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Financial Times: Gas fields agreement expands Shell stake in Ukraine

By John O’Doherty in London and Roman Olearchyk in Kiev
Published: November 22 2007 02:00 | Last updated: November 22 2007 02:00

Royal Dutch Shell 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 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 fields 180km north-east of Kiev.

Regal signed the agreement with Shell after ending talks with MND Exploration and Production, a private Czech oil company, which 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.

Regal shares rose 6½p, or nearly 4 per cent, to 178½p in morning London trading yesterday.

“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.

Last year, Shell signed an exploration agreement with Ukraine’s state-owned Ukrgazvydobuvannya to explore eight licensed areas in the Dniepr Donetsk Basin.

This year, the group 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 MekhediviskaGolotvschinska 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, which was resolved last December.

Copyright The Financial Times Limited 2007

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