Shake-Up on Crimean Shelf Exploration

26.03.2014

Foreign firms involved in Crimea's offshore oil and gas exploration will find themselves with a new local partner following the peninsula's entrance into the Russian Federation, Kommersant reported Mar. 20, and their continued role in the effort could be in doubt. Russia's Deputy Natural Resources and Environment Minister Gennady Khramov said on Mar. 19 that oil production on the Crimean shelf would come under government control. Gazprom and Rosneft would then be the only companies eligible to participate in oil production. Chernomornaftogaz is currently responsible for production on the Crimean shelf. The energy company, which had been owned by Naftogaz Ukrainy, is now under the control of the Crimean government. The Crimean government said on Mar. 19 that it hopes to privatize it and Gazprom has already expressed interest. Chernomornaftogaz signed a production sharing agreement to explore the shelf with three investors in 2013. Italy's Eni controls 50 percent, France's EdF controls 5 percent, and Voda Ukrainy 35 percent, with Chernomornaftogaz holding the remaining 10 percent. Investment was estimated to be between $3 billion to $4 billion, with an eventual annual yield of up to 3 million tons expected. It is possible that the contract will be honored, but politics rather than law is likely to decide the issue, said Rustam Kurmayev, a lawyer at Goltsblat. Although the issue may go to court, it is more likely that the Russian state-controlled companies will partially or totally buy out the foreign investors.

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