In one of several hopeful signs that Ukraine was finally undertaking the necessary partnerships that would allow it to seriously explore it underground energy resources, in June 2007 Marathon Oil Corporation and Naftogaz Ukrainy signed a cooperation agreement to carry out technical studies that could lead to joint exploration for hydrocarbons in an area of interest in the Dnipro-Donets Basin located in north central Ukraine, according to Business Ukraine.

However, sources in the energy field told Business Ukraine that Marathon has become frustrated with its lack of progress in negotiating acceptable agreements with the government of Ukraine and has begun the process of closing its Kyiv office and will cease its efforts to pursue exploration opportunities.

Another international operation shuts up shop

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Marathon is Houston, Texas-based and is the fourth largest US integrated oil and gas company. It reported revenue of USD 65 billion with profits of USD 4 billion at the end of 2007.

In addition to its refining, marketing and transportation business in the United States and integrated gas projects around the world, Marathon has also begun a new focus on oil sands mining, considered one of the major new directions in meeting world energy needs.

The company`s last annual report said its exploration activities are focused on adding new production in existing core areas, such as the North Sea and the Gulf of Mexico, and developing new core areas, such as Angola, Indonesia and Ukraine.

Marathon`s interest in Ukraine was centred on the Dnipro-Donets Basin, which is believed to contain an estimated 7 trillion cubic feet of natural gas, 340 million barrels of gas condensate and 956 million barrels of oil.

At the time of the signing of the initial agreement, Marathon said that exploitation of the energy resources that it expected to discover in Ukraine would be subject to considerable subsurface challenges and would require the application of unique technologies.

A low-key departure

Marathon is apparently attempting to handle its abandonment of efforts in Ukraine in a very low-key manner. Sources said that the company has not made and is unlikely to make any official announcement.

However, it is widely known that company officials had become increasingly frustrated because of their inability to make a satisfactory agreement with government that would allow it to commit to the very expensive full-scale exploration operations required.

There had been signs over the last month that Marathon was coming under the same kind of pressure as another US-based company, Vanco Energy, which has been under attack from Prime Minister Yulia Tymoshenko.

On June 23, Simferopol-based state enterprise Chornomornaftogaz suspended joint prospecting and development of oil and gas fields with UK-based CBM Oil and Marathon, Deputy Secretary of Ukraine`s National Security and Defence Council Borys Sobolev told a news conference in Kyiv.

"As with the case with [Vanco], agreements on joint prospecting of other areas of the [Black Sea] shelf with Canadian and British companies have been suspended according to instructions by the PM," Interfax Ukraine reported Sobolev as saying.

A worrying trend for investors

Neither Marathon nor government sources were having much to say about the Marathon departure last week, but one well-informed source told Business Ukraine on condition of anonymity that Marathon had expended considerable resources in Ukraine but that the government and its energy companies had continued to set up laws, rules and regulations that made it almost impossible for private energy companies to succeed in Ukraine, he concluded.

Another highly placed source said other private companies have run into the same brick walls faced by Marathon and are either still struggling along or have given up. Political parties and leaders worry more about the next election than they do about making progress on bringing Ukraine to a greater level of energy independence, he added.

Industry insiders regularly complain that the government is preventing state-owned energy companies who are starved for cash from accessing the international know-how and technology the foreign partners can offer.

Ukraine remains dependent on energy supplies from Russia but is actively seeking to move out of the Kremlin`s orbit, making the energy independence issue a national strategic priority.

The country is thought to possess significant and as yet untapped oil and gas reserves both inland and in the Ukrainian territorial waters of the Black Sea, but domestic energy exploration companies lack the technologies to exploit this natural wealth.

By Jim Davis,

Business Ukraine magazine