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Shell to Drill First Wells in $10 Billion Ukrainian Project

Royal Dutch Shell Plc (RDSA), which signed a $10 billion shale gas deal with the Ukrainian government this year, expects to start drilling in the Yuzivska field next year.

Shell will need to drill as many as 15 wells to complete the initial exploration appraisal of the 8,000 square-kilometer (3,100 square-mile) Yuzivska field in the eastern part of the country, Graham Tiley, the country manager of Shell Ukraine, said in an interview in Kiev On Nov. 6.

Separately, the company has also completed drilling its first well in the Kharkiv region and is preparing to drill two more next year, he said.

Ukraine, which depends on expensive Russian gas imports to cover more than 60 percent of its consumption, is pushing to develop its own reserves, both onshore and offshore, in the Black Sea. The government signed a production-sharing agreement with Chevron Corp. (CVX) yesterday for extraction of shale gas, and plans to complete negotiations by the end of this year with an Exxon Mobil Corp-led group, which includes Shell, to explore off Ukraine’s western Black Sea coast.

"If you look across all these different projects, and if you look at interests of not just Shell but major oil and gas companies, you would say Ukraine has a good chance to boost its output,” Tiley said. "The sector has been under-invested and I assume over time the domestic production will increase.”

The country could hold as much as 42 trillion cubic feet (1.2 trillion cubic meters) of shale gas, the third largest reserve in Europe, according to the U.S. Energy Information Administration estimate from 2011. The use of hydraulic fracturing, or fracking, upended the U.S. gas industry, which overtook Russia as the biggest producer.

Exploration Phase

So far all of Shell’s projects remain in the exploration phase, according to Tiley.

"Until we get out there, drill some wells and test them, we simply won’t know how much of the area is going to be commercially productive,” the executive said. "Right now the testing phase will take some months before we have some results, and that will be only from one well.”

When Shell and Ukraine signed the deal in January, Energy Minister Eduard Stavytsky said $10 billion would be invested if the geology met expectations, according to the Financial Times.