According to Ukraine’s energy minister Exxon Mobil Corp (XOM), one of the world’s largest oil firms, will be paying $735 million for the rights to explore the waters on the country’s Black Sea coastline.
The deal with the Ukrainian government will cost the company $335 million in the form of an initial signing bonus. Additionally, Exxon has reportedly promised to drop another $400 million on seismic surveys along with the drilling of two wells.
With exploration and drilling technology having progressed by leaps and bounds over the past decade, risky deep-sea oil extraction has become a viable and worthwhile option for energy companies. But while the North Sea off the coast of the United Kingdom has so far been the popular destination for the construction of such oil wells, with over 7,000 platforms currently in operation at the behest of companies like Royal Dutch Shell (RDS) and Total SA (TOT), the Black Sea has practically remained untouched by exploration efforts, with less than 100 wells drilled at present.
Exxon’s interest in the Black Sea comes in part from a recent natural gas discovery in neighboring Romania that alone is thought to have the capacity to make up for some half of the country’s energy needs. The company has subsequently expressed interest in Bulgaria and Russia, as well as the Ukraine.
The deal could be a boon to the Ukraine and other former Soviet states that have coastline on the Black Sea. European countries, East and West, have been unhappy with the economic and political leverage that Russia enjoys as a result of the continent’s dependence on Gazprom, the Russian energy giant. To give some perspective on this leverage, consider that Germany, Europe’s economic powerhouse, imports over half of the gas it uses, and most of that comes from Russia.
In January of 2009 Gazprom shut off the energy supply to the Ukraine for nearly a month after a dispute over prices. Ukrainian winters are brutally cold, as are most winters throughout the continent, and a great deal of Europe’s oil and gas is shipped through the Ukraine.
Exxon, meanwhile, has already been active in the Black Sea through Turkey, where it has been working with the state-run energy company. Other companies heavily involved in Turkey include Chevron (CVX) and Petroleo Brasileiro SA (PBR), and the $2.5 billion estimated to have been spent already on offshore exploration is set to increase dramatically, according to the country’s energy minister.
This means that more exploration in the Black Sea is to be expected, especially with reports that the Ukraine is looking to offer up more of it to more companies.
[Image: A Map of the Black Sea and surrounding countries, courtesy of Flickr Creative Commons]