Big energy players pulling investments out of Ukraine is dimming the nation’s hopes of gaining energy independence from Russian imports. The latest to announce such a plan is Chevron Corporation (CVX) which has decided to withdraw from a multi-billion dollar project in the nation.
The U.S. energy giant has informed the Canadian regulator, National Energy Board, that it will indefinitely put its $10 billion shale gas exploration project on hold. The company would cancel drilling for oil in the EL 481 block, in the Beaufort Sea, in Arctic. The drilling was expected begin in the 2020s.
Tax issues, low crude prices and weaker-than-expected finds in nearby areas with similar geologies are presumed to be the reasons for this withdrawal. Other operations associated with the Arctic drilling plans, like a blowout preventer contract with Cameron International (CAM) to avoid accidents during drilling and seismic survey of the leased property, are also likely to be cancelled.
Earlier this year, the integrated energy player, Royal Dutch Shell plc (RDS.A) also withdrew from a project in Ukraine.
The nation houses large shale reserves, exploration of which could have brought in the much-needed funds. Ukraine had planned to attract foreign investments, much of which was marred by Russia’s annexation of Crimea earlier this year, creating an environment of economic instability. This led to Exxon Mobil Corporation (XOM), Eni SPA (E) and several other big energy players losing opportunity as well as the incentive to invest.
In lieu of these missed opportunities, a war-tainted Ukraine might find it difficult to improve its economic condition. The nation, which is bordering on the lines of default, is pressed for funds even in the wake of the $17 billion bailout from the International Monetary Fund.
These project shutdowns may not result in any long-term scars on the balance sheets of energy giants like Chevron. However, such abandonments, not only pose a threat to Ukraine’s energy security, but also affect its economy at large.
Currently, Chevron carries a Zacks Rank #3 (Hold).
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