UKRAINIAN ENERGY FORUM Kyiv. Ukraine, March 3-5, 2015

SPEAKER: PETRO GOLUB, General Director of Ukrainian Geological Scientific Center

(‘Ukrnaukageotcenter), Poltava city

GEOLOGICAL EXPLORATION IN UKRAINECURRENT STATE AND NEW INVESTMENT PROJECTS FOR ENERGY INDUSTRY

1

National Joint Stock Company “Nadra Ukrayny” was founded in 2000 by merge of 11 state geological enterprises with the purpose to increase efficiency of geological enterprises management, to meet the state needs for mineral resources, and to promote investments in prospecting and exploration.

The Company founder is the Cabinet of Ministers of Ukraine. The Company’s 100% stock capital is controlled by the Government.

Employees of these enterprises explored about 350 deposits of oil and gas, having formed the mineral raw-material base where both state-owned and private enterprises produce 95% of hydrocarbons of Ukraine.

ABOUT US

The Cabinet of Ministers of Ukraine

Ministry of Ecology and Natural Resources of Ukraine

State Geological and Mineral Resources Survey

Nadra Ukrayny NJSC

2

Whole range of works for oil and gas exploration, prospecting and drilling;

Search and exploration of minerals, potable and mineral water, ores (including uranium and gold), natural stones, construction materials, etc.;

Operations on wells testing and study with the whole set of laboratory researches of core samples and formation fluids;

Research studies, drafting of geological and technical projects, analysis and processing of geological and geophysical evidences, geological feasibility study of formations and deposits, business project drafting.

NJSC “NADRA UKRAYNY” OPERATIONS:

3

NJSC “Nadra Ukrayny” maintains scientific and research cooperation with international companies through its research, development and production center “Ukrnaukageotcenter”, which has a wide experience in oil and gas exploration. Recently, the center has been studying the prospects of unconventional reserves and implementing the following operations:

Study of geological and geophysical evidences and core samples in order to define promising plots for carrying out of drilling operations for unconventional deposits;

Geological exploration works from drafting of geological projects and support of prospecting and exploratory drilling to geological feasibility study of formations and deposits;

Laboratory-based analysis of core samples, oil, condensate, gas and other fluids;

Gas-dynamics researches and well testing, PVT studies;

Processing and interpretation of geophysical data;

Computer 3D modeling of geological structure of formations and deposits;

Environmental monitoring with arrangement of observation network.

OUR OPERATIONS

4

Due to cooperation with eni international company :

o Invested over USD 1 ml into staff training program for modern exploration and drilling technologies, including unconventional hydrocarbons;

o Modernized equipment for over USD 1.3 ml, namely installed: pyrolysis plant, scanning electronic microscope, X-ray diffraction unit for rock properties measuring, software and others).

Began creation of digital databases of subsurface resources of Ukraine’s deposits with description of rock samples from core logging facilities.

Defended its share in joint activity at Sakhalinske field in Ukraine, which potential amounts to 15 billion cubic meters of gas and 3.5 million tons of oil and gas condensate.

Completed liquidation of worn-out drilling equipment and developed the optimal program of its modernization.

In 2014, NJSC “Nadra Ukrayny”:

5

Zhuzhelyanska area

Debeslavetska area

Lviv basin – one of most promising European reservoirs for exploration and production of hydrocarbons, including shale gas.

PART OF NADRA UKRAYNY NJSC IN WESTGASINVEST LLC

Shares of partners:1) Nadra Ukrayny NJSC – 34.99% – (blocking

stake for key questions);

2) Cadogan Ukraine Holdings Ltd – 15%;

3) Eni Ukraine Holdings Ltd – 50.01% – (branch company of eni supermaojor)

6

Profitability of gas production projects is below the calculations of the Ministry of Finance, while tax rates are the heaviest in Europe for one of the shakiest economies…

The valid law does not comply with the EEC Third Energy Package: operators have no free access to gas resources, have no protection against interference of the Cabinet of Ministers in their work…

Numerous legal defects make access of oil producers to land plots difficult. There is no modern understanding of land usage forms… Investors are legally unprotected…

Ukrainian legislation does not define clearly the legal status of oil and gas wells

The rules in force are outdated and require codification

KEY CHALLENGES IN OIL AND GAS INDUSTRYAmerican Chamber of Commerce in Ukraine provided its advisory opinion (40 pages) concerning reforming of the oil and gas industry of Ukraine. We are waiting for the Parliament decision.

