Welcome to the U.S.-Ukraine Business Council Moneymakers
FIVE QUESTIONS WITH GENE VAN DYKE
Small company competes on the turf of energy giants

By TOM FOWLER
Nov. 26, 2007, 8:26PM
Copyright 2007 Houston Chronicle

"Ukraine has to import 80 percent of its energy from Russia, so we're trying to find either oil or gas that would make them less dependent upon Russia. They're encouraging us to do whatever we can. We don't know at this stage if we'll have oil or gas, but we're quite sure we'll have one or the other."
GARY FOUNTAIN: FOR THE CHRONICLE

Just as cold weather began to embrace Ukraine recently, Houston's Gene Van Dyke was in Kiev signing the dotted line on an agreement that would help keep the former Soviet republic warm for years to come. The chairman and chief executive of oil and gas explorer Vanco Energy was completing a deal with the Ukrainian government for the first deep-water drilling project in the Black Sea — south of Ukraine and north of Turkey, almost landlocked if not for the Bosporus Strait near Istanbul. Drilling likely won't begin until 2009, but it will be a step toward energy independence for the country.
Chronicle reporter Tom Fowler talked to Van Dyke about how his small firm wins deals in developing nations against stiff competition from better-known heavyweights.

Q: What's the oil and gas potential in the Black Sea?
A: It's very, very good. The block we have rights to is 3.2 million acres immediately southeast of Crimea. The water depth is in the range of 2,000 meters. We have 2-D seismic done by Western GECO in 2004 that we bought that shows there are some very, very big structures that have great potential. It's really a completely virgin basin, probably the only basin in the world that has high potential where the wells have not been drilled. The Black Sea has the same geology as the Caspian and the same potential as the Caspian, but the Caspian has shallower water.

Q: Didn't you already win this contract back in 2006?
A: What we got in April 2006 was the exclusive right to negotiate for a license. It was given to us for a year and then they extended it for six months. In getting that right we beat Exxon, Shell, Hunt in Dallas and the Turkish national petroleum company. We knew the basic terms that would be in the agreement but not the detailed terms. We spent the last year and a half negotiating the final terms.

Q: The Ukrainians must be anxious for you to get started.
A: They are. Ukraine has to import 80 percent of its energy from Russia, so we're trying to find either oil or gas that would make them less dependent upon Russia. They're encouraging us to do whatever we can. We don't know at this stage if we'll have oil or gas, but we're quite sure we'll have one or the other. In our area there are some mud volcanoes, just like they have in the Caspian, so we know we have something. What this will do if we're successful is open up all the Black Sea for future exploration.

Q: How can you beat larger international firms when striking deals with the governments of developing nations?
A: I think one thing we found in Africa and other places is these countries like to work with independents because we have more flexibility. We move faster. We make a discovery and we develop the field very fast. We're not dependent on a parent company's budget that's spread all over the world.

Also, I went over there twice, met all the ministers. Each time I met a minister he was a little higher up than the last time, so I got a personal relationship with them. The majors didn't do that. They relied on their local representatives up there. As soon as we got the license, the majors called me up trying to make a deal.

Q: Have you had to change your tactics now that government-run oil companies are going after large projects so aggressively?
A: A lot of our things we have in west Africa and other places we got before the Chinese and Indians were too active in those countries. In this case, Turkey owns the south half of the Black Sea, so the Ukraine government did not want to give it to the Turkish national oil company. In Africa in Côte d'Ivoire and Ghana, I have Lukoil as a partner. They're the size of Exxon, and they're spreading their wings like all the others. I've had the Chinese in with me, the Indians in with me. The Chinese and the Indians in particular are very good partners because they have deep pockets, they pay on time, and they need the help. They don't have the experience and don't know the deep water like we do. I'm getting more and more oriented toward bringing in those types of companies as partners and away from bringing in some of the big private oil companies.

tom.fowler@chron.com