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Shelton Canada Corp. is a junior oil and gas company actively engaged in exploration and development activities in Ukraine. The company’s most significant project, West Biruchya , is an offshore project in the Sea of Azov.

Shelton Canada and Ukraine’s largest oil and gas company, Ukrnafta, will drill their second development well as partners in the Kashtan Petroleum Joint Venture. Located in the Lelyaki oil field in east-central Ukraine, the well No.307 is expected to spud in the second quarter of 2008. The new well has a projected total depth of 1960 metres and will be drilled as a directional well to further develop the P1&2 and K-1 productive reservoirs. Recently-drilled offset wells showed initial productivity of greater than 240 barrels of light oil (42 degree API) per day (net 108 barrels). Net drilling cost is expected to be $450,000 Cdn and the well is in close proximity to pipeline infrastructure for rapid tie-in.

“This second well is an ongoing part of the Kashtan Joint Venture’s plan to fully exploit the remaining oil reserves in the Lelyaki field through optimal placement of infill production wells,” said Zenon Potoczny, President and CEO of Shelton Canada. “In addition, the Joint Venture anticipates re-entering and sidetrack drilling of four other suspended wells in different parts of the field during 2008. These well interventions show very good economics as the capital cost is much lower than new drilling. We have been very happy with the pool performance since it was acquired in mid 2007 and the first well (No.304) drilled post acquisition has averaged 185 barrels of oil (net 83 barrels) since coming on-stream in December 2007. Shelton’s average daily production for 2007 was net 255 barrels per day. The Joint Venture sells its production at Brent equivalent pricing.”

The strategic partnerships with leading Ukrainian oil and gas companies like Ukrnafta and Chernomorneftegas are a key reason for Shelton Canada’s success in Ukraine. Current net production of Shelton Canada is 350 barrels per day with further increases expected in 2008.

On October 19, 2007 , Vanco Signs Ukraine’s First Deepwater Black Sea Agreement for the Prykerchenska Production Sharing Agreement (PSA).

The signing of the Production Sharing Agreement gives Vanco the opportunity to explore and develop the highly prospective Prykerchenska Block. Work will begin immediately on a detailed exploration program which will include an extensive 3D seismic survey in 2008 followed by deepwater drilling.

The PSA acreage is located to the southeast of the Crimean Peninsula, the Prykerchenska block covers around 12.900 km2 or about one-third of Ukraine’s deepwater area with water depths ranging from 500 meters to over 2,000 meters. Exploration will concentrate on the Tetyaev High, in water depths greater than 2,000 meters where Vanco has identified a series of large structures, and on the shallower Sudak Folded Belt where Vanco has identified numerous attractive prospects. Some prospectivity is also identified in the deeper Andrusov High area.

Prykerchenska license area contains around 32 leads and prospects where 7 are in syn-rift sediments and rest (25) are in the Sudak trend.

The PSA has a 30 year term and will allow Vanco to start exploration and eventually build production facilities.

For the Ukraine, this is one method of solving Ukraine’s energy needs and it could help the country fulfill its goal of producing 25 percent more gas within the next 20 years.

If exploration efforts are successful, the development of the project will require investments of more than $20 billion.

The Kremlin in the past has unexpectedly doubled the price Ukraine pays for gas at the border in 2006 and then raised it again by a third in 2007. The Kremlin seems intent on making it’s former member states pay more for their energy needs.

On June 5, 2007, Marathon International Petroleum, a wholly-owned subsidiary of Marathon Oil, and National Joint Stock Company Naftogaz Ukrainy (NAK) signed a cooperation agreement to carry out technical studies that could lead to the joint exploration for, and production of, hydrocarbons in an area of interest in the Dnieper-Donets Basin located in North Central Ukraine. According to the agreement, NAK and Marathon will embark on a joint study of an agreed area of joint interest, covering approximately 26,000 square kilometers. The study will be conducted over three years during which time decisions will be made concerning further activities the Companies may undertake.

