BUCHAREST, Romania: ExxonMobil Corp is so confident of prospects in the unexplored Black Sea it will spend $735m to drill just two deep-water wells off Ukraine’s coast.
The outlay comprises a $335m signing bonus for Ukraine’s government and a promise to spend a further $400m on seismic surveys and drilling two wells, according to an Energy Ministry official. After making a natural gas discovery in neighbouring Romania that may flow fast enough to supply half of that country’s consumption, ExxonMobil plans exploration in Bulgaria, Russia and Ukraine.
The Black Sea is almost untouched by the oil industry, with fewer than 100 wells drilled, compared with more than 7,000 in the North Sea. Improving drilling technologies and increased regional energy demand is drawing explorers to its challenging waters deeper than 1,000 feet (300 meters), said Philipp Chladek, a Bloomberg Industries analyst.
“If you think about where the unexplored areas in Europe are, you have the Black Sea and the Arctic,” said Iain Pyle, an analyst at Sanford C. Bernstein & Co. in London. “The Black Sea is obviously far more accessible.”
Ukraine plans to sign a completed exploration agreement with ExxonMobil later this year before offering more blocks to explorers, the Energy Ministry official said, asking not to be named because he’s not authorized to speak to the media. The Skifska area covered by the license is adjacent to Romania’s Neptun block where ExxonMobil and partner OMV Petrom made last year’s Domino-1 gas find, which showed potential output at about 630 million cubic feet a day.
Domino-1 is so substantial that it may allow the country to become a gas exporter after 2018, Romanian Prime Minister Victor Ponta said at a conference in Bucharest. “In regard to the overall potential of the Black Sea, Domino-1 sets a good precedent,” Kevin Biddle, exploration director for ExxonMobil in Europe, said in an email. “We expect to see exploration programmes undertaken in Romania, Bulgaria, Ukraine and Russia in the next few years.”
Richard Scrase, a spokesman for Irving, Texas-based ExxonMobil, said the company intends to start exploration works in Ukraine shortly after signing the license, which will include a bonus of more than $300 million.
With oil above $100 a barrel and onshore supplies waning, former Soviet republics and their ex-communist satellites surrounding the Black Sea are throwing their doors open to ExxonMobil and competitors to search beneath the brackish waters that run as deep as 1.4 miles.
The lack of exploration means the International Energy Agency and BP have no estimates for the sea’s reserves.
ExxonMobil and partner OMV Petrom said they plan to invest several billion dollars in Romania’s Neptun block. The country plans a new bidding round for eight offshore blocks by the end of the third quarter.
“Deep-water exploration requires a huge capex, which none of the national companies could afford,” said Oleg Galbur, an oil and gas analyst at Raiffeisen Bank in Vienna. “Oil and gas prices 10 years ago wouldn’t justify it, but now it’s different.”
The region had until recently been ignored by companies like Exxon and Royal Dutch Shell because Ukraine, Romania and Bulgaria have in the past satisfied their demand for oil and gas through a combination of domestic onshore drilling and imports from Russia.
WP-Bloomberg
