposed exile.

Ukrainian PM Volodymyr Groysman suggested on July 27 the government might repeat the tender, however, as it failed to attract any major international oil companies.

“When we announced this competition, we counted on the participation of world leaders of the likes of Shell and Exxon,” Groysman said in a Facebook statement. He said results indicated the competition “was not competitive enough and generally did not live up to expectations regarding the arrival to our market of players from the world’s top league of gas producers.”

Groysman’s concerns echo those previously voiced by Ukraine’s gas lobby group, the Association of Gas Producers (AGPU). That APGU’s head Roman Opimakh revealed to NewsBase, a bne IntelliNews company, in June that the association had asked the government to delay the tender to “allow increased competition and bring international players with proper competencies to Ukraine.”

Besides Trident, the Dolphin contest also attracted bids from Ukrnaftoburinnya, one of Ukraine’s largest private gas producers, and Frontera Resources, a small Texas-based company focused on Georgia and Moldova. Caspian Drilling, a unit of Azerbaijan’s SOCAR also filed an offer but later withdrew it – a decision Ukrainian energy minister Igor Nasalik has claimed was because of pressure on Azerbaijan by Russia.

The offer from Frontera, which had requested the PSA contest, drew particular concern, not least because of the company’s less than stellar operating record in Georgia. It has held rights to gas assets in the west of the country for more than two decades. But despite claiming to have found several trillion cubic metres of gas, it is yet to follow through on plans to launch commercial production.

Frontera entered a 50-year deal to search for oil and gas in southern Moldova in 2017, pledging to invest $500mn, but has not reported conducting any activity in the country since then.

Ponomarev has responded to Groysman’s indication that the award will be rescinded by suggesting that Trident seek out a large international company as partner for the Dolphin area.

He has also made lofty claims about the project’s potential, suggesting it could unlock $1bn in foreign investment. Under the terms of the Dolphin PSA, however, its chosen operator will be required to spend only UAH1.5bn ($55.5mn) during an initial exploration phase, which will involve the completion of at least five wells.

In an August 1 statement on Facebook, Ponomarev went on to say that Dolphin’s development could lead to an increase in Ukrainian gas production by 10-15%, citing its 40-50bn cubic metres of potentially recoverable gas resources. But the area does not contain any proven commercial gas fields, making its value difficult to gauge until drilling has been undertaken.

A final decision on the contract award will be taken by Ukraine’s cabinet.