Joint Venture Terms that Hasten Production in the Black Sea Region

Martin Miller and David Robson

The break up of the Former Soviet Union (FSU) provided opportunities for the major western oil companies to access the giant oil and gas fields of Siberia, Kazakhstan and Azerbaijan. Meanwhile, smaller companies spotted the hydrocarbon provinces further west long neglected by the centralised soviet system. Gas production in Ukraine was established long before the Tyumen area was opened up, oil production had started in Georgia more than 100 years ago and the North Caucasus fields in Dagestan have been in production for over 50 years. All these areas are also close to the Black Sea with short links to export terminals.

Legislation already provided for joint venture companies but not production sharing contracts. The compromise was to build production sharing into the JV company structure. This allowed the state partner to obtain some revenue from start-up of production with no cash outlay. It also ensured that the western company obtained a substantial amount of its investment back in cost recovery before the more onerous profit sharing arrangement commenced. These conditions enabled JKX to rapidly agree four JVs in three countries and start operations almost immediately.

Production of hydrocarbons began in Ukraine in early 1995 with exploration and appraisal drilling in the Black Sea and onshore Georgia following soon after. Continued close contact with the governments has permitted JKX to demonstrate the benefits of the PSC without the need for JVs. Legislation is being enacted for future licences in the region to be issued as PSCs along conventional lines.

AAPG Search and Discover Article #91019©1996 AAPG Convention and Exhibition 19-22 May 1996, San Diego, California