Stabilization of taxation terms of hydrocarbon production in

Ukraine

Adoption of a new law on gas market

Land legislation reform with regard to requirements of the

oil and gas industry

Reformation of procedure of oil and gas well registration

Adoption of new rules of oil and gas deposit development

SHOULD BE DONE:ARGUMENTS:

7

0

10

20

30

40 39.4

14.3

8.5

5.0

11.6

TOTAL: 39.4 Tcm, including:

- Shale gas – 14.3 Tcm

- Central basin gas – 8.5 Tcm

- Tight sandstone gas– 5 Tcm

- Coal bed methane (CBM)– 11.6 Tcm

RESERVES OF UKRAINE

0

1

2

3

4

5

6

1.18

5.6

Bill

ion

tons

, oil

equi

vale

nt

Explored Projected reserves reserves

Scientifically proven projected resources of unconventional hydrocarbonsConventional hydrocarbons

CONVENTIONAL AND UNCONVENTIONAL HYDROCARBONS IN UKRAINE

8

NEW ENERGY PROJECTS FOR UKRAINE’S GEOLOGICAL INDUSTRY

PROJECT 1.Unconventional hydrocarbon deposits of Western Ukraine1

23

PROJECT 2. Government guaranteed credit financing of new oil and gas deposit exploration. New license areas for conventional oil and gas

PROJECT 3. Oil shale debut of Ukraine: oil shale production and power station at Boltysh reservoir

9

PROJECT 1 MAJOR OIL & GAS SWEET SPOTS IN WESTERN UKRAINE. OLESKA BLOCK.

The Oleska block is situated in Western Ukraine in Precarpathian Oil & Gas geological province. In 2012 it was offered by Ukrainian government for tender for elaboration of shale gas reservoirs. Chevron company has got a license area and signed a PSA in November 2013 for 50 years term.

By 2015 Chevron withdrew from Shale projects in Poland and other European countries. Now this area is available for other investors and remains one of the most wanted business opportunities for both conventional and unconventional oil and gas exploration and production in Ukraine.

PROJECT INDICES: Land lot square – 6400 km2 (whole or partial) Depth of productive layers: from 2000 to

4000m Target layer: Lower Silurian black marine

shale, thickness 200-500 m Products: shale gas, small amounts of

conventional gas, crude oil. Estimated reserves – (gas) 1.5 trillion m3

10

PROJECT 1 MAJOR OIL & GAS SWEET SPOTS IN WESTERN UKRAINE. CHERNIVETSKA BLOCK.The Chernivetska block is located in Western Ukraine, administratively - in Storozhinetskyi and

Glybotskyi rayons of Chernivetska oblast. In tectonic sense it belongs to Lviv Paleozoic deflection, in

petroleum sense – to Precarpathian Oil&Gas province. This block offers promising business opportunities for both conventional and unconventional oil and gas exploration and production. Estimated cost of additional geological exploration amounts to USD 20 ml.

ПРОЕКТНІ ПОКАЗНИКИ: Land area square – 1289 sq.kms , it includes

three lots: Zhadivska – 492 sq.kms, Krasnoilska – 347 sq.kms and Storozhinetska – 450 sq.kms

Depth of productive layers: from 800 to 4000 m Target layer: low-permiable collectors of

Paleozoic sediments (Cambrian, Silurian, Devonian);

Products: shale gas (reserves should be estimated), some amounts of conventional gas (1.8 Bcm) and crude oil (0.2 Mmt).

№ DESCRIPTION UNITS QUANTITY

1 Project expenses from guaranteed loan USD ml 3002 Forecast of reserves increment:

Oil and gas condensate Mmt 93,94

Natural gas Bcm 127,13 Forecast of production for new license areas during credit period

Oil and gas condensate Mmt 27Natural gas Bcm 5,2

4 Scope of seismic exploration:Total profiles length kms 10 630Number of exploration sites pcs 57

5 Scope of exploration drilling works: Number of prospective license areas pcs 7

Project figures:

State guaranteed loan USD 300 ml for seismic, exploration and discovery of new deposits/reserves of oil and gas in Ukraine

PROJECT 2

12

#Title of

license area Administrative location

Oblast / Rayon  

Area square

(sq.kms)

Depth interval, (m)

Reserves estimation Cost of

additional; exploration eq. USD ml

Gas, Mcm

OilMmt

1 Sulymivska Poltava/Shyshatskiy 88.7 4700- 5400 1059 - 6.2

2 MayorivskaPoltava/ Poltavskiy,Kotelevskiy, Chutivskiy

18 4800- 5000 4100 - 5.8

3 Zhemchuzhna Poltava/Gadyatskiy 13.4 4800- 5000 2690  - 6.3

4 BolotivskaPoltava/Novosanjarslkiy

37.6 2500- 3200 552  - 3.6

5 Vatazhkivska Poltava/Poltavskiy 118 5600- 5800 3091  0.27 6.8

6Zakhidno -Dmytrivska

Chernihiv/Bahmatskiy 198 1800- 3200 - 2.22 7.6

7 Barburska Chernihiv/Ichnyanskyi 69.4 2400- 3100 - 2.2  6.8 

TOTAL: 525.1 11 492 4.51 43.1

Proposals of new license areas for exploration and drilling of new prospective Oil & Gas reservoirs in Ukraine

