Iskander Energy: Small Company, Great Ambitions

In a session dedicated to project updates from the leading oil and gas producers in Ukraine at the Ukrainian Energy Forum in Kiev, Jaroslav Kinach, President, Iskander Energy described his company, which came about in early 2011, as a small company, but one with great ambitions.

"Our focus is primarily on non-conventional energy in Ukraine and Bulgaria, and we have a 24% shareholding in a license in Poland. We are also negotiating a JV partnership with a company that is producing oil in Georgia," he reported, describing these operations as “each country has stand-alone company scale opportunities and with tremendous potential."

"The key for us is that we came into Ukraine ahead of the big players," Mr. Kinach said of Iskander. "Being an early mover has given us some advantages. We have come in under the radar screen, at a time when the non-conventional energy business/market in Ukraine was still a dream for most investors and government officials. The cost of entry for us was a lot smaller than it is today and for many others following us. By being nimble and quick, we believe we have a comparative advantage in this country."

He said that Iskander had spent considerable efforts to ensure that its partnership arrangements with the license holders provide maximum safeguards, giving the company the opportunity to step back and watch the global energy players finalize their arrangements with the government controlled institutions. Mr Kinach added "Their entry into the market signals that it is possible to do business in Ukraine; in addition, it should make it easier for us to operate since these international companies have the ability and expertise to help the authorities to improve the legislative and regulatory landscape, and at the same time, these global players attract a vast array of various specialized service companies who would not otherwise enter the market. We expect to work with these international companies as well as ride their coattails, to take advantage of their strength and global experience, particularly in connection with lobbying for international standards and practices in the context of operations and fiscal regimes" he said.

Iskander's business model, he explained, was simple but elegant.

According to him, Ukraine ranks among the top 10 countries globally in terms of coal deposits (there were in excess of 220 coal mines operating in Ukraine during Soviet times). To make the coal mines safe, each coal mine has to be vented to release dangerous methane, and this venting pollutes the atmosphere. "Our business model is to capture this methane and reduce air pollution, and feed the methane into the extensive gas transit network throughout Ukraine, thereby replacing expensive natural gas being imported from Russia. In this process, we expect to make money, help the country gain energy independence, in addition to creating jobs and introducing new technologies and know-how. It is a winning formula"

Coal mines are continuously venting, releasing roughly 80 BCF of methane annually into the atmosphere: "Severe pollution that generates no income for anybody, although it does provide important safety for the miners," said Mr. Kinach.

He explained that Iskander is operating three licenses in Ukraine, comprising an area of about 1,200 square kilometers in the Donbas region of Eastern Ukraine. The company drilled its first well to a depth of almost 1,700 meters but the well isn't commercially viable and our geologists and other specialists are now doing a lot of analysis to determine next steps for this well and other new wells on that block.
Of course, Iskander will also be monitoring what Shell does on its block, which is adjacent, he added.

In terms of work programs for 2013, Mr. Kinach said that, in addition to the Krasnoarmiysk block, the company will focus on the South Donbas block, which is primarily a CBM play. He explained that Iskander's local partner had drilled four wells several years ago, one of which was quite promising.

With the drilling program planned for 2013, Mr Kinach stressed that the company intends to adhere strictly to local safety and environmental standards, and in fact employ best industry practices to ensure that operations are beyond reproach. He recalled, "the environmental concerns that have been raised by politicians and various groups in western and other regions of Ukraine in the context of new licenses issued for exploration for shale gas. Environmental safety is foremost in our mind, so we'll be very careful in how we execute our program."

Of the industry in places like Ukraine, Georgia, Poland or Bulgaria, he said, "Many older and traditional companies suffer a bit from a sort of old Soviet mentality where they had a tendency to 'drill first, and analyze later.' What we're trying to do, obviously, is to do a lot of geological analysis and study logs from old wells that were drilled for venting and other purposes before we do any drilling. Our comparative advantage is that my colleagues in Calgary have know-how, experience and technology which they have gained over the years from working in the industry throughout the world. So when we come to Ukraine, we tell our partners that we bring value to complement their local know how and expertise, and our synergy can create success”.

He noted that the global players coming to Ukraine are attracting significant industry service companies to the country.

"And what we've noticed is that while there's a great deal of equipment, there is a serious dearth of modern equipment, and familiarity with modern drilling and completion techniques - which, invariably, we've had to import at significant expense. We are hoping that with Shell, ExxonMobil, ENI, Chevron and others entering the market and focusing on unconventional and conventional energy, the level of services and equipment that is commonplace in North America will be increasingly available here in Ukraine," concluded Iskander Energy's Jaroslav Kinach.