overview of the ukrainian oil and gas and shale gas market

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Canada - Ukraine Oil & Gas Opportunities Workshop, Kyiv, February 25-26, 2013

by Lyubomyr Goncharuk Adviser to the

Minister of Ecology and Natural Resources of Ukraine

Overview of the Ukrainian Oil & Gas and Shale Gas

Market Opportunities

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CONTENTS 1. Reserves & Resources 2. Production & Consumption 3. Opportunities

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1. Reserves & Resources

UKRAINIAN SHIELD

Azov Sea

Black Sea

Kyiv

200 km

Dniprovsko-Donetska Depression

Crystalline basement slopes

Voronezhska

AnticlineLvivskiy Trough

Volyno-Podilska

Plate

Donbas

Fore-Dobrugean

Trough

Fore-Crimean Depression

Fore-Carpathian Trough

Folded CarpathiansTranscarpathians

ScythianPlate

Mountain

Crimea

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Canada - Ukraine Oil & Gas Opportunities

Workshop, Kyiv February 25-26, 2013

Oil & Gas 1/2

Four oil and gas provinces are recognized in the country, including 11 oil-gas basins and 35 prospective areas. Hydrocarbon deposits are being

exploited for oil, gas, and condensate in the following regions:

• A – the Eastern Region (Dniprovsko-Donetska Depression and northwestern portion of Donbas);

• B – the Western Region (Volyno-Podilska Plate, Fore-Carpathians, Folded Carpathians, and Trans-Carpathians);

• C – the Southern Region (Prychornomorya, Crimea, and the exclusive marine economic zone of the Black Sea and Azov Sea offshore).

A B

C

UKRAINIAN SHIELD

Azov Sea

Black Sea

Kyiv

200 km



Voronezhska


Volyno-Podilska

Plate

Donbas

Fore-Dobrugean

Trough




ScythianPlate

Mountain

Crimea

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High

Low

Medium

Oil & Gas 2/2

In 2011, production amounted to 2.4 million tons of oil, 0.9 million tons of condensate,

and 20.6 billion cubic meters of natural gas.

The State Inventory includes 187 oil deposits (121 in production), 202 condensate

deposits (142 in production), and 380 natural gas deposits (224 in production).

Proven and probable reserves are estimated to:

• 133 million tons of oil • 66 million tons of condensate • 1 trillion cubic meters of natural gas

UKRAINIAN SHIELD

Azov Sea

Black Sea

Kyiv

200 km



Voronezhska


Volyno-Podilska

Plate

Donbas

Fore-Dobrugean

Trough




ScythianPlate

Mountain

Crimea

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A

B

Coalbed Methane

This is potentially an important non-conventional additional hydrocarbon

resource confined to coal deposits in the Donetskiy (A) and Lvivsko-Volynskiy (B)

coal basins.

The State Inventory comprises 200 deposits, of which 99 are in production.

Proven and probable reserves of methane are estimated at 343 billion cubic meters.

In 2011, production totaled to 760 million cubic meters of methane.

UKRAINIAN SHIELD

Azov Sea

Black Sea

Kyiv

200 km



Voronezhska


Volyno-Podilska

Plate

Donbas

Fore-Dobrugean

Trough




ScythianPlate

Mountain

Crimea

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Nevertheless, reconnaissance studies commenced last years in Donetskiy (A) and Lvivsko-Volynskiy (B) coal

basins as well as Dniprovsko-Donetska (C) and Prychornomorska (D) depressions and Fore-Carpathian

(E) and Fore-Dobruja (F) troughs (fold belts).

A

B C

D

E

F

Shale Gas

Non-conventional shale gas resources are not recorded yet in the State Inventory being preliminary estimated to

some trillions of cubic meters.

Up to recent no research and practical exploration were conducted in Ukraine.

In 2012, the shale gas field tender has been organized for two sites located in the

areas A and B. The permits for 50 years of exploration and production granted to Shell (A, Yuzivska field, 7886 km2) and

Chevron (B, Oleska field, 6324 km2), depth 10 km each. The total investments

required under PSA conditions are estimated to $3.7 bln. in Yuzivska field

and $3.1 bln. in Oleska field.

