Energy in Ukraine: Exxon to spend $735mln on new Black Sea wells

According to RIA Novosti and Bloomberg, Texas-based oil company ExxonMobil (largest in the world by revenue) will spend $735mln to drill two new deep-water oil wells in the Black Sea, off the coast of southern Ukraine. $400mln of that money will go to cover the cost of the drilling, while $335mln has been ear-marked for the Ukrainian government as a "signing bonus," according to a minister in Ukraine's energy ministry.

Photo credit RIA Novosti.

Smells like a big of political palm-greasing to me. I'm not sure whether to applaud at such a seemingly open admission of corruption, or to shake my head and wag my finger.

Either way, according to RIA Novosti, "The Black Sea is relatively undeveloped by the global oil industry. It has fewer than 100 oil wells, whereas the North Sea has 7,000, according to Bloomberg. A recently opened gas field off the coast of Romania, now yielding 630 million cubic feet a day (17.8 million cubic meters) has fueled interest in the area."

Here's more information about that "recently opened gas field" off Romania, also in the Black Sea and not far from Ukraine: http://www.energy365.com/devenergypedia/romania-exxonmobil-and-petrom-grant-romgaz-10-option-on-offshore-midia-block-in-black-sea/. ExxonMobil recently granted the Romanian state-owned firm Romgaz a 10% share in operations in the offshore oil and gas blocks there.

Current ExxonMobil operations in Black Sea off coast of Romania. Photo credit: http://www.energy365.com/devenergypedia/wp-content/uploads/2013/02/Romania-ExxonMobil-and-Petrom-grant-Romgaz-10-per-cent-option-on-offshore-Midia-Block-in-Black-Sea.jpg

The agreement in Ukraine, meanwhile, is due to be finalized later this year. It should be an interesting development to watch, in an increasingly interesting and active Ukrainian energy market. Not only are oil exploration and production increasing, but shale gas could soon play a huge role as well; and of course all of this has very serious political undertones and effects. Exxon, and all American energy companies and investors, should keep a weather eye on the political horizon in Ukraine.