UK Energy Firm Suspends Ukraine License to Drill

UK - based energy firm JKX Energy, which is leading shale exploration and production in Ukraine, said it was granted more areas for work in the former Soviet republic, though the cost of business was still prohibitive to drilling.

The Ukrainian government has awarded the UK junior shale explorer a further 22 kilometres of territory to its production area, to bring the company’s totalled licensed Elizavetovskoye area to 103 square kilometres as the regulators allowed the company to merge two prospective sites into one licensed area.

However, JKX said that while it was pleased to be given greater areas for its production activities, it plans to suspend drilling activities until market conditions recover and government policy changes sufficiently.

“This further award is recognition of our ability to develop the potential of our Ukrainian licenses,” JKX Chief Executive Paul Davies said in a statement. “However, we have been forced to suspend drilling operations in Ukraine because of the current punitive levels of production tax and restrictive currency controls,” he added.

Drilling on the West Mashivske prospect will also be deferred until investment conditions improve.

The UK company holds the license agreements until July 2034 but has been regularly at odds with the Ukrainian government. In January, JKX said the economic climate in Ukraine was no longer conducive to continue investing in shale natural gas opportunities. In February, it started arbitration proceedings against Ukraine under a bilateral investment treaty between the British and Ukrainian governments.

In March, JKX restarted its operations once a government ruling expired that had decreed that all companies in Ukraine’s industrial sector source all gas from national joint-stock company Naftogaz of Ukraine.

Ukraine, which used to cover most of its gas needs with supplies from Russian gas monopoly Gazprom, is seeking an alternative to Russian gas imports as its war-torn economy struggles. Ukraine has started buying gas from the European Union too in a bid to reduce bills and lessen its energy dependence on Moscow.

Kiev also hopes to unlock the country’s potentially large shale gas reserves and break its dependence on costly Russian fuel imports.

However, late last year US energy giant Chevron terminated its contract with Ukraine to extract shale gas in the western part of the country. Ukraine’s energy deal with Chevron was the second of its kind, the first being with Royal Dutch Shell in January, 2013. Shell had hoped to extract gas from tight rock in Eastern Ukraine, but most business operations are frozen in the conflict-torn region.

“In connection with a war activity in Donbas and not good investment climate,JKX, Shell and Chevron aren’t going to invest to drilling and shale exploration in Ukraine soon,” Volodymyr Omelchenko, director of energy programmes at the Kiev-based Razumkov Centre, told New Europe on May 22.

Ukraine had also been hoping to lure western investment and knowhow to explore potentially large untapped hydrocarbon reserves off the coast of Crimea but US major ExxonMobil suspended its operations in the country after Russia annexed the peninsula.