Exxon and Shell in legal limbo as Crimea may join Russia

Crimea's hastily organised vote this weekend on whether to leave Ukraine to join Russia jeopardised Black Sea oil and natural gas drilling prospects which both Exxon Mobil Corp and Italy's Eni SpA had been eyeing, Bloomberg reports.

Before pro-Moscow president Viktor Yanukovych was overthrown after violent protests in Kiev, a group including Exxon and Royal Dutch Shell Plc had planned to spend $735 million drilling two wells about 50 miles (80 kilometers) from the region's southwest coast (See: Sanctions to hurt ExxonMobil's exploration prospects in Russia).

However, given the turmoil in the region it was not clear whether the government in Kiev would have the power to award oil and gas licenses in Black Sea waters around the disputed region.

The parliament in Crimea, which had Russian speakers in the majority, last week said it voted to join the Russian Federation and would put the plan to a referendum on 16 March.

Bloomberg quoted Chris Weafer, a partner at Macro Advisory in Moscow, as saying Exxon and Shell were now in a legal limbo. He added, they  pursued an ''exploration deal with a government which may soon no longer have jurisdiction over the region.''

After its discovery of the Domino field in neighbouring Romania, Exxon had sought the rights to drill the Skifska license off Ukraine.  According to Exxon Mobil senior vice president Andrew Swiger who spoke at an investor presentation last week, it still remained interested in getting permission to explore off Ukraine.

Before Yanukovych was overthrown, Ukraine was about to sign a deal with the group, which included Exxon Mobil and Royal Dutch Shell.

The group was ready to spend $735 million to drill two wells off Crimea's southwest.

Weafer told Bloomberg News that if Crimea voted in a 16 March referendum to secede from Ukraine, the government in Kiev ''may soon no longer have jurisdiction over the region.''

The so-called Skifska area that Exxon and Shell wanted to develop formed part of an undersea field, that extended westward along the Black Sea coastline to Romania, Bloomberg said in another report.

It quoted Julian Lee, an analyst at the Center for Global Energy Studies in London, within the area now under Ukrainian jurisdiction, to say ''the most interesting exploration areas are all effectively [under] Crimean waters.'' He added, loss of control of those areas would be a significant loss for Ukraine.

According to Ukraine's estimates, oil and gas production from Skifska, along with another Crimean offshore area known as Foros, could reach the energy equivalent of up to 7 million tons of oil annually, which was less than 10 per cent of the oil and gas Norway extracted annually from beneath the North Sea.

It, however, still totaled about 20 per cent of Ukraine's current annual gas imports, which came mainly from Russia and had been a longstanding source of friction between the two countries.