Ukraine’s Cabinet of Ministers on Feb. 26, officially issued tenders for nine blocks of land potentially rich on petroleum. The bidders will compete for a chance to sign a 50-year production sharing agreement (PSA).
The long-awaited process of opening up the country’s natural gas production began on Dec. 6, when 10 blocks of land with hydrocarbon reserves were put up for electronic auction that will end in March 2019, while another 20 blocks were being readied for auctioning, 7 of which are already being auctioned with May 2 set as the deadline.
The first 10 blocks opened for auction cover around 1,000 square kilometers and are estimated to contain 86.25 billion cubic meters of natural gas and 16.3 million tons of liquid oil, according to the Association of Gas Producers of Ukraine. The auctions will give the land to investors for a 20-year period.
The nine blocks of land opened for tenders are part of the 12 additional gas reserve blocks that were, as stated by the government on Dec. 18, to become open for investors through separate tenders held by the Cabinet Ministers of Ukraine.
As of Feb. 26, investors interested in the nine blocks of land, that cover a total of 11,600 square kilometers, have 90-days to forward their bids to the government’s Interagency Commission, with the terms being a non-refundable bid participation fee of Hr 300,000 ($10,830) and a minimum financial commitment to invest between $16 million and $36 million into a five-year exploration period.
The tender conditions also require a minimum of an 18 percent share of profit petroleum for the state and a 2 percent royalty rate for the production of liquids under the PSA, the natural gas rate stands at a rate of 1.25 percent.
Ukraine produces only 20 billion cubic meters of gas each year, lagging behind countries like Myanmar, Bangladesh and Trinidad and Tobago, even though Ukraine has greater potential, with over 1.1 trillion cubic meters of proven reserves. The consensus among experts is that the much anticipated privatization of gas extraction sites will help Ukraine boost its energy independence.
Currently, UkrGasVydobuvannya, a subsidiary of the state-owned oil and gas monopoly Naftogaz, accounts for 75 percent of Ukraine’s natural gas extraction, with private owned companies extracting less than 20 percent of Ukraine’s natural gas each year.
