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January 14, 2019

Ukraine to hold 12 tenders for Oil & Gas Production Sharing Agreements

On 18 December 2018 the Ukrainian Government approved carrying out tenders for oil & gas production sharing agreements (“PSAs“).

Pre-conditions

Ukraine’s issuing PSA concessions is one of the key elements in its strategy to become energy self-sufficient. It is also one of the objectives which the EBRD indicated in its Ukraine Country Strategy for 2018-2023.

Potential PSA Areas

The potential PSA areas vary from 286 km² to 3,470 km². All of the areas are onshore.

Key Terms of the PSAs

Some of the key terms of the PSAs are:

• the Cost Petroleum share will be no more than 70% of total petroleum production;
• the State’s share of Profit Petroleum will be no less than 11%;
• the PSA term will be 50 years (unless otherwise agreed);
• key industry-standard PSA protections are available to investors, including:
  • legal stability – no future changes of law will apply to investors (other than legislative changes relating to matters of defence, national security, public order and environmental protection);
  • fiscal stability – no tax increases will apply to investors; and
  • international arbitration – as a dispute resolution mechanism.

The PSA is a contract to which Ukraine (as a country) is a party.

Minimum Commitments

Annex 1 (PSA Fields) contains a description of the fields, and the minimum investment and exploration obligations in respect of each field.

What is needed to apply

In order to apply, bidders are required to:

• submit their completed tender bid; and
• pay an application fee of approximately USD10,500.

The tender documentation (including geological information) is provided to bidders free of charge.

Timing

Annex 2 (PSA Application Timeline) contains the timeline of the PSA application process.

Redcliffe Partners is one of the few law firms in Ukraine which has extensive PSA negotiation experience, having represented foreign investors on several large Ukrainian PSA projects in the past.

Annex 1

PSA Fields 

No	Field	Area(sq. km)	Location(regions)	Minimum Investment Obligation	Minimum Exploration Requirements*
1	Rusanivska	766.56	Sumy, Poltava	UAH 800 million (appr. USD28.5 million)	Drilling of 2 exploratory wells and carrying out a 3D seismic survey
2	Zinkivska	571.40	Sumy, Poltava	UAH 500 million (appr. USD18 million)	Drilling of 2 exploratory wells and carrying out a 3D seismic survey
3	Grunivska	1,108.36	Sumy, Poltava	UAH 850 million (appr. USD30.5 million)	Drilling of 2 exploratory wells and carrying out a 3D seismic survey
4	Okhtyrska	717.25	Sumy, Poltava, Kharkiv	UAH 600 million (appr. USD21.5 million)	Drilling of 2 exploratory wells and carrying out a 3D seismic survey
5	Balakliyska	1,119.25	Kharkiv	UAH 800 million (appr. USD28.5 million)	Drilling of 2 exploratory wells and carrying out a 3D seismic survey
6	Ivanivska	841.61	Kharkiv	UAH 800 million (appr. USD28.5 million)	Drilling of 2 exploratory wells and carrying out a 3D seismic survey
7	Buzivska	669.65	Kharkiv, Dnipropetrovsk	UAH 600 million (appr. USD21.5 million)	Drilling of 2 exploratory wells and carrying out a 3D seismic survey
8	Sofiyivska	2,715.95	Chernihiv, Sumy, Poltava	UAH 1 billion (appr. USD36 million)	Drilling of 3 exploratory wells and carrying out a 3D seismic survey on an area of not less than 500 km2
9	Varvynska	3,471.26	Poltava, Chernihiv	UAH 1 billion (appr. USD36 million)	Drilling of 3 exploratory wells and carrying out a 3D seismic survey on an area of not less than 500 km2
10	Ichnianska	2,447.65	Chernihiv	UAH 1 billion (appr. USD36 million)	Drilling of 3 exploratory wells and carrying out a 3D seismic survey on an area of not less than 500 km2
11	Berestianska	286.38	Lviv, Khmelnytsky	UAH 450 million (appr. USD16 million)	Drilling of 2 exploratory wells and carrying out a 3D seismic survey
12	Ugnivska	967.44	Lviv, Ivano-Frankivsk	UAH 600 million (appr. USD21.5 million)	Drilling of 2 exploratory wells and carrying out a 3D seismic survey

* Minimum exploration requirements for the first stage of geological exploration (5 years).

Annex 2

PSA Application Timeline

No	Action	Term
1	Approval of tender documentation and official announcements in Ukrainian and foreign media	Must be completed by 18 February 2019
2	Submission of applications	within 3 months after the official announcement
3	Determination of the successful applicants	within 1 month from the final date applicable to bid submissions
4	Conclusion of the PSAs	within 1 year from the publication of the results of the tenders (can be extended by 6 months)

If you would like to know more about the subject covered in this publication, or our services, please contact Dmytro Fedoruk and Rob Shantz.