On March 1, 2018, Ukrainian Parliament adopted the Law of Ukraine on Amending Certain Legislative Acts of Ukraine Concerning Simplification of Some Aspects in the Oil and Gas Industry No. 3096-d (the "Law"), to be enacted by the president.
The Law improves the procedure of land allocation for the purpose of exploration, construction, maintenance of pipeline transport facilities, as well as facilitates other licensing procedures for the oil and gas industry.
The Law, in particular, permits using the servitude mechanism for the construction of oil and gas production facilities and pipeline transport without changing the purpose of land. The Law is also designed to improve the current practice of land allocation during the transition from exploration to commercial production. Specifically, an exploration company receives the right to use the land on the basis of an exploration agreement with a landowner or with the consent of the land user, until such exploration company receives the necessary documents confirming its right to use the land. This amendment provides continuous business cycle and eliminates the delays which have thus far been impacting business operations of the companies due to the need to comply with land use formalities in the transition from exploration to production.
Exclusion of Oil and Gas Wells from the List of Construction Objects
The Law eliminates the existing requirement for developers to obtain and follow city building conditions and restrictions and to register wells as urban development objects, the arbitrary and time-consuming procedure imposed by local authorities.
Pilot Commercial Development of Oil and Gas Fields
The Law grants the developer the right to commission oil and gas field/reservoir into pilot commercial development based on the protocol of approving a pilot project for the field/reservoir development submitted by the developer to the State Service for Geology and Mineral Resources of Ukraine. Consequently, the existing requirement to obtain separate permits for commissioning into pilot commercial development is been cancelled.
Right to Transfer Geological Information
Another investment-friendly amendment that the Law introduces is granting subsoil users the right to transfer beneficially owned geological information to third parties without approval of the state or municipal authorities.
In order to reduce the number of permitting procedures, the Law by introducing amendments to the Code of Ukraine on subsoil and other regulatory acts, cancels the compulsory acquisition of a mining allotment, the functions of which are duplicated with the functions of special permits for subsurface use.
End of Monopoly of the State Commission on Reserves
Finally, the Law expands the circle of entities that can conduct a geological and economic assessment of oil and gas reserves thereby depriving the State Commission of Ukraine for Mineral Reserves of the exclusive right to such services. These changes shall apply in Ukraine an internationally accepted system for estimating and auditing oil and gas reserves information (SPE-PRMS), and provide an opportunity to introduce market mechanisms in the process of reserves estimation.
Due to the outdated regulatory system, the energy industry of Ukraine cannot reach its potential development level and the desired volumes of oil and gas production. The Law shall streamline the existing procedures for obtaining the right to use land plots, and remove investment barriers caused by the imperfection of the procedure for granting land plots for the construction of pipeline transport facilities, oil and gas wells. As a result, the above legislative changes shall reduce operational costs of the industry in conducting exploration and production, construction, maintenance of pipeline transport, and increase the volume of oil and gas produced. All together this should make Ukrainian upstream more competitive and investment attractive.
For further information please contact Asters' partner Yaroslav Petrov and senior associate Marta Halabala.