This basin supplies Ukraine with 80 percent of its hydrocarbons and is believed to contain natural gas deposits deep below those being exploited.

The Dnieper-Donets Basin is believed to contain significant remaining undiscovered resources of crude oil and natural gas. However, the recovery of these undiscovered resources is subject to considerable subsurface challenges and is dependent on the application of unique technologies.

On the 7th of December 2006 Capital Oil signed an exclusive Joint Activity Agreement (JAA) with the Ukrainian state and Oblast owned company Bohorodchanynaftogaz (BNG). This agreement outlines that Capital Oil will have the operative responsibility for BNG in the exploration of oil and gas in the two licence blocks that is owned by BNG.

Capital Oil is at the moment test producing the first of 2 successful exploration wells in the two licenses called Kubash-Lukva and Maydan, outside Ivano-Frankivsk in the western Ukraine.

Two of four summits held in Prague under the aegis of the EU attracted attention of world media the most: on the issues of Polish-Swedish initiative of Eastern Partnership and “Southern Corridor – New Silk Road”. Participants of these summits singed political declarations. Two others concerned the cooperation of the EU with Canada and the problems of employment within the EU states.

The EU included into the Eastern Partnership six former Soviet states – Ukraine, Moldova, Azerbaijan, Georgia, Armenia and Belarus and the interests to the Prague presentation of this initiative has been lately fueled by Mass Media and politicians because Moscow treated this promising project of Brussels pretty cautiously and sometimes even hostile. Moreover, Russia expresses uncertainty about further development of Russia-EU relations, as the EU gained two special partners Belarus and Armenia, two strategic allies of Russia. In spite of repeated statements of organizers and participants of the summit that the Eastern Partnership and its projects is not against anybody, Moscow treats it openly as a tool reducing influence of Russia within Post-Soviet area. And they observe this initiative as a process of NATO expansion to East only by other means. And united Europe with this kind of partnership strives to stabilize the situation within its Eastern boarders. And it intends to invest 600 million Euro into economies of these six Post-Soviet states up to 2013.

Brussels promises to include them into the free trade area, and this is impossible without being a member of WTO. Out of six Eastern European partners of the EU, Armenia and Belarus are not the WTO members. So trade options promised by the EU are different for the six countries. Even more long-term perspective is the abolishment of visas in exchange for structural reforms, called to struggle against corruption and to establish democratic standards. And hopes of Ukraine and Georgia to join the EU are postponed for indefinite period. Such unclear perspectives resulted from the summit of Eastern Partnership. And Presidents of France and Poland, Prime Ministers of Italy and Britain decided not to visit it at all in the last moment. This all incited the observers to perceive the EU presentation of Eastern Partnership as a performance. More curious and significant appeared to be another summit – the summit on Nagorny Karabakh, which included the President of Azerbaijan Aliyev and the President of Armenia Sargsyan. Co-chairs of this summit – French, American and Russian parties – also participated in it. They were French Foreign Minister Bernard Kouchner, the US State Secretary Assistant Matthew Bryza and Russian Extraordinary and Plenipotentiary Ambassador Yuri Merzlyakov. Prague also welcomed the meeting of the President Aliyev and the President Sargsyan within the territory of the US Embassy. Experts estimated the results of this meeting pretty incredulously. As known, Turkey and Armenia have begun negotiations to improve their relations. And first of all on the issue of borders opening.The President Aliyev reacted harshly on the possible decision of borders opening before resolution or at least the start of resolution of the issue on the territory around Karabakh, Azerbaijani territories primarily and Karabakh in general. Matthew Bryza believes that both Presidents move forward step by step. Maybe they haven’t come to the turning point, but they have laid the road to it. The representative of the US State Department expressed his hope, that the “turning point” will be possible in a month when Presidents meet in Saint Petersburg, where Economic Forum will take place. But at the same time he specified that he didn’t yet know whether this turning point would include the return of territories. But I know, said Bryza to reporters, it is possible to include this idea into the concept of the turning point in order to find the common ground between all the parties. It is possible and we are trying to achieve that at the moment, noted the diplomat. The representative of Russian Ministry of Foreign Affairs in his turn confirmed that there are no principal contradictions between intermediaries Russia, the USA and France as the EU representative around Karabakh situation. But there were no such unanimity during another energy summit of “Southern Corridor – New Silk Road”. Russia and the USA, also Ukraine participated with it as observers. The EU intends to diversify the sources and ways of energy supplies to Europe. It’s a fundamental issue for Europe. In Prague the chairman of the EC Jose Manuel Barroso, Javier Solana and other European authorities stated that the project of “Southern Corridor – New Silk Road” is of the highest priority for the European Union. And the pipeline Nabucco should become an accelerator of the “New Silk Road”.

