“Oil and Gas 2007″ roundup and Kremenchuk update

Last week Ukraine’s Ministry of Fuel and Energy sponsored its annual “Oil and Gas” conference in Kyiv, a part of its larger “Energy and Power” exhibition. While mainly serving as a product exposition for companies within the oil and gas industry (think valves, pipes, compressors, gauges, drills, etc.), there were also a few majors there such as Shell, E.ON Ruhrgas and TNK. I took the opportunity to talk with various company representatives about their work in Ukraine, and what they saw for the future.

The conference was opened with a speech by Fuel and Energy minister Yurii Boyko, before he left for natural gas negotiations with Russia (which I will be writing on shortly). At the exhibition, he touched on the upcoming negotiations, saying transit tariffs for gas through Ukraine would reach “market” levels in 3-5 years. This seemed to be a reminder of the leverage Ukraine holds over Russia on the eve of their price negotiations, but still falls in line with previous statements regarding the gradual rise in both transit costs and delivery price. Sure enough, later that week Gazprom announced that the two sides would be paying “market” prices for gas deliveries and transit by 2011. The headline from that statement, however, tended only to emphasize Gazprom’s commitment to charging Ukraine higher gas prices, and ignored the obligation for Gazprom to pay higher transit costs. (No word on bumping up storage costs to market levels, either.)

Anyway, back to the conference.

Nearly everyone there was optimistic, with most citing expected growth within Ukraine, particularly within the natural gas industry. This was true for firms like Shell, as well as the smaller service providers like Smith Ukraine and Weatherford who would look to capitalize on greater involvement by the majors. Ukraine still holds fairly significant hydrocarbon reserves (principally natural gas), especially within the Donbas, pre-Carpathian and Black Sea shelf regions. Developing these reserves is a key part of the Ukrainian government’s lofty Energy Strategy to 2030, though problems with financing at Naftogaz Ukrainy and unclear licensing and exploration laws have hindered much progress.

Ukrtatnafta's booth at Oil and Gas 2007 I swung by the Ukrtatnafta booth to see what they had going on there, but things were quiet. (For those of you not following the dispute between Tatneft and Ukraine over the Kremenchuk oil refinery, check out the rundown in the EDM.) The women upfront were mum, addressing any questions I had (specifically about the recent “management dispute”) to contact information on the back of the brochure they were handing out. Eventually, however, I was able to figure a few things out. In general, things at the company are proceeding as normal, despite the interruption by corporate raiders. While things were a bit up in the air, they are now continuing to receive oil shipments and are essentially going about their work. The new oil shipments will be more expensive from what they had been getting before, but they are continuing to pump out their products from the Kremenchuk refinery. Indeed, news reports have the the plant receiving oil via Odessa, despite the threats of an international lawsuit by the Tatar shareholders.The display girls at Ukrtatnafta's booth -- not very helpful.

Meanwhile, the November 15th shareholders meeting that I had thought perhaps might facilitate a resolution to the conflict appears unlikely to do so now, as the Tatar shareholders stated that they will not be attending. This will prevent a quorum at the meeting, blocking any legitimizing motions from being passed. At this point, it’s appearing unlikely that Ovcharenko will be ousted from his current position atop the leadership, at least not without direct intervention from the top of Ukraine’s political ladder. The sense also seems that Tatneft will likely resume shipments of oil to the refinery due to the convenience of the natural conditions and in-place infrastructure, but at “less profitable terms for Ukrtatnafta.

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