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Legal Structure of the Ukrainian Hydrocarbon Market
by Yaroslav A. Petrov, Associate
2
•General terms & conditions for subsoil use;
•Exploration of oil & gas under production sharing
agreements (“PSAs”);
• I...
3
• The Ukrainian nation owns all subsoil located within its
territory and its continental shelf.
• State and municipal bo...
4
To explore and/or extract mineral deposits in Ukraine a
person has to obtain:
•a special permit for subsoil use (the “Sp...
5
• The main document granting rights for subsoil use.
• The State Agency for Geology and Mineral Resources
issues Special...
6
• exploration of oil & gas, including pilot production (up to 5
years onshore and up to 10 years offshore);
• production...
7
• Special Permits are issued at auctions with a few exceptions.
• Special Permits may be issued upon a non-auction proce...
8
• Limitations on Transfer:
• A Special Permit may not be transferred or assigned as a gift
be disposed, trough sale or o...
9
• Option 1: Buying a Special Permit;
• Option 2: Establishing a non-incorporated joint activity with
a Special Permit ho...
10
• Non-conventional hydrocarbons means shale gas, coal
bed gas (methane), basin-center type gas, crude oil,
condensate o...
Production Sharing Agreement
12
• The Law of Ukraine “On Production Sharing Agreements” No.1039-XIV, dated
14 September 1999, as amended.
• PSA means a...
13
• PSA is executed with a winner of a tender announced by
the State with a few exceptions.
• An investor may request the...
14
• Stabilization against adverse legislative changes.
• Flexibility in the most significant provisions of the PSA.
• Fre...
15
• Assistance in Obtaining Governmental Approvals
The State facilitates issuance to operator's contractors and
subcontra...
16
PSA may include special stages, procedures and rules
related to exploration and production of unconventional
hydrocarbo...
17
Yaroslav A. Petrov
Leonardo Business Center, 14th floor
19-21 Bohdana Khmelnytskoho Str.
Kyiv, 01030, Ukraine
Tel. + 38...
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Asters #130016-v2-presentation video-conference_for_services_companies

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Transcript of "Asters #130016-v2-presentation video-conference_for_services_companies"

  1. 1. Legal Structure of the Ukrainian Hydrocarbon Market by Yaroslav A. Petrov, Associate
  2. 2. 2 •General terms & conditions for subsoil use; •Exploration of oil & gas under production sharing agreements (“PSAs”); • Incentives to investors and contractors; and • Special terms for exploration & production of unconventional hydrocarbons. Scope of the Presentation
  3. 3. 3 • The Ukrainian nation owns all subsoil located within its territory and its continental shelf. • State and municipal bodies manage ownership rights of the Ukrainian nation over subsoil. • Subsoil can be granted to subsoil users into use only. • Subsoil users: Ukrainian and foreign natural and legal persons. • Extracted oil & gas is owned by subsoil user. Subsoil Ownership
  4. 4. 4 To explore and/or extract mineral deposits in Ukraine a person has to obtain: •a special permit for subsoil use (the “Special Permit”); •a mining lease/allotment (not necessary for exploration works); and •documents evidencing the allocation of a land plot for subsoil use. Legal Grounds for Subsoil Use
  5. 5. 5 • The main document granting rights for subsoil use. • The State Agency for Geology and Mineral Resources issues Special Permits. • Special Permits include information with respect to: • a special permit holder; • types of subsoil use activity; • subsoil block’s boundaries; • subsoil use term; and • annexes, including an agreement on subsoil use terms & conditions. Special Permit
  6. 6. 6 • exploration of oil & gas, including pilot production (up to 5 years onshore and up to 10 years offshore); • production of oil & gas (up to 20 years onshore and up to 30 years offshore); • exploration and production of oil & gas (up to 20 years onshore and up to 30 years offshore); • construction and use of underground oil & gas storage facilities (up to 50 years); • operations under production sharing agreements (up to 50 years). Note: subject to user’s compliance with statutory terms & conditions the term for subsoil use may be extended. Special Permits Are Issued for the Following Activities and for the Following Terms:
  7. 7. 7 • Special Permits are issued at auctions with a few exceptions. • Special Permits may be issued upon a non-auction procedure in limited cases, including: • in case of extension of the size of the previously granted subsoil block of up to 50% for purposes of additional exploration and increase of production; • exploration financed from the state budget; • exploration and production by fully or partially state-owned companies; • implementation of production sharing agreements. • A starting auction price is calculated upon a special statutory approved methodology. • A fee in the amount of the starting auction price is payable to obtain the Special Permit without an auction. Issuance of Special Permits
