Eric Watkins
OGJ Oil Diplomacy Editor
LOS ANGELES, Feb. 13 -- Naftogaz Ukraine's wholly owned subsidiary Chornomornaftogaz and China National Offshore Oil Corp. (CNOOC) have signed a memorandum of understanding allowing the Chinese side to participate in a project to build a gas pipeline to the Odessa offshore gas deposits in the Black Sea.
Chornomornaftogaz holds responsibility for the development of offshore fields in the Black and Azov Seas.
Chornomornaftogaz Chairman Anatoly Prysyazhnyuk said CNOOC received an "opportunity to participate in the construction of a gas pipeline intended to help develop the Odessa deposit…including the production and delivery of pipes, other services and the construction of the pipeline."
"We will give them some of the money earned from hydrocarbon sales for 5 years" after the start of production, Prysyazhnyuk said, adding that Chornomornaftogaz will be able to continue negotiations with CNOOC only after the Ukrainian government approves this MOU.
In addition to discussions with the Chinese, Prysyazhnyuk said the European Bank for Reconstruction and Development is ready to invest one billion hryvni in efforts to develop the Black Sea deposits.
He acknowledged that the talks with the EBRD have been going "very slowly" but said that "we are holding talks and searching for ways to implement these projects."
The Ukrainian government, faced with increasing pressure to develop its own gas reserves, has long been eyeing various ways to fund the development of its Black Sea deposits.
Last November, Naftogaz Ukraine proposed that the state budget for 2009 allocate 3 billion hryvni (more than $476 million) for the development of the Odessa, Bezymyanny and Subbotin offshore fields in the Black Sea.
Vadim Chuprun, Naftogaz Ukraine deputy chief executive, made the proposal at a meeting on energy and coal industry infrastructure projects chaired by Prime Minister Yulia Tymoshenko. Chuprun said the investment would be recovered very quickly if the development of these fields is successful.
In September, Fuel and Energy Minister Yury Prodan said the draft state budget for 2009 proposed spending 500 million hryvni on the development of the Odessa and Bezymyanny gas fields.
The Ukrainian government in November 2007 approved the Shelf Institute's working plan for infrastructure development at the Odessa and Bezymyanny fields with an estimated budget of 857.773 million hryvni.
The plan projects total gas production over the life of the two fields at 10.82 billion cu m, including 9.131 billion cu m at the Odessa field, while the Subbotin field has estimated commercial reserves of 100 million tonnes of oil.
In a related development, an area of continental shelf in the Black Sea reported to contain huge reserves of oil and gas has been awarded 80% to Romania and 20% to the Ukraine by the International Court of Justice.
The territory comprises part of the continental shelf around a rocky outcrop, owned by Ukraine and known as Serpents' Island, which contains a reported 100 billion cu m of gas and 10 million tonnes of oil.
The new border includes a 12 nautical mile arc around Serpents' Island until it intersects with a line equidistant to the coastlines of the Ukraine and Romania.
Tenders to develop the resources can now be organized by the Ukrainian and Romanian governments. Media reports suggest that Total SA, Royal Dutch Shell PLC, BP PLC, and OMV all have expressed an interest in investing in the area.
Contact Eric Watkins at [email protected].