Matthew Bryza also noted that the USA support these plans. Russian observer, Deputy Minister of Energy, noted that Russia doesn’t question the significance of diversification. However, new transit ways should lie through Russia and territories controlled by Russia. For Moscow this is the only way of assuring the security of transit. Neither the EU nor the USA agree. They are convinced that only other transit ways will prevent monopoly. Matthew Bryza told during the interview to the radio “Eho Moskvy”, that there was a period when the USA supported 5 pipelines. The first one is Baku-Novorossisk, through Russia. To create competitiveness the USA decided to construct new pipelines Baku-Tbilisi-Ceyhan and Baku-Supsa suggesting that the oil manufacturer Lucoil will join this project. But it decided not to participate in it due political reasons. Now the case is over South Caucasian gas pipeline. Russia doesn’t produce gas in Azerbaijan, but in future if Russia, if Gazprom wants, it may become a shareholder of this enterprise. But only a monetary one. Gazprom shouldn’t control the Southern corridor as Northern. Political declaration on the gas pipeline Nabucco construction signed in Prague is very important. It should result into real projects. This document was signed by the representatives of Azerbaijan, Georgia, Turkey and Egypt. And Uzbekistan, Kazakhstan and Turkmenistan refused to sign it. Their refusal wasn’t a surprise for the participants of the energy summit. But still the USA and the EU are optimistic to work with them. But latest failures of Russian-Turkmen summit in Moscow and negotiations in Ashgabat can’t inspire the gas monopolist. There are reasons to suggest that the wait approach of the parties refused to sign the declaration has its time limits that will be mostly defined by the EU as well as the USA. The intensification of Obama’s Administration activity within Central Asia region is expected after the visit of the US President in Moscow this July. At the same time many experts note that financial resources for American Eastern partnership are redirected from Eastern Europe to Central Asia. Kazakhstan will gain special stress within this partnership. This country is the first of former USSR republics to head OSCE next year. The same as within the issues of energy supplies diversification and energy security, the USA and Russia have also strong contradictions within the activity of this international organization. And Russia in addition intends to establish new structure of European security. Prague declaration specifies that the parties of the Nabucco pipeline project are involved into the development of intergovernmental agreement on the project to be signed till June 2009. In addition Jose Manuel Barroso refuted the reports of some Mass Media stating that Turkey participates within Nabucco project due to successful talks on the EU joining. It’s noteworthy, that the EU hopes, that the Central Asia states that have joined the project will become the source of filling the designed pipeline. Except for them, only Iran has the potential to provide gas for Nabucco, but this country is under international sanctions and can’t be invited to participate in the project now. It’s curious, that Ukraine also refused to sign the declaration as it is engaged within the accomplishment of the project “White Stream”, that competes with the interests of Turkey.

As considered, Prague Summits on Karabakh and Nabucco were significant events the results of which will sufficiently influence the political situation of the countries of Caspian-Caucasian region and the policy of Post Soviet area of the EU and the USA. It is most likely to reveal during the oncoming summit of the EU and Russia in Khabarovsk in May.

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