KYIV - Royal Dutch Shell has reaffirmed its commitment to a 50/50 partnership with a subsidiary of state energy company Naftogaz, pledging to invest up to $200 million into a joint effort to explore for hydrocarbons in eastern Ukraine.

Inked on Sept. 1, the agreement follows up on a joint activity partnership that was first formed between Shell and state-owned gas producer Ukrgazvudobuvannya in 2006, when investment interest in Ukraine surged on the heels of the pro-democracy 2004 Orange Revolution.

The updated agreement was signed in the presence of Shell CEO Peter Voser and Ukrainian Energy Minister Yuriy Boyko.

Ukrainian officials boasted that as much as $800 million could be invested into Ukraine by Shell: $200 million in the initial exploratory phase followed up by $600 million for production.

Over the years, declarations about the vast potential of the project and joint cooperation abounded, but relatively little progress was made below or above ground.

The purpose of the updated joint activity agreement signed on Sept. 1, according to a Shell statement, “remains unchanged – exploration and production of hydrocarbons in the license areas.”

Shell said the revised and updated agreement “improved understanding” of the joint activity license areas, introduced a phased approach to the exploration program and refined governance and funding arrangements.

The administration of Viktor Yanukovych, president since 2010, says it is stepping up efforts to attract international energy majors into Ukraine’s domestic energy sector, which has long been dominated by domestic and Russian business interests.

The aim, they say, is to bring in the financial investment and know-how needed to boost domestic hydrocarbon production, in turn helping Ukraine to diversify away from increasingly expensive Russian fuel imports.

On Aug. 31, presidential chief of staff Serhiy Lyovochkin told journalists that Shell was on the verge of investing up to $800 million into exploration and production.

Shell, however, provided a far smaller number for the amount of investment it has thus far committed.

As far as the much-delayed exploration and production into the Dnipro-Donbas basin goes, Shell said that upon completion of preliminary exploration work under the 50/50 project, its expenditure will amount to $200 million. Drilling is expected to commence in 2012, Shell added.

Ukrainian officials point to Shell as one of a growing list of international energy giants, including Italy’s Eni, America’s ExxonMobil and Chevron and Russian-British TNK-BP, which are eager to unlock Ukraine’s potentially large hydrocarbon reserves bringing investment, traditional and new technologies such as shale gas extraction.

One of the few international energy majors that has maintained a large office in Ukraine since the 1990s, Shell on Sept. 1 stressed that it remains committed to helping Ukraine unlock fresh energy reserves.

“At Shell we have a proven track record of developing large and complex projects … and are keen to apply our global experience and innovative technology to unlock [Ukraine's natural] gas potential in the joint activity agreement areas safely and effectively,” said Patrick Van Daele, general manager of Shell Ukraine Exploration and Production.

LINK: http://www.kyivpost.com/news/business/bus_general/detail/112067

NOTE: Shell and The Kyiv Post are members of the U.S.-Ukraine Business Council (USUBC), Washington, D.C., www.usubc.org.