Within the framework of the first full-scale Production Enhancement Contract (PEC) in the history of Ukraine's oil and gas industry, this new Western partner has committed to invest about UAH 1 billion (around USD 30 million based on exchange rate forecasts) into intensification, drilling and development of infrastructure over the first five years of cooperation and, potentially, make additional further investments.
The partnership between Naftogaz and Expert Petroleum will generate at least an additional 300 mcm of gas within five years from 13 small fields in Western Ukraine.
“Developing international partnerships is one of the key vectors of the Naftogaz transformation program. The agreement represents the largest foreign investment in Ukraine’s gas production over the past five years. This money will be directed into development of those small depleted fields for which Naftogaz does not have sufficient resources under the circumstances of a significant drop in prices for energy resources. Instead of the expected production decline on these fields, we will achieve an increase in production. We will bring new technologies to Ukraine and introduce European standards for management of "old" and "small" deposits, which can be extrapolated to other fields, as most of Ukraine's oil and gas assets are depleted and small in size. This is an important step towards stabilizing the situation not only in the industry but also in the Ukrainian economy. And this is an example of innovative anti-crisis solutions that the country needs today,” said Naftogaz group Chief Transformation Officer Otto Waterlander.
According to in-house calculations, intensification of works, increase of tax and other budgetary contributions of the partnership will allow for the accumulation of more than UAH 4 billion in the GDP of Ukraine and Lviv region in particular.
“We have a solid and successful track record of implementing such Production Enhancement projects with major national and international oil and gas companies in Romania and Hungary in particular, where Expert Petroleum invested more than USD 100 million in some projects and increased production by up to 150% above the baseline. Today, we are pleased to begin a similar partnership with Naftogaz in order to make their depleted gas field more sustainable by increasing production and reserves and implementing safe and green operations. We hope this agreement will lead the way to many more partnerships like this one. Expert Petroleum Ukraine LLC headed by Director Victoria Sergeyeva, will lead our operations in Ukraine,” commented Expert Petroleum co-founder and CEO David Martinon.
“We fully understand the responsibility that comes with our commitment to the effective and safe development of these Ukrgasvydobuvannya fields and the objective to increase their production and reserves. For this purpose, we plan after completing new reservoir models to drill new wells, carry out operations on intensification of existing wells using the latest technologies in directional drilling, logging, water shut off management and perforations, and modernize surface facilities to increase operational efficiencies, reduce energy intensity, and environmental footprint. Expert Petroleum’s commitment to the local community is its absolute priority, in particular the training of employee competences on new technologies. The company takes all measures to ensure that employees work in a supportive environment, focusing on safe working conditions, and strive to comply with the highest standards of environmental protection, occupational and process safety,” highlighted Expert Petroleum co-founder and COO Michel Louboutin.
The contract between Expert Petroleum and Ukrgazvydobuvannia is concluded for 15 years, with the possibility of extension for another 10 years. To execute this contract and its related services, Expert Petroleum has registered a dedicated Ukrainian company which will be a party to the contract. Naftogaz group will approve the development plans, annual work program and budget proposed by the operator company on these fields. The operator will receive a fixed fee for support of baseline production (at the level of current operating costs of Ukrgasvydobuvannya, taking into account inflation) and for achieving incremental production. Full ownership of the extracted production, geological licenses and existing assets will remain with Ukrgasvydobuvannya.
KPMG was the financial advisor to Naftogaz in this transaction; PwC advised Naftogaz on tax and accounting matters.
Expert Petroleum’s legal counsel in this transaction was the CMS Cameron McKenna office in Kyiv.
Expert Petroleum is a French-owned company that is part of the GMS holding group, a large investment group with assets all around the world. Expert Petroleum maximizes mature Oil & Gas fields potential by investing in these assets taking execution and incremental production risks through long term Production Enhancement Contract (PEC). Expert Petroleum’s technical capabilities and expertise are focused on fit for purpose and new technologies and enhanced process to rehabilitate old wells and reservoirs in decline. At present, the company effectively manages production at 25 depleted fields, operates 1200 wells, and produces 8.5 thousand barrels of oil equivalent per day. It has about 1000 employees.