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Ukraine launches first international bidding round to boost gas output

London — Ukraine on Thursday launched a landmark international bidding round for the rights to explore at some 30 license areas throughout the country as Kiev seeks to boost its domestic gas production and reduce its import dependency.

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The State Geological Service of Ukraine said 10 blocks would be offered in the first stage of the licensing round, with applications invited from interested parties from Thursday for a period of 90 days.

The first auction will then take place on March 6 next year. The remaining 20 blocks will be auctioned at a later date.

Ukraine's gas production has been steady at some 20 Bcm/year for the past 25 years, but it has vast untapped potential in its onshore blocks -- both for conventional and unconventional resources -- as well as in the Black Sea.

While looking to produce more gas domestically, Ukraine also wants to eliminate imports, which currently all come from Europe after Kiev halted direct Russian gas purchases in November 2015.

SELF-SUFFICIENCY

Kiev has the ambition of achieving gas self-sufficiency in the coming years -- raising production levels to meet gas demand that is currently running at some 28 Bcm/year.

But Ukraine has struggled to attract international investors into its upstream in recent years, not least due to the ongoing conflict in the east of the country.

International majors such as Chevron and Shell came to Ukraine in the early 2010s in an attempt to develop the country's unconventional gas resources, but none remain.

The recent escalation in tensions between Moscow and Kiev after Russia seized three Ukrainian naval vessels could also detract investors from taking acreage in the country.

Nonetheless, Ukraine is moving ahead with the licensing round, with the first 10 blocks covering some 1,810 sq km to be auctioned in March via the public trading platform ProZorro.Sale.

The use of an open electronic platform was decided to ensure full transparency in the round, following accusations of wrongdoing in previous contract awards to upstream companies in the country.

ROUND TERMS

In the first round, licenses for nine of the blocks are proposed for exploration and production for 20 years. The remaining parcel is for a five-year exploration period.

The undiscovered prospective resources of the 10 blocks are officially estimated at 86.25 Bcm of gas and 16.3 million mt of liquids.

Eight on the blocks are located in eastern Ukraine in the Poltava and Kharkiv regions, with one on offer near Odessa and a further block on offer in western Ukraine.

--Stuart Elliott, stuart.elliott@spglobal.com

--Edited by Jonathan Fox, jonathan.fox@spglobal.com