Financial Times: Shell to buy stake in Regal’s Ukraine fields

By John O’Doherty in London and Roman Olearchyk in Kiev
Published: November 21 2007 09:36 | Last updated: November 21 2007 09:52

Royal Dutch Shell on Wednesday announced that it has signed a preliminary $410m agreement to take a 51 per cent interest in two Ukrainian gas fields controlled by a subsidiary of Regal Petroleum, the Aim-listed oil and gas group founded by Frank Timis.

Under the terms of a non-binding memorandum of understanding, Shell will pay $50m (£198m) for a 51 per cent stake in the Mekhediviska-Golotvschinska and Svyrydivske gas fields, Regal’s main assets, and invest an initial $360m to develop the two gasfields 180km northeast of Kiev.

Regal signed the agreement with Shell after ending talks with MND Exploration and Production, a private Czech oil company, who had proposed spending $330m in exchange for majority control of the Ukrainian subsidiary.

The agreement marks the continued rapid expansion of Shell in Ukraine, which remains heavily reliant on Russian imports but is believed to hold significant hydrocarbon reserves of its own.

Regal’s shares over the summer as market speculation suggested that Royal Dutch Shell or JKX Oil & Gas were keen to take on the Mekhediviska-Golotvschinska and Svyrydivskegas fields, Regal’s assets in the Ukraine. Regal shares rose 6½p or nearly 4 per cent to 178½p in London on Wednesday.

“The interest of Shell demonstrates the underlying value of our assets in Ukraine and further underpins the future potential in these assets and in the company,” said Francesco Scolaro, chairman of Regal.

Shell has moved fast to expand its presence in Ukraine, making it the only world energy major with a significant presence in the former Soviet republic.

In 2006, Shell signed an oil and gas exploration agreement with Ukraine’s state-owned Ukrgazvydobuvannya to explore eight licensed areas in the potentially large Dniepr Donetsk Basin. This summer, the groupl established a downstream presence in Ukraine through a joint venture with Moscow-based Alliance Group to operate 150 Shell-branded petrol retail sites. Shell has also established a domestic natural gas trading company in Ukraine.

”The growth potential from the Mekhediviska-Golotvschinska and Svyrydivske fields is a clear fit with Shell’s strategy,” said Patrick van Daele, general manager of Shell Ukraine Exploration & Production.

Regal’s Ukrainian assets were in recent years at the centre of a complicated court battle. Regal’s former joint venture partner, a Ukrainian government agency, challenged the listed company’s rights to production sites in Ukraine. The Ukrainian Supreme Court dismissed the claims last December.

Regal’s major assets are in Ukraine, but the company also holds prospective exploration licences in Romania, Egypt and Liberia, and holds an oil field investment in Greece.

The company floated on London’s Aim junior market in 2002, and its shares rose in value by more than 700 per cent in less than two years before plummeting in 2005 on news that its drilling in Greece’s northern Aegean sea had yielded disappointing results.

Copyright The Financial Times Limited 2007

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