The ExxonMobil Corporation (XOM) and Royal Dutch Shell plc (RDS.A) 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.
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 usage.
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 domestically.
As part of this effort, in May 2012, the government had selected Royal Dutch Shell and Chevron Corporation (CVX) 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 agreement.
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.
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