Oil & gas exploration and production in Ukraine will be simplified and enhanced

On 19 December 2017, the Ukrainian parliament finally adopted the draft law “On Amending Certain Legislative Acts of Ukraine Concerning Simplification of Certain Aspects in the Oil and Gas Industry” ("Draft Law").

This Draft Law considerably reduces the number of permits and approvals, and simplifies regulatory procedures relating to oil & gas exploration and production activities in Ukraine with a view to enhancing the local production of oil & gas and spurring investment in the industry.

Key changes relate to the following:

Exploration and commercial development of oil & gas fields will no longer require approval of state authorities

Currently, in order to begin the exploration and commercial development of oil & gas fields, it is necessary to obtain the approval of the State Service of Geology and Mineral Resources of Ukraine (the "State Service"). Under the Draft Law, subsoil users will no longer require approval either for exploration or for commercial development of oil & gas fields. Exploration and commercial development will become possible based on the exploration and development project, a plant installation project and an investment programme; it will be sufficient that copies of relevant documents are submitted to the State Service. Сommercial development must be preceded by the subsoil user submitting a copy of a technological project (scheme) and a copy of a complex installation project.

Land use will be eased

Uninterrupted land use during the transition from exploration to commercial production

During the transition from exploration to commercial production, a company doing exploration works will be entitled to use land based on an exploration agreement with a landowner or with the approval of the land user, until the exploration company obtains the necessary documents with which to certify its right of land use. This will eliminate delays and interruptions of business operations that companies currently face due to the need to comply with land use formalities during the transition from exploration to production, and will ensure an integrated and continuous business cycle.

No need to change the designated purpose of land. Land servitude is possible

Holders of special permits (licences) for subsoil use will be able to use land, irrespective of ownership or category, for the construction and operation of oil & gas extraction facilities and the installation of field facilities under the right of land servitude (easement) without changing the designated purpose of land, except for the land designated as recreational, natural habitat reserves, historical or cultural significance, or land of the water fund. Therefore, subsoil users will no longer need to engage in lengthy and cumbersome procedures of land allocation and the changing designated purpose of land use, which can take months or even years.

No special permit for removing top soil

Currently, to remove the top soil of land, a special permit should be obtained from the State Service of Ukraine on Geodesy, Cartography and Cadastre. The Draft Law makes an exemption for drilling, installation, maintenance, repairs or reconstruction of gas and oil wells as well as the pipelines, production facilities, roads, power and communication lines, and underground cable lines required for their maintenance and the prevention of accidents and spills. Hence, it will become possible to remove the top soil on the basis of land allocation documents alone, with no additional special permit necessary.

Mining allotment procedure will be cancelled

Subsoil users which have special permits for subsoil use will no longer be required to undergo the mining allotment procedure, which essentially duplicates the obtaining of a special permit. Hence, the number of permits for subsoil users will be reduced.

Wells outside cities will be easier to construct

Until recently, the legal status of gas and oil wells has been unclear from the perspective of building law. Wells were often considered as construction objects, entailing the need for developers to obtain and follow city building conditions and restrictions, undergo the examination and approval of design documentation, assign the postal address, and comply with many other formalities. The Draft Law expressly exempts gas and oil wells located outside populated areas (i.e., the majority of wells in Ukraine) from the category of construction objects and the associated requirements and restrictions.

No mandatory registration and approval of transfer of geological information

Currently, works and research relating to the geological study of mineral resources are subject to mandatory registration by the State Service. Transfers of this information to third parties are possible with the approval of the State Service. The Draft Law cancels mandatory registration of geological information as well as the State Service's approval of its transfer. Subsoil users will be able to transfer this information to third parties without the need for approval. For further information regarding recent legislative developments relating to geological information, please see our legal alert:

https://redcliffe-partners.com/en/publication/geological-data-will-besome-more-transparent-to-facilitate-minin/

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