CMS, Morgan Lewis lead as Shell signs $10bn shale gas deal with Ukraine

CMS Cameron McKenna, Morgan Lewis & Bockius and local firm Asters have been retained as legal advisers on the Ukrainian side of several aspects of a 50-year production sharing agreement (PSA) deal between Royal Dutch Shell and the Ukrainian government to develop the country’s untapped shale gas resources in a bid to put an end to its dependence on Russian gas supplies.

The agreement was finally signed this week at the World Economic Forum in Davos by Shell’s CEO Peter Voser and Ukrainian energy minister Eduard Stavytsky after regional councils in Ukraine has already approved the deal.

The deal will see Shell launch a PSA with the Ukrainian government. The company is expected to invest an estimated $10bn (£6.4bn) to develop untapped shale gas resources in the Yuzivska gas blocks in the eastern Kharkhiv and Donestk regions of the country.

In 2012 the Ukrainian government launched three separate tenders to develop the country’s Yuzivska, Oleske and Sfiska blocks. Shell won the rights to develop the Yuzivska gas blocks, while Chevron won the tender to develop the Oleska gas blocks in the west of the country.

A condition of these tenders saw Chevron and Shell team up with local state-affiliated sister companies Nadra Oleska and Nadra Yuzovska respectively. The companies were established specifically for the two exploration projects and are 90 per cent owned by Ukrainian state partner Nadra Ukrayny and 10 per cent by private interest group SPK-Geoservice.

A joint Morgan Lewis-Asters team is advising these local partners, Nadra Yuvoska and Nadra Oleska, on both projects, including the required joint operating agreements, which are still pending.

A combined Moscow and Houston team from Morgan Lewis is being led by Moscow partner Jon Hines, supported by Moscow senior associate Alexander Marchenko and junior associate Ksenia Lopatkina, alongside Houston-based partners David Asmus and Jennifer Mosley.

Kiev-based senior partner Armen Khachaturyan and partner Tamara Lukanina are the main lawyers involved from Ukrainian firm Asters.

The Kiev branch of CMS was retained by Shell to advise on Ukrainian law aspects of the deal. Energy and projects counsel Vitaliy Radchenko coordinated the team.

Although the PSA for the Oleske field, which will be developed by Chevron, has yet to be formally signed, it is thought that the Yuziska and Oleske fields could provide the Ukraine with as much as 10 per cent of domestically consumed natural gas by 2020.

Background to this deal:

A third tender for the Skifska gas fields in the Black Sea was won by a consortium led by Exxon Mobil and Royal Dutch Shell in August 2012 and is estimated to hold reserves of 200 to 250 billion cubic metres of gas and is tipped to produce up to five billion cubic metres of gas a year.

Although work on the project has not yet begun, Morgan Lewis and Asters have also been appointed as legal advisers to local state-owned consortium member Nadra Ukrayny for this project.

Morgan Lewis has been involved in some of the biggest European gas deals in recent months. In August last year the firm won a first-time major mandate to advise natural gas producer Itera on jointly developing gas fields with Rosneft in the Russian Arctic (23 August 2012). Rosneft retained Allen & Overy on the deal.

The firm also acquired Statoil as a client when Dewey & LeBoeuf’s entire Moscow base jumped ship to the firm in May 2012 (4 May 2012) and advised the Norwegian company on four joint ventures with Rosneft to explore oil and gas fields in the Arctic and Pacific oceans in September last year (3 September 2012).

Earlier this month Shell revealed that it was gearing up for a major revamp of its external legal roster (11 January 2013). CMS CMcK is on the energy giant’s Ukrainian legal panel and the firm has acted for Shell on specific projects elsewhere from time to time.

For more on current energy projects in Ukraine, see special report