: :inin Kyiv (EET)

Kyiv court orders to reconsider Yuzgaz`s right to produce shale gas in Ukraine`s east

Kyiv`s district administrative court has rescinded the Ukrainian government`s decision to deny Dutch-registered Yuzgaz B.V. company`s right to acquire an investor`s 90% share under a production sharing agreement (PSA) on geological prospecting and development of the Yuzivska shale gas field in the country`s eastern Donetsk and Kharkiv regions.

The decision taken by the court on March 20, 2017, has been published in the state register of court rulings.

”Yuzgaz B.V.`s administrative claim shall be satisfied in full. Clause 7 of a Cabinet decision dated November 2, 2016, shall be ruled null and void, and revoked. A decision by the Energy and Coal Industry Ministry to refuse the assignment of rights and obligations under the Yuzivska agreement at the request of Nadra Yuzivska and Yuzgaz B.V. shall be recognized as unlawful,” the court`s ruling said.

What is more, the court obliged the Cabinet to continue the consideration of an application  submitted by Yuzgaz B.V. and Nadra Yuzivska for the development of the Yuzivska field.

The plaintiff insisted that the Cabinet decision was not in line with the Law of Ukraine on production sharing agreements and the Law of Ukraine on the Cabinet of Ministers.

”What is more, the Cabinet`s legal background to reject the application of Nadra Yuzivska and Yuzgaz B.V. was insufficient,” the document said.

Earlier, Dutch-registered Yuzgas (also spelled as Yuzgaz) B.V. in July 2016 won a tender to produce shale gas in the Yuzivska field in eastern Ukraine, replacing Royal Dutch Shell, originally chosen during Viktor Yanukovych`s presidency to operate and develop hydrocarbon deposits in the east of Ukraine.

If Yuzgaz had been approved by the Cabinet as a participant in the PSA, its share in the project could have been 90% with the remaining 10% to be held by Nadra Yuzivska.

Early in August 2016, representatives of Yuzgaz B.V. said they were ready to invest $200 million in the development of the Yuzivska field in the next five years.

Yuzgaz B.V. Director Jaroslav Kinach said his company planned to hire Schlumberger for geological prospecting at the site.

Kinach, a founding partner of Emerstone Capital Partners, headed the Kyiv office of the European Bank for Reconstruction and Development in the late 1990s, following which he founded a Canadian firm, Iskander Energy, which executed methane gas production projects in Ukraine and also owned hydrocarbon deposits in Georgia and Bulgaria. In recent years, he was head of Canadian-based Black Iron.

Nadra Yuzivska was created to undertake a project for the prospecting and production of hydrocarbons under the PSA on the Yuzivska field. On January 24, 2013, the Ukrainian government, Royal Dutch Shell and Nadra Yuzivska, signed a PSA on the Yuzivska field in Kharkiv and Donetsk regions.

As of July 27, 2016, some 10% of the company belonged to SPK-Geoservice LLC (Kyiv), which was reportedly affiliated with the allies of former Ukrainian President Viktor Yanukovych, and the remaining 90% was held by Nadra Ukrainy. SPK-Geoservice changed its owners in 2015.

Royal Dutch Shell began the development of shale gas deposits in Kharkiv and Donetsk regions after the signing of the PSA, but in June 2015 decided to withdraw from the project, which was in October 2015 confirmed by then Energy and Coal Industry Minister Volodymyr Demchyshyn.

In November 2016, Ukraine`s Cabinet of Ministers turned down an investment program for the development of the Yuzivska shale gas field and rejected Yuzgaz B.V.`s participation in a PSA under the program.


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