Oil stirs conflict on Black Sea

by Roman Kupchinsky

While the European Union frets over Russian efforts to impose its energy diktat by building gas and oil pipelines on the bottom of the Black Sea, new conflicts are emerging -- not over transit routes, but over rich hydrocarbon resources beneath its ancient waters.
An ongoing conflict between Ukraine and Vanco Energy Company is one example in which resource nationalism and a large dose of alleged corruption has combined to push out a legitimate American company from developing Prykerchynsky, a large underwater gas field in the Black Sea.

Assignments to develop the field were given by former Prime Minister Viktor Yanukovych's government during its final days in 2007 to Rinat Akhmetov, the major financial supporter of Yanukovich's Party of the Regions. Vanco was caught up in a scandal when the new government led by Yulia Tymoshenko decided to unilaterally withdraw the licenses and break the contract with Vanco. Tymoshenko's main argument was that corruption during the assignment and the licensing process had nullified the deal.
No one is currently developing the Prykerchynsky field, and the loser appears to be Ukraine. However, Vanco's fate was soon to be experienced by another Western company, this time from Canada -- the difference being that the nemesis of the Canadians was the Romanian government.

In 2004, Romania brought a case against Ukraine to the International Court of Justice (ICJ) in a dispute concerning the maritime borders between the two states -- more specifically about Snake Island, a tiny rock in the Black Sea. The real issue was not who owned Snake Island, but the 12-nautical-mile arc of its territorial sea, which contains significant oil and gas deposits.
It has an estimated 70 bn cm of natural gas -- enough to supply Romania's entire gas needs for five years -- and 12 mm tons of oil, a massive amount of money rides on what signpost goes up over this bit of seabed.

The license to develop a potentially large gas field in the waters off SnakeIsland is fully held by Sterling Resources, a publicly traded company. Sterling has pending assignments with well-known and respected partners, such as the Italian Gas Plus International, British Melrose Resources, and Australian Petro Ventures International, which is backed by Australian investment bank Macquarie.
Unlike Vanco, here there are no Austrian-based companies, no alleged ties to Russia or Gazprom, and no allegations of involvement by foreign oligarchs, organized crime or unnamed investors. In November 2008, hard-fought parliamentary elections brought a new Romanian government into power led by Prime Minister Emil Boc. On February 3, 2009, the ICJ ruled in Romania's favour in the border dispute, giving the country even more oil and gas holdings on the Black Sea shelf.

This court decision made Sterling's license significantly more valuable and set in motion a series of unexplained, murky events. Sterling had held its license through four previous governments and two presidential elections. However, suddenly after the ICJ ruling on the issue of Snake Island, the new Democratic Liberal Party (PDL) government began making unspecified allegations of corruption against the previous government for their supposed opaque dealings with Sterling and its license.
An investigation into Sterling's license is currently being conducted by the Romanian Parliament's Committee for Industries and Services, headed by Iulian Iancu. Separately, Sterling is being investigated by the Romanian Directorate for Investigation of International Organized Crime and Terrorism on accusations made by Gelu Maracineanu, the president of the National Agency of Minerals and Resources (NAMR).

Parliamentary committees with nebulous "findings" and committees with executive authority have been formed to investigate the alleged wrong doings. Meanwhile, as part of the Sterling investigation, several members of the new government have called for Romania to take a direct stake in Sterling's license through Romgaz, the state-owned natural gas company.
The government's stake in Romgaz is controlled by Economy Minister Adriean Videanu. Videanu was responsible for initiating the investigation into Sterling, and he and Iancu are both pushing NAMR president Maracineanu to review Sterling's license and for Romgaz to receive a large stake.

As of 2004, the Romanian government held 100 % of Romgaz's shares. In 2005, it began discussing the possible sale of a 10 % stake. The discussions continued in 2006, but the privatization of the company was pushed back another three years, and the government has yet to announce a definitive schedule. The media has identified some of the following potential bidders, if the company were to privatize: Mol of Romania, Gaz de France, Gazprom, LUKoil, Ruhrgas and Wintershall.
Founded in 1909, Romgaz is one of the largest natural gas producers in Romania and Eastern Europe, with 3,600 wells in production and an annual output of 5 bn cm. The company has six underground deposits with a total storage capacity of 2.75 bn cm. Reportedly, Romgaz is ready to exploit the Black Sea's oil and gas resources without Sterling.

On the losing side you have the Romanian people, the future development of a national oil and gas industry and yet another internal obstacle to developing European Union energy policy. If this is the state of the EU frontier, already facing a perpetual frontal assault from Russia's Gazprom, there is little hope in Brussels of orchestrating something meaningful.
At a time of limited capital and in the face of daunting natural resource requirements -- why would any government, especially one of the poorest in the EU, attempt to drive out these types of quality investors?

Roman Kupchinsky was born in Vienna, Austria and emigrated to the United States in 1949. He graduated with a degree in Political Science from Long Island University and served in the US Army as a rifle platoon leader in Vietnam. From 1978-1988 he was president of Prolog Research Corp, a Ukrainian language publishing house and research company. From 1990-2002 he was director of the Ukrainian service of Radio Free Europe/Radio Liberty. From 2002-2008 was a senior analyst at RFE/RL. He lives in Arlington, Virginia.