Ukraine is rich in oil, gas and minerals, but has not been able to make the most of its wealth.
Some of the main reasons for this failure are oligarchic influence on the industry, overly complex legislation, price caps, confusing application procedures, investor caution and plain old corruption.
Roman Opimakh, 37 — the former executive director of Ukraine’s Gas Producers Association — became the new chairman of the State Geology and Subsoil Service in November, and he wants to change that. He vows he will deliver his first results this year.
Opimakh’s main promise is to improve the country’s attractiveness to international investors, who, he believes, can finally bring modern approaches to Ukraine.
“This year we are trying to bring in more private investors, which will be ready to spend more money and which will be more efficient in terms of spending money, in terms of achievable results,” Opimakh says.
The chairman also touts the agency’s more transparent bidding process, as well as its more in-depth electronic collection of subsoil data.
Large-scale licensing
In 2019, Ukraine’s oil and gas sector saw several milestones, including the launch of large-scale licensing rounds and production sharing agreements for new oil and gas tenders; new online auctions; and a new online platform for the gas transmission system operator.
According to Opimakh’s office, Ukraine held online auctions for 29 onshore blocks last year, with 19 being sold. State producer UkrGasVydobuvannya took 14 and private companies Burisma Group,, DTEK, Yedyna O&G and Nafta a.s. won one license apiece.
Additionally, 10 production sharing agreement tenders resulted in nine winners, including Canada’s Vermillion Energy and U.S.’s Aspect Energy.
In recent publications by law firm CMS Cameron McKenna and economic think tank S&P Global, international analysts noted that global interest was limited in last year’s bidding. Opimakh says investors showed interest, but the chaos of last year’s government transition may have dampened the situation.
“We are working to increase the attractiveness of this process, in new conditions, when there is no election season,” he said. “With a majority in parliament and a new government, we have more chances to bring more companies in.”
He noted that November’s regulation changes enable foreign companies to participate directly in bidding.
Tenders for three more areas in the Dnipro-Donetsk basin as well as in the Grunivska, Okhtyrska and Ichnyanska blocks closed on Feb. 4, after having been extended from November 2019. The Cabinet of Ministers is expected to announce the winners in May.
Meanwhile, the tender for the 9,500-square-kilometer Dolphin offshore block in the Black Sea conducted over the summer was cancelled following a win by a publicly traded U.S. company. It now awaits a relaunch by the energy minister.
Both the initial tender and the decision to cancel it sparked controversy. Critics said the auction was not competitive enough. Others, however, argued that cancelling a legitimate tender would have a chilling effect on investor confidence. Opimakh declined to comment on the issue.
According to the chairman, over 65% of developer applications had been refused in prior years, causing an “enormous negative influence on the market.” Many were refused for minor technical reasons.
New ways
Ukraine is infamous for the oversized influence of oligarch-linked companies. But Opimakh vows that the frivolous rejection of international applicants is less likely under his rein.
He also claims that there is now “no corruption” in the State Geology Service and less bureaucracy. With the more streamlined process, a producer can get all their paperwork done in three to five years, faster than before.
“The procedure, in terms of the auctions, is very transparent,” the chairman says. “It’s pretty short and understandable for international players.”
The service has also created new data rules, pulling together geological data reports and digitalizing it to ease investment decisions. It is employing the service company Sela Energy to put together personal feasibility reports.
Opimakh also said that his agency has launched an Investment Atlas, which details more than 100 investment opportunities in hydrocarbons and more than 50 different minerals.
Nevertheless, Opimakh says more work still needs to be done on modernizing legislation, updating the subsoil code and improving domestic hydrocarbon production.
“Right now,” he says, “we are trying to decide on the right plan for the national gas producer and the Ukrainian independent producers.”
