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Kinstellar Energy Digest: Ukraine November 2018 in Review

December 2018 – Kinstellar Energy Digest Ukraine, November 2018 in Review

OIL and GAS: Liberalisation of geological data gets closer

On 7 November 2018, the Ukrainian government adopted Resolution No. 939 – “Questions on the Transfer of Geological Information” (“Resolution No. 939”), which establishes a new procedure for the transfer of geological data and abolishes some out-dated secondary legislation. The new “Regulations on the Transfer of Geological Data” (the “New Regulations”), which form part of Resolution No. 939, are outlined below.

Updated approach to classification

The New Regulations revisit the definition of geological data and its types: initial (primary) geological data and processed (or secondary) geological data. Although the different types of geological data imply different legal regimes and obligations for their disclosure, the basic obligation of the owner or user is to ensure the storage of geological data.

Tradable, but subject to notification

Generally, the New Regulations provide that geological data can be traded or transferred to a third party or contributed to the charter capital of the subsidiary company. However, if the geological data belongs to classified information, it may not be transferred to certain entities and individuals to whom the law of Ukraine “On Sanctions” applies. Similarly, other limitations on classified information may apply.

The transfer of geological data has its own peculiarities. The creation, purchase or transfer of ownership or of a right to use privately owned geological data must be accompanied by a notice to Ukraine’s State Geology and Subsoil Service (the “Derzhgeonadra”).

Information from such notices will be stored in the Geological Data Catalogue that will be created and maintained by the State Fund on Geological Data (“Geoinform”).

State- and privately-owned geological data

Depending on whether the geological data has been acquired by using private funds or has been financed from the State Budget of Ukraine, it will be classified as privately owned or as state-owned. The legal regime for each type of geological data is different.

  • Initial geological data, state-owned

Once the State Repository of Geological Data and Rock Materials is established, initial geological data owned by the state (“Initial Data”) will be transferred to it. Further transfers of Initial Data are not allowed, except for a transfer via temporary use under a contract.

The state or municipal authorities and some state agencies of other countries may use the Initial Data free of charge for the performance of obligations under exploration contracts, for geological surveys and for other works for the purpose of the development of Ukraine’s subsoil base. The newly acquired geological data should be transferred free of charge to the grantor of the Initial Data, and a corresponding provision should be included to the contract.

  • Processed geological data, state-owned

State-owned processed geological data is free of charge and is available online at the website of Geoinform.

However, a subsoil licence-holder is obliged to pay for such data, the price of which is calculated in accordance with secondary legislation.

  • Geological data, privately owned

Privately owned geological data is not subject to any obligatory disclosure, unless its owner voluntarily publishes it on its own website or on the website of Geoinform. The latter may disclose such data exclusively upon the owner’s written consent.

As stated above, an owner of geological data may transfer such data to third parties, subject to compulsory notification thereof, and if the transfer is not prohibited or restricted by law (in case of classified data).

An owner of geological data may not keep it to itself for prolonged periods of time. Three years after the subsoil licence has been terminated or revoked, the licence-holder is obliged to publish processed geological data (unless otherwise stated in a binding court decision). Consequently, the initial geological data shall be deemed as state-owned geological data, although how this provision will work in practice is not yet clear.

OIL and GAS: More new fields and deregulation expected to stimulate natural gas production

Ukraine’s Cabinet of Ministers has updated the implementation plan for the Concept to Develop Ukraine’s Gas Production Industry by 2020 (the Plan”), which aims to increase natural gas production to 27.6 bcm in 2020, compared to 19.9 bcm in 2015. (Order of the Cabinet of Ministers of Ukraine "On Amendments to the Plan of Measures to Implement the Concept for the Development of the Gas Extraction Industry of Ukraine" No. 842-r dated October 24, 2018, published on 16 November 2018).

The new Plan sets ambitious goals in terms of the number of EandP licences scheduled for sale (at least 50), including at least five offshore blocks that will be offered either under a production sharing agreement or through the granting of an EandP licence.

In addition, the new Plan hints at how the rules of the game will be changed. For instance, rights under a hydrocarbon licence may become transferrable, and the requirement for seeking consent from the regional authorities (currently obligatory to obtain a licence) may be abolished, if such measures are successfully implemented.

Overall, the steps in the new Plan show a more mature approach toward boosting Ukraine’s natural gas production. This includes adopting best practices in the appraisal of hydrocarbon resources (PRMS, JORC) and preparing a draft law on a “one-stop shop” procedure for drilling and operating natural gas wells (or a new permitting document that would combine the rights to land and safety- and environment-related rights).

Among other initiatives, the new Plan suggests the adoption of a new Subsoil Code and the revision of secondary legislation on the calculation of the price for geological data to ensure transparency and a favourable fiscal regime, in particular for unconventional hydrocarbons.

For further information please contact: Olena Kuchynska, Partner, at

e-mail

, or Viktoriia Pysmenna, Associate, at .