Crimea’s hastily organized vote this weekend on whether to leave Ukraine to join Russia is threatening Black Sea oil and natural-gas drilling prospects coveted by Exxon Mobil Corp. and Eni SpA.
Before violent protests in Kiev overthrew pro-Moscow President Viktor Yanukovych and Russian troops occupied parts of Crimea, a group including Exxon and Royal Dutch Shell Plc planned to spend $735 million drilling two wells about 50 miles from the region’s southwest coast.
It’s no longer clear whether the government in Kiev will have the power to award oil and gas licenses in Black Sea waters around the disputed region. The parliament in Crimea said last week that it voted to join the Russian Federation and would put the plan to a referendum Sunday.
“Exxon and Shell are now in a legal limbo,” said Chris Weafer, a partner at Macro Advisory in Moscow. They pursued an “exploration deal with a government which may soon no longer have jurisdiction over the region.”
Exxon sought the rights to drill the Skifska license off Ukraine after discovering the Domino field in 2012 in neighboring Romania, a find large enough to offer that country the prospect of becoming a gas exporter. Exxon Mobil Senior Vice President Andrew Swiger said in an investor presentation last week that it remains interested in getting permission to explore off Ukraine.
The Irving, Texas-based company’s chairman and chief executive officer, Rex Tillerson, said last week that Exxon isn’t choosing sides in the dispute. Yuriy Prikhodko,a spokesman for Exxon in Ukraine, declined to comment on how the vote in Crimea would affect offshore exploration.
For the government in Kiev, offshore exploration is part of a strategy to wean itself off gas imports from Russia, which supplies more than 50 percent of Ukraine’s fuel. It also signed shale-gas exploration deals with Shell and Chevron Corp. and has worked to reduce consumption.
Eni, Italy’s largest oil and gas producer, reached an agreement last year to explore 540 square miles off Crimea’s eastern coast. CEO Paolo Scaroni said last week that he didn’t know how the situation in Crimea would affect the license.
“We wait to see if the situation gets normal, and then I would certainly get back in touch with the new authority there,” he said in an interview with CNN. “We have been living through changing of governments in many countries in our life, and normally contracts are respected by new governments.”
An Eni official declined to comment further.
The push to drill in the waters off Crimea was part of a wider campaign to explore for oil and gas in the Black Sea, where fewer than 100 wells have been drilled, according to data compiled by Bloomberg. That compares with more than 7,000 in the North Sea.
Exxon also has plans to explore in the Bulgarian and Russian parts of the Black Sea as well as off the Romanian coast. In Turkey, Shell, Chevron and Petroleo Brasileiro SA hold drilling rights.
“The situation with Crimea currently is totally unpredictable,” he said.
Business, Pages 24 on 03/11/2014