Chevron may exit PSA on shale gas development in Ukraine

Макроэкономика 16.12.2014 U.S. energy giant Chevron informed the Ukrainian government that it is exiting its production-sharing agreement (PSA) to develop the prospective Oleska shale gas deposit in western Ukraine, the Interfax-Ukrayina news agency reported on Dec. 15, citing its anonymous sources. Chevron attributed its decision to the failure of the Finance Ministry to bring some of its acts in compliance with Ukrainian legislation by the agreed deadline of Nov. 18. In this way, the government gave Chevron the reason to cancel the deal, according to Interfax, without elaborating any further on the vague explanation. The same day, Presidential Administration Deputy Head Valeriy Chaly told journalists that he has information that Chevron “is planning to make a decision” to exit the deal. The government will make efforts to deter the outflow of investment “in infrastructure and energy projects that need political solutions,” he said. The PSA deal between Chevron and Ukrainian SPV Nadra Oleska was signed on Nov. 5, 2013, with the expectation that investment in the project at the exploration stage would amount to USD 350 mln, while total investment in the project might reach up to USD 10 bln. Alexander Paraschiy: At this stage, it’s not clear whether the multinational made its final decision or it is trying to bargain for better conditions with the Ukrainian government. Whatever the real reason behind Chevron considering its exit from the deal (low oil/gas prices, geological risks of the project, war in the east, corruption etc.), the announcement already hurts the current government, its economic capabilities domestically and its image abroad. It indicates that not only have they been unable to offer solutions to the problems generated by the Yanukovych administration, but have also failed to preserve its achievements. It will be particularly embarrassing if the reason for backing out turns out to be corruption. Yet even transparent scandalous developments – including the interim monopolization of the market of big gas consumers in Ukraine – merely add more arguments for Chevron exiting an economy that is being mismanaged.