KYIV - Ukraine hopes that its amicable agreement with Vanco Prykerchenska Ltd. would not foresee the compensation of the loss the company saw due to the cancelation of a production sharing agreement (PSA) on the exploration and extraction of oil, gas, gas condensate on the Prykerchensky field on the Black Sea shelf. Ukrainian Environment Minister Mykola Zlochevsky said this while speaking to the press in Kyiv on Wednesday.

He said that five issues are to be settled for the signing of the amicable agreement. The issues are associated with compensation for the losses by Ukraine. "We're working on the issue, so that Ukraine do not have to pay [the fine]," the minister said.  Zlochevsky also expressed hope that by late 2010 the amicable agreement would be signed and Vanco would start operating on the shelf.

As reported, the Stockholm Arbitration Tribunal has put off until December 31, 2010 hearings on a case on the renewal of licenses owned by Vanco Prykerchenska Ltd (the British Virgin Islands) for the development of the Prykerchenska oil and gas field on the Black Sea shelf and a production sharing agreement.

This was stated in the prospectus of an issue of eurobonds by state-run company Financing of Infrastructural Projects, which were issued against state guarantees. "If the sides fail to strike an amicable agreement before December 31, 2010, arbitration litigation could restart," reads the prospectus.

As reported earlier, the Stockholm Arbitration Tribunal set a deadline for signing an amicable agreement of September 30. Later the sides asked the arbitration tribunal to extend the deadline.  Ukraine's First Vice Premier Andriy Kliuyev previously expressed hope that the amicable agreement might be signed by the end of 2010.

Ukraine announced a competitive tender for the right to enter into production sharing agreements (PSAs) for the extraction at the Prykerchensky field of the Black Sea continental shelf in December 2005. Vanco International, 100% owned by Vanco Energy Company (United States) won the tender in April 2006.

It took more than a year to agree on a draft PSA, which was finally adopted by the government in October 2007 and signed in the presence of the former President Viktor Yuschenko.

The Environment Ministry in December 2007 issued a license to Vanco Prykerchenska for geological prospecting, research and the commercial production of oil, gas and gas condensate at the Prykerchensky field.

Later, the ministry found that a number of violations of Ukrainian laws were committed during the tender and when the license was issued to Vanco Prykerchenska, as well as evidence of infringements by Vanco International of some PSA clauses.

In April and May 2008, the government cancelled the license of Vanco Prykerchenska and withdrew from the PSA. Vanco went to the international arbitration, simultaneously offering the renewal of cooperation under the PSA to the government of Ukraine.

Vanco Prykerchenska is owned in equal shares by Vanco International, DTEK Holdings Limited of Ukrainian businessman Rinat Akhmetov, Shadowlight Investments Limited of Russian businessman Yevgeniy Novitsky, as well as Integrum Technologies Limited.

NOTE:  Vanco Exploration Company is a member of the U.S.-Ukraine Business Council (USUBC), Washington, D.C.,