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Ukraine to relaunch PSA tender for Dolphin offshore gas block in March

London — Ukraine -- which this year has opened up vast swathes of acreage for gas exploration -- plans to relaunch a tender for the prospective offshore Dolphin block in March next year, the head of Ukraine's state geological service said Wednesday.

Roman Opimakh, speaking at an event in London to promote three other gas blocks offered under Ukraine's production sharing agreement (PSA) regime, also said Kiev was headed toward self-sufficiency in gas as it works to boost domestic output.

"We have vast resources and we are moving in the direction of being able to cover domestic consumption and then even to export gas," Opimakh said.

The vast Dolphin block in the country's sector of the Black Sea is considered a key target for upstream investors, and Opimakh said the 50-year PSA tender would be relaunched in March after the first was cancelled in July, allowing more time to be given for interested parties to look at the block.

The tender was first launched in April and attracted a number of bidders, including three from outside Ukraine, by the original June deadline.

The block was the only offshore acreage offered in Ukraine's wide-scale initiative in 2019 to license numerous sites for exploration through bidding rounds and a PSA process.

However, international interest has been subdued and limited to smaller players.

BIG HITTERS

It is hoped that the relaunch of the Dolphin tender could bring back some of the bigger companies to the Ukrainian upstream.

Big hitters 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.

Shell in particular was targeting the vast unconventional gas resources in the Donetsk region of eastern Ukraine, but left after the conflict began between Ukraine and pro-Russia separatists in April 2014.

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

The acreage on offer remains outside the contested eastern Ukrainian areas, but the potential remains significant.

"Ukraine is able to increase gas production significantly in the short term," Opimakh said.

We have the largest rig fleet in Europe, drilling 100 wells per year. Every second operational rig in Europe is in Ukraine," he said.

aking a plea to foreign companies, Opimakh said: "We need your investment -- Ukraine is calling."

At the event in London, Opimakh also signed a memorandum of understanding with US services company Schlumberger designed to encourage cooperation on data collection and data provision for licensing rounds in 2020.

AUCTIONS, PSAS

So far, Ukraine has held five online auctions for blocks and a first PSA tender held in June.

A total of 28 blocks out of 43 offered have been awarded to date, but only four blocks were awarded to international bidders.

A second PSA tender process is now underway for three blocks in the prolific Dnipro-Donetsk basin -- Grunivska, Okhtyrska and Ichnyanska.

The original deadline for bids was November, but the Ukrainian government has opted to extend the deadline to February 4, 2020, in an attempt to garner more interest.

Miljenko Cimic from Sela Energy XXI -- a Ukrainian services firm -- said at the London event that there was "a lot of potential" in the blocks, which are thought to contain around 80% tight gas.

"There is no problem to identify sweet spots," Cimic said, adding that companies would need to do fracks to produce gas.

Opimakh said the government was supportive of fracking and to date there had been no public opposition.

As well as the three blocks and the Dolphin re-tender, a further 23 concessions are expected to be made available for licensing in 2020, Opimakh said.

Ukraine also plans to make it possible to convert exploration licenses into PSAs in the future -- giving companies more legal security over their projects.

SELF-SUFFICIENCY

The government's gas production strategy is set to be reviewed soon and new targets for 2025 introduced, Opimakh said.

"The priority is the same -- to make Ukraine self-sufficient," he said.

Ukraine had hoped to achieve gas self-sufficiency by 2020, but Naftogaz CEO Andriy Kobolov last year conceded that would not be achieved, partly due to a lack of transparency in license awards with small companies being granted exploration permits for greenfields that could be considered beyond their capacity to develop.

In 2018, Ukraine produced 20.9 Bcm of gas and imported 10.6 Bcm -- all from Europe -- to meet its final consumption of 28.5 Bcm.

Opimakh also said that the Ukrainian gas grid would not be decommissioned, even in the event of Russia ending transit via Ukraine.

Instead, he said, the grid would be "optimized" in its use. "I see no reason to worry," he said.

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

--Edited by Jonathan Loades-Carter, jonathan.carter@spglobal.com