Royal Dutch Shell plc
) led consortium has been selected by Ukraine to develop the
Skifska gas field in the Black Sea shelf. The Ukraine government
has projected development costs to be around $10-$12 billion.
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The consortium, which also comprises Romania's OMV Petrom and
Ukrainian state company Nadra Ukrainy, has planned to commence work
on the field by this year-end. The group had outbid Russia's
OAO Lukoil Holdings to win this project.
The development is an initiative by the Ukraine government to
decrease its dependence on expensive gas bought from Russia.
The country's import from Russia totaled around 40 billion cubic
meters (bcm) in 2011 and represented nearly two thirds of its
Consequently, the Ukraine government is now taking steps to cut
down on imports by increasing coal consumption, reducing overall
utilization and developing domestic gas deposits. These efforts by
the government are likely to generate a minimum of 45 bcm of gas
As part of this effort, in May 2012, the government had selected
Royal Dutch Shell and
) as partners in an endeavor involving the exploration and
development of two potentially large onshore shale gas fields.
Skifska, mainly a gas field, is estimated to hold recoverable gas
reserves in the range of 200-250 bcm. The field is likely to
produce 5 bcm of gas annually in due course.
A predetermined condition of the tender required the winning group
to compensate the government with 2.4 billion hryvnias (about $300
million) subsequent to signing the 50-year production sharing
ExxonMobil's new project is in sync with its strategy of continuous
efforts to build an unconventional overseas resource portfolio,
which aims at increasing output through broader exposure to large
energy resources with long reserve life and low field declines.
ExxonMobil holds a Zacks #3 Rank (short-term Hold rating). Longer
term, we maintain our Neutral recommendation on the stock.