The Cabinet of Ministers of Ukraine ("CMU") will soon be holding two tenders for the exploration and extraction of hydrocarbons at Oleska and Yuzivska areas on the terms of a production sharing agreement ("PSA") to be concluded with the State, represented by CMU. In this respect the CMU adopted on 30 November 2011 two respective resolutions, which, nevertheless, became available only a few days ago.

These resolutions contain the main conditions on which the PSA tenders for Oleska and Yuzivska areas will be held once ultimately announced, while CMU also resolved to further develop and approve a more detailed tender documentation, and ensure publication of a tender announcement in official Ukrainian publications and in foreign mass media by end of January 2011.

The tender bids must be submitted within two months as of the moment when the tender announcement is made, which makes end of March 2012 as a most likely deadline.

Apart from the list of documents to be submitted for participation and qualification requirements to the bidders, the aforementioned resolutions have set a number of other specific tender conditions, the most important of which are summarized below:

  • An investor (winner of the PSA tender) will be granted an "all-inclusive" special permit for exploration, pilot and commercial production of the following hydrocarbons: natural gas, shale gas, tight (central basin) gas, coal bed methane, oil and condensate within Oleska (6 324 sq. km.) or Yuzivska (7 886 sq. km) areas for the period of 50 years.
  • The minimum amount of investments required: at the exploration stage – UAH 1.3 bil. (USD 163 mil) for Oleska area and UAH 1.6 bil. (USD 200 mil) for Yuzivska area; at the commercial production stage (if any) – UAH 25 bil. (USD 3.125 bil) for Oleska area and UAH 30 bil. (USD 3.75 bil.) for Yuzivska area.
  • Investor will be obliged to develop a tendered subsoil area jointly (i.e., to carry it through supposedly - the exploration stage only) with a state-owned company, which is yet to be determined by an Interagency Commission on a competitive basis.. Such company will be entitled to 50% of investor's rights and obligations (save for exclusive rights and obligations vested in the operator) and, in particular, to 50% of the investors' share in the profit production. A joint operating agreement or other similar arrangement should be concluded within 120 days after announcement of the winner of the tender.
  • The PSA between an investor, a state-owned company and the State (represented by the CMU) shall be concluded for 50 years on the following profit split terms: the amount of investor's cost production shall not exceed 70%; minimum share of the State in the profit production – 15 % for Oleska area and 16.5% for Yuzivska area.
  • Bidding parameters that will be considered when taking a decision on the winner of the tender: (i) rational use of the natural resources as per work program; (ii) efficiency of the technological solutions; (iii) efficiency of the HSE protection program; (iv) attractiveness of the investment terms; (v) financial capabilities and experience in the light of the work program and investment terms of the tender; (vi) attractiveness of the profit share split suggestion of the bidder for the State; (vii) experience of the bidder in real life projects for exploration and/or production of shale gas, tight (central basin) gas, coal bed methane; (viii) involvement into development of the local production and social infrastructure; (ix) ensuring primary use of local goods, works and services of Ukrainian origin.
  • Tender conditions oblige bidders to disclose certain information concerning their methods of rational use of subsoil resources to be used in the project, specifically:
    • Chemical composition of the fracking fluid;
    • Technology and other solutions for protection of subsoil and surface waters from chemicals used for hydraulic fracturing, as well as to ensure maximum usage of non-potable ground waters and re-using formation waters;
    • Measures to ensure rational use of water resources used for hydraulic fracturing;
    • Technology to protect the atmosphere and prevent air pollution.
  • Bidders will be required to pay a participation fee in the amount of UAH 500 000 (USD 62,500) and purchase the tender documentation (comprising a cartographic layout of the area, general and geological description of the area, list of geological information that can be purchased from the State Service for Geology and Subsoil of Ukraine) amounting to UAH 100 000 (USD 12,500).

Law: Oleska area - Resolution of the Cabinet of Ministers No. 1297, dated 30 November 2011; Yuzivska area - Resolution of the Cabinet of Ministers of Ukraine No. 1298, dated 30 November 2011.

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The original publication date for this article was 22/12/2011.