US-based investor Aspect Energy has picked up a large onshore gas block in Ukraine after more than one year of uncertainty over its ownership, which has been claimed by state owned oil and gas producer Naftohaz Ukrainy.

Ukraine’s Cabinet of Ministers rubberstamped the terms of a 50-year production sharing agreement for the Varvinsky block with Ukrainian Energy, acting on behalf of Aspect, on 13 January, according to its statement.

The Varvinsky block extends over 3400 square kilometres in the Poltava and Chernigov regions.

The acreage is already fairly well covered with 2D seismic and had seen some gas production in the past. However, old wells are now idled.

Acreage tussle

Under terms of a 2019 auction, the authorities expect Ukrainian Energy to invest about $35 million into drilling three exploration wells and gathering 3D seismic data.

However, during the past year, results of the auction were unsuccessfully challenged by Naftohaz in court.

The state company claimed that authorities had unlawfully rejected its higher bid for the Varvinsky block, instead opting for the US investor on grounds of its better access to finance and technology.

Aspect based in Colorado, US, is reported to be managed by investors Alex Cranberg and Michael Bleyzer, political supporters of former US energy secretary Rick Perry.

During his visit to Kiev ahead of the auction, Perry reportedly handed the country's President Vladimir Zelensky a list of recommended energy advisers that included Bleyzer.

Awards to local players

At the end of December, authorities in Kiev rubberstamped PSAs with solely domestic companies for seven other gas blocks that were also auctioned in 2019 together with the Varvinsky acreage.

According to the decision, Naftohaz’ gas-producing subsidiary and country’s largest gas producer, Ukrgazdobycha, will be able to explore and develop four blocks — Berestyansky, Buzovsky, Bakaleysky and Ivanovsky.

Three other blocks — Zinkovsky, Sofiyevsky and Ugonovsky — have been approved for exploration and development by local players DTEK, Geo Alliance and Zahidnadraservis.

These three companies are owned by prominent Ukrainian businessmen that have major interests in other sectors of the country’s economy.

Authorities in Kiev said that they expect Ukrgazdobycha and three private players to invest about $350 million during the exploration phase to attempt to confirm commercial hydrocarbon reserves.

Capacity offered

Ukraine, which has to import gas during its winter season because of insufficient domestic output, also has excessive gas pipeline shipping capacity for local producers to reach European markets.

That shipping capacity — estimated at 146 billion cubic metres per annum of gas — had been previously used by Russian Gazprom to transport its output to Europe.

However, Gazprom last year used just 30% of that capacity, with the utilisation rate expected to decline further down this year as the Russian gas monopoly commissions new export pipelines to Europe to by-pass Ukraine, according to the country’s pipeline manager, Operator GTS Ukrainy.

Exploration

US investor cleared to take huge gas block in Ukraine