Amendments to the PSA Tender Terms for Oles'ka and Yuzivs'ka Subsoil Blocks

On 6 February 2012 the Cabinet of Ministers of Ukraine amended its Resolutions No. 1297 and No. 1298, dated 30 November 2011 (the "PSA Resolutions"), which determine tender terms for conclusion of production sharing agreements ("PSA") on exploration and production of hydrocarbons, in particular non-conventional gas, in Oles'ka and Yuzivs'ka subsoil blocks. These amendments (the "Amendments") are apparently made to address some of the foreign investors' concerns. The Amendments are effective since 16 February 2012.

In particular, the Amendments brought in line with statutory requirements the PSA Resolutions' earlier rule pursuant to which to start works a tender winner needed to obtain consents of existing special permit holders within the subsoil block. The amended rule provides now for obtaining consents of holders of mining allotments, as required by the Subsoil Code of Ukraine.

Apparently one of the most controversial terms of the anticipated PSA tenders relates to the necessity for the investor to partner with the state owned company or its subsidiary. As this provision raised many questions and requests for clarification the Amendments have addressed this matter by clarifying that the state company's subsidiary may be created with a local legal entity to be competitively chosen taking into consideration: (a) its experience in geological survey of shale gas and basin-center type gas and in particular works carried out jointly with international oil and gas companies or under agreements with such companies; (b) qualification of its regular employees involved in geological survey of shale gas and basin-center type gas; (c) limitation of its equity in the subsidiary by 50 percent; (d) a requirement that financing of the subsidiary will not involve state budgetary funds; (e) a requirement that it does not have tax and other debt liabilities; and (f) a requirement that its experience in geological survey works may be not less than three years.

Importantly, under the Amendments, the identity of the "state partner" and relevant geological information regarding subsoil blocks are to be included in the tender documentation. Consequently, tender documentation's price increased dramatically from app. USD 12,500 to app. USD 1,312,500 for Oleska subsoil block and app. USD 1,875,000 for Yuzivska subsoil block.

For further information please contact
senior partner Armen Khachaturyan or associate Yaroslav Petrov.

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