FSU/ Eastern Europe: Ukraine

FSU/EASTERN EUROPE

Russia, Turkmenistan, Uzbekistan, Ukraine, Belarus and Lithuania by Alec Mikhalyants, Igor Polovets and Alex Chorine, RPI, Inc., a U.S.-Russian consulting firm, Moscow and Los Angeles

Ukraine

The economy of this second-largest former Soviet republic saw drastic improvement in 2000. GDP grew 6%, after a 0.3% decline in 1999.

Crucial to improving economics was an increasingly bitter struggle between President Leonid Kuchma and the parliamentary opposition over reforms. Overhaul of the energy sector was a major point of contention.

Former Soviet Union Click for enlarged view

Production / development. In spite of improved macroeconomics, Ukraine’s E&P sector showed modest results. During 2000, Ukraine produced 73,495 bpd of oil and condensate, 3% less than in 1999. Natural gas output declined less than 1%, to 1.74 Bcfd. Ukrnafta, part of state-owned Naftohas Ukrainy accounted for 93.5% of oil and gas production.

Output has shrunk continually since 1974, due to declining investment in exploration and drilling. However, drilling increased 25% in 2000, to 51 wells (36 oil, 15 gas). Footage drilled rose 23%, to 524,960 ft. Exploratory drilling reached 32,810 ft. A development program adopted by state firm Naftogas Ukrainy foresees reaching a production target of 70,000 bopd and 1.9 Bcfgd in 2005, and over 80,000 bopd and 2.3 Bcfgd in 2010.

Exploration. Ukraine’s State Department on Oil and Gas Industry plans to switch to an international system of reserves classification in 2002. This will lower resource estimates by at least one-third. Ukraine’s current system is based on Soviet-era classification and considers only the physical presence of resources, but excludes commercial recovery.

Despite adopting a benchmark Law on Production Sharing, Ukraine’s hopes to attract large-scale foreign investment haven’t materialized. BP said that it was abandoning gas production plans in the Donetsk-Dniepr depression – small reserves made production commercially unfeasible. Shell continues to delay activity on four Black Sea blocks.