Bloomberg News

Ukraine Crisis Forces Shell to Halt Shale Wells in Restive East

June 03, 2014

Royal Dutch Shell Plc (RDSA) has halted drilling for shale gas in eastern Ukraine to protect its personnel from clashes between pro-Russian separatists and the Ukrainian army.

Shell is taking a “time-out” on exploration work after drilling two wells since the Hague-based explorer signed a production-sharing agreement last year, Chief Financial Officer Simon Henry said in an interview with Bloomberg TV in London.

Europe’s largest oil company has an exploration license for the 8,000-square-kilometer (3,100-square-mile) Yuzivska field in the eastern provinces where hundreds of people have died as armed separatists try to split from Ukraine and join Russia. The company’s operations are more exposed that those of Chevron Corp (CVX:US), which is exploring the Oleska field in western Ukraine.

“We obviously need to assess the future security situation as it develops because the safety of our own people is our first priority,” Henry said. “There’s no pulling out, but we take a time out on the actual drilling activity on the ground.”

Ukraine sees shale exploration as a way of reducing its dependence on Russian gas. OAO Gazprom (OGZD), the Kremlin-run gas exporter, supplies more than half of Ukraine’s gas, offering Russia influence over the country’s economy. Gazprom and Ukraine’s Naftogaz met in Berlin today to avert the threat of supply disruption as Russia demands payment for fuel consumed over the past year.

Both Shell and Chevron signed production-sharing agreements with the previous Ukrainian government headed by ex-President Viktor Yanukovych, promising to spend hundreds of millions of dollars on shale and tight-gas exploration. Yanukovych had since been ousted and fled the country after a popular uprising.

Kiev Lawmakers

It will be hard for the foreign investors to develop shale gas in the east of the country under current circumstances, Ukrainian Prime Minister Arseniy Yatsenyuk told lawmakers in Kiev today. Shell originally planned to drill as many as 15 wells during the initial exploration phase at the Yuzivska field.

The Ukrainian conflict isn’t stopping Shell from working in Russia, where it’s exploring for shale oil and plans to expand the Sakhalin-2 gas project. Chief Executive Officer Ben van Beurden won a promise of support from President Vladimir Putin when he visited him at his private residence in April.

“Russia is a major holder of hydrocarbon reserves, possibly the largest in the world,” Henry said in the interview. “So in the long term it really does matter.”

To contact the reporters on this story: Ladka Bauerova in Prague at lbauerova@bloomberg.net; Caroline Hyde in London at chyde3@bloomberg.net

To contact the editors responsible for this story: Will Kennedy at wkennedy3@bloomberg.net Alex Devine


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