U.S. Driller Falls Victim To Ukraine Political Rivalry

KIEV, Ukraine -- Yulia Tymoshenko, Ukraine's braid-wearing, populist prime minister, has been in a political tug-of-war with President Victor Yushchenko for the last four years.

Yulia Tymoshenko

Her latest shot across the bow: the cancellation of a Yushchenko-backed, 18-month-old production-sharing agreement with a small Houston oil company.

Vanco Energy, a closely held firm owned by wildcatter Gene Van Dyke, drills offshore in deepwater areas, mainly in African countries such as Gabon and Ivory Coast.

In October, after two years of negotiations with the Ukrainian government, Vanco signed the agreement with a deputy prime minister as Yushchenko looked on. Tymoshenko has since declared the agreement corrupt and invalid.

In 2005, the Houston company, which would not disclose its profits or revenues, had beaten out ExxonMobil (nyse: XOM - news - people ) and Hunt Oil in a government tender to negotiate rights to drill the potentially hydrocarbon-rich Prykerchenska shelf in the Black Sea.

The 30-year production agreement signed in October gives Vanco the right to survey and then drill Prykerchenska. The Ukrainians would receive a 65.0% share of the production, with the remainder going to Vanco. In return, Vanco agreed to pay royalties, corporate profit taxes and all of the expenses.

But Tymoshenko accuses Yushchenko of colluding with Vanco to deprive Ukraine of a more advantageous deal. “Everything that took place did so by the president's order and against Ukraine's national interests,” said Tymoshenko on her personal Web site.

Vanco, which says U.S. Ambassador William Taylor has provided assistance on the issue, disavows any illegal activity and says it's willing to go to arbitration to prove its right to survey and develop Prykerchenska.

Last week, it sued the Environment Ministry. "The ministries didn’t know anything about the oil industry," said Van Dyke. "The block we got is what the government said is available for bidding."

Some observers think Tymoshenko's opposition to the project has more to do with her animosity to Vanco's investors than the deal itself.

According to reports, the Houston company recently disclosed that it is backed by companies controlled by the pro-Yushchenko billionaire Rinat Akhmetov, Russian telecom magnate Yevgeny Novitsky and an Austrian firm whose controlling shareholders are undisclosed.

Tymoshenko has raised the possibility that the Austrian company may be controlled by Yushchenko or his allies.

Source: Forbes