  8. 8. 8 • Limitations on Transfer: • A Special Permit may not be transferred or assigned as a gift be disposed, trough sale or otherwise, including transfer to a charter capital of a joint venture with a Special Permit holder or as a contribution to a joint activity. • Limitations on Size of Blocks: • max 500 square km; • max 1,000 square km for the Black Sea; • Special Permits issued based on production sharing agreements may cover larger areas. Special Permits Are Subject to the Following Legal Limitations:
  9. 9. 9 • Option 1: Buying a Special Permit; • Option 2: Establishing a non-incorporated joint activity with a Special Permit holder; • Option 3: Establishing an incorporated joint venture with a Special Permit holder with its 50% equity; • Option 4: Entering into a production sharing agreement with the State of Ukraine. Legal Options for Getting Access to Subsoil Use Rights:
  10. 10. 10 • Non-conventional hydrocarbons means shale gas, coal bed gas (methane), basin-center type gas, crude oil, condensate or other hydrocarbon materials located in non- conventional collectors. Definition of Non-Conventional Hydrocarbons
  11. 11. Production Sharing Agreement
  12. 12. 12 • The Law of Ukraine “On Production Sharing Agreements” No.1039-XIV, dated 14 September 1999, as amended. • PSA means an agreement between the State and investor(s), where investor undertakes to explore and produce oil & gas at its own cost while its expenses are compensated with its share of cost production and subsequent sharing of profit production with the State. • An investor may be: • (a) a Ukrainian or foreign companies or natural persons, consortium of Ukrainian and/or foreign companies acting separately or jointly possessing all relevant financial and economical capacities or a relevant qualification for subsoil use upon winning a relevant tender; or • (b) a company fully owned by the State, selected through a competitive tender or a legal entity established by such state owned legal company (may act only as an co- investor together with the investor, described in item (a) above); or • (c) an assignee of either (a) or (b). • PSA may be executed with several investors upon their joint and several liability under the PSA. PSA: Definition and Parties
  13. 13. 13 • PSA is executed with a winner of a tender announced by the State with a few exceptions. • An investor may request the State to tender out a particular subsoil block. • A tender is valid upon participation of at least one participant. • PSA may be entered without a tender: • for a subsoil block with non-significant deposits; • upon request of the Special Permit holder intending to enter into PSA. PSA Tenders
  14. 14. 14 • Stabilization against adverse legislative changes. • Flexibility in the most significant provisions of the PSA. • Free disposal of hydrocarbons. • Assistance in obtaining of governmental approvals, work permits for expats, importing of goods and equipment. • The State assists in obtaining land use rights for purposes of PSAs. • Liberal controls over currency and payments. • A preferential tax regime. • Compensation of investor’s expenses incurred before execution of PSA. • Max statutory cost production should not exceed 70%. Advantages of PSAs for Investors
  15. 15. 15 • Assistance in Obtaining Governmental Approvals The State facilitates issuance to operator's contractors and subcontractors of all approvals, quotas, licenses to carry out exploration and use of mineral deposits and other authorizations related to the subsoil use and performance of works under PSA. • Assistance in Labour Issues The State facilitates issuance of work permits and service cards (applicable to employees of foreign companies' representative offices) to foreign employees of investors' contractors and subcontractors.   • Assistance in Importing Goods The investor's contractors are not subject to licenses and quotas for importation to Ukraine of their own or leased equipment, materials and other assets required for performance of works under PSA. Advantages of PSA for Investor’s Contractors
  16. 16. 16 PSA may include special stages, procedures and rules related to exploration and production of unconventional hydrocarbons. Those provisions may deviate from the statutory provisions related to exploration and production of conventional hydrocarbons. PSA and Unconventional Hydrocarbons
  17. 17. 17 Yaroslav A. Petrov Leonardo Business Center, 14th floor 19-21 Bohdana Khmelnytskoho Str. Kyiv, 01030, Ukraine Tel. + 380 44 230 6000 Fax + 380 44 230 6001 E-mail: yaroslav.petrov@ asterslaw.com Website: www.asterslaw.com
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