UKRAINIAN SHIELD

Azov Sea

Black Sea

Kyiv

200 km



Voronezhska


Volyno-Podilska

Plate

Donbas

Fore-Dobrugean

Trough




ScythianPlate

Mountain

Crimea

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A

B

Coal

The State Inventory contains more than 900 deposits with proven and probable reserves, located in Donetskiy (A) and

Lvivsko-Volynskiy (B) coal basins, of which 400 are being exploited

underground.

Ukraine’s proven and probable coal reserves are estimated at 53 billion tons.

In 2011, production totaled to 69 Mt.

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2. Production & Consumption

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Canada - Ukraine Oil & Gas

Opportunities Workshop, Kyiv February 25-26,

2013

Hard Fuels(source: www.ukrstat.gov.ua)

61,7

59,5

55,0

59,8 59,460,4 58,9

55,0

61,8639

430

358395462

544559

449

50

52

54

56

58

60

62

64

2003 2004 2005 2006 2007 2008 2009 2010 2011

Years

Coal

, mln

. t

0

100

200

300

400

500

600

700

Peat

, th.

t

Coal, mln. t Peat, th.t

Liquid Fuels(source: www.ukrstat.gov.ua)

2,83,0

3,13,3 3,3

3,22,9

2,6 2,41,11,11,2

1,1

1,3

1,21,1

1,00,9

0

0,5

1

1,5

2

2,5

3

3,5

2003 2004 2005 2006 2007 2008 2009 2010 2011

Years

Crud

e O

ill, m

ln. t

0

0,2

0,4

0,6

0,8

1

1,2

1,4

Gas

Con

dens

ate,

m

ln.t

Crude Oil, mln. t Gas Condensate, mln.t

2003-2011

Ukraine mineral figures. Fuels

Gaseous Fuels(source: www.ukrstat.gov.ua)

18,6

20,7

19,8

19,2

20,2

20,6

20,119,9

19,6721

658

744745832 880

962867

950

17,5

18

18,5

19

19,5

20

20,5

21

2003 2004 2005 2006 2007 2008 2009 2010 2011

Years

Natu

ral G

as, b

ln.m

3

0

200

400

600

800

1000

1200

Oil-

Rela

ted

Gas

, m

ln.m

3

Natural Gas, bln. m3 Oil-Related Gas, mln.m3

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2013

Ukraine GDP and Government Revenue

(source: www.economywatch.com)

0

20

40

60

80

100

120

140

160

180

200

2003 2004 2005 2006 2007 2008 2009 2010 2011

YearsG

DP,

USD

bill

ion

0

100

200

300

400

500

600

Gov

ernm

ent

Rev

enue

, U

AH

bill

ion

GDP

Government Revenue

Ukraine mineral trends.

Growth & Breaks

2004 2006 2008 2010 2012

GDP, Revenue

flat-varying

descending

growingCoalPeat

Oil-related Gas

Crude OilNatural GasGas CondensateWorld Crisis

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2013

28%

5%

4%

7%2%2%

52%

iron oresiron ore concentratesiron castsoil & productsfertilizersnon-organic chemicalsnon-minerals

27%

6%

4%

8%3%3%

49%

iron oresiron ore concentratesiron castsoil & productsfertilizersnon-organic chemicalsnon-minerals

Ukraine mineral

sector export

2010

2011

Total - $51.4 bln

Total - $68.4 bln

Source: www.ukrstat.gov.ua

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Ukraine: some country figures

Country territory: 232 000 sq miles Population: 45 million

• Annual gas statistics (2011): Gas consumption: 2.08 Tcf, including:

Industry — 1.12 Tcf Public utilities — 0.96 Tcf

Import from Russia — 1.35 Tcf Production in Ukraine — 0.73 Tcf

Gas transit from Russia to Europe via Ukraine territory — 3.65 Tcf

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• Domestic natural gas production — 721 Bcf /year • 676 Bcf — on-land production (in Ukraine) • 43 Bcf — offshore gas production

in Black Sea (6%)

• Offshore gas extraction facilities (Black Sea): • Two old offshore jackup rigs work in Black Sea

operate for over 15 and 20 years • Two new jack-up rigs bought in 2012, one of them

was put into operation on August 2012 (Naftogaz NJSC, Ukraine).

