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Ukraine queries shale deals as Yanukovich era under scrutiny

Wed Mar 5, 2014 4:51am EST

By: Pavel Polityuk and Tom Bergin

(Reuters) – Commercial deals concluded by Ukraine during the presidency of Viktor Yanukovich are already coming under scrutiny, less than two weeks since he was deposed, with lucrative gas projects involving Western companies among the first.

Since Yanukovich fled after three months of street protests that claimed nearly 100 lives, the new authorities in Kiev are looking for any evidence that he arranged deals to benefit people close to him. The acting prosecutor general has said he would review Yanukovich-era contracts for evidence of corrupt practices.

Some Ukrainian parliamentarians have called for the new government to examine how, without significant financial outlay, a small Kiev-based consultancy received interests in shale gas projects led by Royal Dutch Shell and Chevron worth hundreds of millions of dollars.

Members of parliament say they have no evidence of wrongdoing, but they want to understand how geological consultancy SPK-GeoService, founded by three former employees of state oil and gas company Naftogaz, was awarded 10 percent stakes in two shale deposits – Yuzivska and Olesska – owned by another state oil and gas group, Nadra Ukrayny, in return for helping to bring the fields onstream.

Shell and Chevron came in to the ventures in 2013, promising to spend hundreds of millions of dollars on exploration in return for their stakes.

Sergiy Stovba, research director at GeoService, denied the consultancy had received an excessively generous deal or any connection between the firm and Yanukovich.

“Let them check us, even 10,000 times … We are an absolutely transparent company, and we have won the wholly transparent tender in an absolutely honest way,” he said.

Stovba said the consultancy contributes to administrative costs of the limited liability partnerships set up to hold the extraction rights but added “it is not big money”.

The State Geological Service, which awarded the contracts, did not respond to requests for comment, but in 2012 published a statement saying GeoService was qualified to win the tender because of the professional expertise of the consultancy.

Stovba and his partners have published many academic papers on geology and provided consultancy to a range of western oil groups in Ukraine, according to the consultancy’s website.

Reuters has seen no evidence that the founders are connected to the former regime or of impropriety in the tender process.



Viktor Pynzenyk, a member of parliament with the Ukrainian Democratic Alliance for Reform party, led by former boxer Vitaly Klitschko, said the shale gas deals should not be cancelled as Ukraine needs them.

“As for the participants of the agreements, it is necessary to look closely at who they are and then take a decision,” said Pynzenyk, a former finance minister, adding that he had no information that suggested impropriety in the contracts or a link between GeoService and the Yanukovich family.

Shell said its arrangement was transparent and that it had done “extensive due diligence” on GeoService.

“Participation of a local investor in such projects is not uncommon,” said Michael Megarry, Head of Shell’s UK Media Relations.

Chevron declined comment on GeoService, citing a practice of not discussing the commercial terms of transactions.

Andrew Neff, analyst at IHS Global Insight, said any investigation raises questions about whether Shell and Chevron’s contracts would be respected by the new government and that at the very least a probe would likely delay the projects.

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