Shell to Invest $200MM in Three Ukraine Wells

Shell plans to spend about $200 million under an agreement with Ukrainian gas producer Ukrgazvydobuvannya to drill three gas exploration wells in the Kharkiv Region, the head of Shell’s operations in the country, Graham Tiley told reporters.

He said that under the joint operations project, Shell is obligated to spend about $200 million on drilling three wells as part of the initial phase of exploration. If the project is successful, the amount might increase, Tiley said.

Tiley said that on Wednesday he visited the site where the first well is supposed to be drilled in the Pervomaisky district of Kharkiv Region and met with the people who will carry out the project. The project is at the very initial stage of operations. Construction contractor Montazhtransgaz is working at the site, and is now bringing in equipment, he said.

Drilling of the first well is scheduled to begin in September 2012, Tiley said.

He could not say where the other two wells would be, but said drilling is to begin next year. The company plans to drill vertically to a depth of 5,250 meters. The drill site will be 200 meters by 300 meters.

Tiley also remarked that the companies are drilling for tight sand gas, which differs from shale gas in terms of depth and method of extraction. Production of shale gas usually involves horizontal drilling at a relatively shallow depth (1.5-2 km), while tight sand gas is produced using vertical or inclined wells with a depth of about 5 km.

It was reported earlier that Shell plans to carry out two projects in Ukraine involving production of nontraditional gas (tight sand gas). In addition to working under the joint operations agreement with Ukrgazvydobuvannya, the company plans to develop the Yuzov field in the Donetsk and Kharkiv regions.

Shell in May 2012 won a tender for the right to sign a production sharing agreement for the development of Yuzov. Work on the project will only begin following the signing of the relevant agreements, including the PSA. Drilling at Yuzov is expected to begin in a few years.

Ukrgazvydobuvannya, a subsidiary of state oil and gas company Neftegaz Ukrainy, is the country’s largest producer and processor of natural gas and gas condensate.

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