LNG: first LNG importation Terminal is being on project

feasibility stage.

Ukraine: gas production

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Ukraine: gas transportation and storage infrastructure High pressure pipelines - 23,600 miles Volume of natural underground gas storages — 1.12 Tcf

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3. Opportunities

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Cabinet of Ministers of Ukraine

State Geological and Subsurface Survey of Ukraine

NADRA UKRAYNY NJSC • Geological exploration; • License coordination; • Cooperation with IOCs; • Oil and gas production.

Other geological

organizations

National Joint-Stock Company “Nadra Ukrayny”: the Hydrocarbon Vehicle of the State Geological and

Subsurface Survey of Ukraine

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NADRA UKRAYNY NJSC: International activities

Visiting and Participation in oil and gas international conferences and exhibitions (including World Shale Gas-2010, 2011 and 2012 (Dallas, Houston, TX, USA);

Associate Member of American Gas Association (AGA)

Drilling equipment market research and visiting of leading manufacturers of drilling rigs and equipment (USA, Canada, China);

Cooperation with most of International Oil Companies for mutual activity in Ukraine (actual agreements and contacts with EXXON MOBIL, CHEVRON, SHELL, eni, PETROM, TOTAL, CNPC, PETROBRAS);

Consulting, project management in geology exploration for foreign companies;

Relations with World’s Leading companies engaged in offshore seismic exploration for their activity in Ukrainian sector of Black Sea (PGS, SGVeritas).

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Three options for cooperation between IOCs and Ukraine / NADRA UKRAYNY:

1. Production Sharing Agreement (PSA);

2. Foundation of Joint Venture with NADRA UKRAYNY for exploration and operation of concrete license areas.

3. Direct investments to some branch companies of NADRA UKRAYNY.

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Option 1: Production Sharing Agreement

Expected from NADRA:

Licenses, Available subsurface database (logs, seismic, core, analysis etc.); Local and legal support of project; Optionally - equipment and staff;

Expected from IOCs: Investments in form of equipment supply and money; Technologies, know-how; Optionally - equipment and staff.

Benefits to both parties: products, shared between parties in agreed proportion might be sold on active Ukrainian market.

Preferred by IOCs as traditional scheme for elaboration of large projects in raw regions. In Ukraine the PSA should be approved by Cabinet of Ministers, which takes up to 12 months.

Legal base: Ukraine Law about PSA #1039-XIV of 10.09.1999

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Not granted in 2012, moved to next round

of 2013

The PSA is signed at the World Economic Forum in Davos on Jan 24, 2013

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Option 2: Joint Venture with NADRA UKRAYNY

Legal base: number of Ukrainian laws starting from 1991 No coordination with Government, prompt start of project; Any selection of forms of investments from both parties (money,

equipment, licenses, database, staff, etc.)

First example: in June, 2012, Eni Group signed a Share Purchase Agreement with Nadra

Ukrayny National NJSC and Cadogan Petroleum Plc to acquire a majority interest and operatorship in Westgazinvest LLC, an Ukranian Company founded in 2012 by the Nadra and Cadogan holding, subsoil rights to 9 unconventional shale gas license areas, located in Western Ukraine within Lviv Basin, encompassing a total acreage of approximately 1,500 sq. miles.

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Option 3: Investments to NADRA’s branch companies

Very quick start of cooperation;

Preferable directions for investments:

- Buying of equipment (drilling rigs, service, seismic and geophysical equipment);

- Subcontract Execution of works including seismic exploration for Black Sea shelf.

- Money investment for big project (offshore rigs, midstream and downstream facilities etc.).

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Ukraine requires further studies in all hydrocarbon provinces and other areas to identify the oil and gas distribution in various geological structures and in the column therein. Specifically, it has to be studied the stratigraphic and tectonic controls, the host rock depth and composition, gas shale properties and fracturing, evaluation of gas resources and reserves, as well as economic viability to explore shale gas targets and their further development and commercial exploitation. All these activities are open for the foreign investors nowadays.

LOOK FORWARD

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Thank you very much for your kind attention!

overview of the ukrainian oil and gas and shale gas market

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