Ukraine announces PSA tenders for 12 oil and gas fields

On 5 January 2019 entered into force Resolutions passed by the Cabinet of Ministers of Ukraine on 18 December 2018 (the "Resolutions") approving performance of tenders for execution of product sharing agreements (the "PSAs") for 12 oil and gas fields. Since this is the first time since 2012 that new oil and gas fields are being offered to investors under PSAs, these resolutions represent a significant development for the Ukrainian oil and gas sector.

Below we capture the main features of the PSA tenders envisaged by the Resolutions.

Conditions of the PSA tenders

The main conditions of the PSA tenders for the 12 oil and gas fields are as follows:

• Possible participants: Ukrainian and foreign legal entities, individuals and consortiums (subsoil users with special permits for subsoil use that are not compliant with their subsoil user obligations, in particular a work program, will not be allowed to participate in the tenders).
• Mineral resources that can be explored and extracted: Natural gas, shale gas, tight gas, coal seam gas (methane), gas condensate and oil within 10,000 meters below surface.
• Participation fee: UAH 300,000 (approximately USD 10,700) for each of the PSA tenders. The participation fee will be returned only if the PSA tender was not performed.
• Criteria for choosing a winner: The Resolutions establish the following criteria for choosing of the PSA tender winners:
  • focus of the work program towards complex usage of the oil and gas field and early production;
  • rational usage of natural resources under the work program;
  • level of the state share at profit-production stage;
  • amount of investment;
  • effectiveness of the environment protection measures;
  • level of financial support for the work program;
  • experience in oil and gas exploration and extraction (in particular, from unconventional sources); and
  • level of Ukrainian goods and services usage.
• Oil and gas fields: The fields under tender include:

• Product sharing principles: The investor’s share cannot exceed 70% at the cost-recovery stage. At the profit-production stage, the state’s share cannot be lower than 11%.
• Requirements for the work program: The following is required from the investor’s work program:
  • preparation of the environmental impact assessment;
  • performance of the following within the geological exploration stage (the first five years): (a) geological exploration; (b) drilling of no less than two exploration wells (three wells in the case of the Varvinska, Ichnyanska, Sofiyivska and Ugnivska oil and gas fields); and (c) performance of 3D seismic survey works (for no less than 500 square kilometres in the case of Varvinska, Ichnyanska and Sofiyivska oil and gas fields);
  • preparation of the report on the geological survey of the oil and gas field and submitting it to the State Informational Geological Fund;
  • submission of documents regarding discovered oil and gas deposits to the State Commission on Deposits of Mineral Resources and their approval;
  • preparation of the deposits, drilling of the production wells and the industrial extraction of the deposits in the event that decision is made to pursue industrial production of oil and gas.
• PSA duration: 50 years, unless otherwise agreed by the parties.

PSA tenders timeline

PSA tenders are expected to be announced in February or beginning of March, at which time bidders will have three months to submit their applications.

The PSA tenders will be performed under the following procedure in accordance with the Resolutions and the Law of Ukraine No. 1039-XIV On PSAs dated 14 September 1999:

For more information on this tender competition and opportunities in the Ukrainian oil and gas sector, feel free to contact authors of this publication.