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Russia has always used natural gas supplies as a political weapon to coerce, intimidate and influence Ukraine. Ukraine is no stranger to politics related to natural gas and oil. To that effect, Ukraine itself has played quite a lot of politics in terms of gas pipelines that connect the Black Sea and Caspian Sea to mainland Europe. While this is not something that I find particularly impressive as a country's way of handling things, one must remember that Ukraine sits on large shale gas reserves that could contribute to the global quest for alternative natural gas sources.

Shale gas is becoming increasingly important and has drawn the attention of several major oil companies all over the world. In fact, analysts believe that shale gas will supply a huge part of natural gas production in North America. That assumption may materialize as early as 2020. With that in mind, it is not surprising that Ukrainians were very excited about the prospects of inviting western companies to engage in natural gas exploration. The reason for inviting western companies may be due to political, economic and strategic reasons. Kiev is trying to reduce its dependence on Russia over gas imports.

Like I mentioned earlier, Russia has used its stronger position to intimidate and blackmail Ukraine over gas imports, and has even suggested that it would cut off gas supplies if Ukraine tried to be very friendly with the West. However, this doesn't seem to have deterred Ukrainians from approaching western companies and finally granting those licenses to carry out exploration activities in Yuzivska in eastern Donetsk and Kharkiv regions and Olesska in western Lviv area. Royal Dutch Shell (NYSE:RDS.A) has been awarded the contract to carry out exploration in Yuzivska and Chevron (NYSE:CVX) won the agreement for Olesska.

President Viktor Yanukovich has tried desperately to maintain a balance between an increasingly useful west and the dark force of Russia that looms over Ukraine. Becoming self dependent over gas supplies could be the first major step toward achieving political and economic strength and this is something that Ukraine understands especially when it lies very close to the eurozone.

One of the reasons why Ukraine decided to award the tender to Chevron could be Chevron's own relationship with Russia. Meanwhile, BP, which had landed with significant stakes in Russia during the early part of 1990s failed to see success in Ukraine. Chevron did not manage to gain a foothold in Russia back in the 1990s, but has somehow managed to enter the Russian natural gas territory. With the help of its latest gains in Ukraine, I would assume Chevron will gain access to more Russian gas fields in the future. Chevron has wide ranging activities within Russia including transportation, exploration, technology licensing and consumer products.

Chevron is a major stakeholder (pdf) in the Caspian Pipeline Consortium. Chevron has spent almost $2.2 billion in the CPC construction and another $5.4 is expected to be spent right in Russia. Considering how huge and rich Russia is in terms of natural resources, it only makes sense for Chevron to try every possible way to get behind the iron curtains. The Arctic Russia is one such area that Chevron is concentrating upon right now. Arctic Russia has huge oil and natural gas reserves but much of the data comes from the Soviet Times.

Chevron has promised Russia to help in oil and natural gas exploration in the Arctic region and may perhaps be in the good books of Vladimir Putin. These are the ideas in the fine print that I expect have encouraged Ukraine to award the license to Chevron. Chevron is not a company that Russia dislikes, and when Ukraine gives licenses to a company that Russia doesn't dislike, it can hope for continued gas supplies from Russia. If Ukraine had given licenses to companies that may somehow offend Russia in terms of their contracts with Russia's competitors, things would have gone really wrong in Ukraine.

Moreover, Chevron knows how to be diplomatic and do what it does best, explore natural gas and oil. These strengths of Chevron might have helped it to win the license that many European companies wanted as well. With the Olesska shale gas fields in hand, Chevron can expect to be one of the most important companies in the world in the area of shale gas. Considering president Obama's support for shale gas exploration, Chevron is in the good books of the U.S. government as well. It is rather intriguing how Chevron has been able to please Russia, Ukraine, the U.S. and every other business and political entity in between.

On the other hand, competitors like Exxon Mobil (NYSE:XOM) and Eni (NYSE:E) did not end up with the licenses though they tried to grab it. Such bold steps also translate to investor confidence. Considering the fact that Ukraine chose to award the license to Chevron, and also considering the fact that Chevron was not a passive player in the whole scheme, we can expect that Chevron will only make bold but wise moves in terms of dealing with foreign entities. I would expect the stock to rise further if Chevron manages to seduce Vladimir Putin as well.

If you have invested in Chevron, you can expect ups and downs in the next few months depending on how the Russian government behaves after learning about Ukraine's decision to award Chevron with licenses. In all probability, Russian will likely grant Chevron further access to the natural gas fields as Chevron has access to the latest dual gradient drilling technology as well. Much of Russia, and Ukraine, are unexplored and these developments only indicate that Chevron will not keep quiet until it manages to become the leader in oil exploration and natural gas production. The future certainly looks bright for Chevron.

Source: Chevron: Ukraine Access Could Provide Huge Upside In 2013