PROJECT 2

13

License area example: MayorivskaAdministrative location – Poltava Oblast, Poltava, Kotelva, Chutovo rayons, License area square – 18 sq. kms. Tectonically, it is situated in the central part of the axial zone of Dnieper-Donets basin. Oil-and-gas bearing region – Glynsko-Solohivskyi. Expected pay zone: deposits of the Serpukhov stage of lower Carboniferous (productive horizons С-5, С-6), Depth interval: 4800-5000 m.Prospective resources of gas, category С3 – 4.1 Bcm (143 Bcf).

Type, scope and cost of works :• Cost of additional seismic exploration 2D (50 km) – USD 100,000 • Cost of prospect drilling (5050 m) and pilot commercial

development – USD 5.7 ml  Total cost of geological exploration works – USD 5.8 ml

PROJECT 3

Structure map of the reflecting horizon Vв1

2 (С1s2)

Overview map

14

PROJECT 3

Seismic-geological section

15

License area example: Mayorivska

Mining of Boltysh oil shale deposit and shale chemical plant construction

Allocation: borderline of Kirovograd and Cherkasy oblasts.

Deposit dimension: about 500 sq. kms (diameter of depression –25 kms, maximum depth 600 m)

Structure: 5 productive layers with thicknesses from 2.5 to 4.5 m and depths from 17 to 350 m

Deposit reserves: 3.8 billion tons of oil shale

Quality (specific heat of combustion): from 8.4 to 20.1 MJ/kg

PROJECT 3

Geological section

Mining of Boltysh oil shale deposit and shale chemical plant construction

16

An extraction of oil shale in the Baltic basin is made using both quarry and mine technology for over 90 years. Current amount of oil shale production in Estonia is 20 Mmt per year (world’s second after China).

PLANT CONSTRUCTION INVESTMENT: EUR 220 ml

‘Enefit280’ - new shale chemical plant in Narva, Estonia.

Putting into operation by stages: 2010-2014

Capacity: 280 tons per hour or 2.4 ml tons per annum

Annual production : 285 000 tons of shale oil 75 Mcm of pyrolysis gas (fuel for other power plants) 30 Billion KWh of electric power for network

FOREIGN ANALOGUE OF THE BOLTYSH PROJECT.

Oil shale mining and processing complex in Estonia

PROJECT 3

17

INDICATIVE PERFORMANCE OF THE BOLTYSH PROJECT:

• Raw processing capacity: 5 Mmt of oil shale/year

• New power plant electric output: 1.5 billion KWh/year (corresponds to Kiev city power consumption

for 4 months) • New jobs: 2500

INVESTMENT AMOUNT: EUR 840 mlIncluding:

• Creation of the oil shale chemical plant and power plant: EUR 400 ml

• Mining machines: EUR 280 ml• Design, infrastructure building, HR

training, initial working capital etc.: EUR 160 ml

Estimated year of Project completion: 2018

PROJECT 3

18

POWER PLANTS OF UKRAINE MAP OF EXISTING POWER PLANTS OF UKRAINE with marked position of Boltysh oil shale power plant

19

SUMMARY

Ukraine has plenty of undeveloped hydrocarbon deposits, their production will reduce significantly energy dependence on imported energy carriers in the coming years;

Geological and energy industries require urgent changes to certain mistakenly adopted laws and tax rates in order to avoid collapse of existing facilities as well as to attract foreign and domestic investors to new projects;

The State should provide guarantees of financial support of state-owned geological exploration enterprises. This will enable to extend the energy potential of the country due to development of new deposits of both conventional and unconventional hydrocarbons;

National Joint Stock Company “Nadra Ukrayny” has major human capacities, modern knowledge level and resources for proper management of oil and gas projects of nationwide level and successful cooperation with international oil and gas companies;

Development of suggested investment projects of production at Oleska field, several new oil and gas deposits as well as shale oil production at Boltyshske deposit should prove the positive changes in activity of the new government and enterprises of the industry.

20

THANK YOU

www.nadraukrayny.com.ua

WELCOME TO UKRAINE

21

KEEP CALM AND

MAKE OIL & GAS

22