Update: Launch of the PSA tenders in Ukraine
On 25 February 2019, the Ukrainian government opened a public tender for 9 blocks under a production sharing agreement (PSA), covering a total area of 11,600 sq km onshore Ukraine. Interested parties have 90 days to submit applications to the PSA Interagency Commission. Winning bidders will be notified by June 2019.
All areas are located in proven petroleum provinces with well-developed midstream infrastructure and widely covered by geophysical surveys. The undiscovered oil and gas resources of all blocks are officially estimated as inferred.
Certain of the key terms of the PSAs are:
- The total PSA duration is 50 years.
- A non-refundable bid participation fee of ~US$ 10,830.
- A minimum financial commitment in the five-year exploration period have been stipulated dependent on each block in the range ~US$ 16 million to ~US$ 36 million
- During the five-year exploration period, a minimum work programme must be completed which is to include seismic acquisition and no less than two exploration wells, with an increased commitment of minimum 500 sq km 3D seismic and three exploration wells in the case of the Varvynska and Sofiyivska blocks.
- Cost recovery ceiling not exceed 70% of gross production until the contractor has recovered all costs and expenses.
- The state’s share of profit petroleum to be at least 11%.
- The royalty rate for the production of liquids under a PSA is 2% and for natural gas is 1.25%.
- According to the PSA Law, the contractor is required to pay all taxes and charges stipulated by the Tax Code of Ukraine. The general corporate income tax rate is currently 18%.
- 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 bids will be pre-qualified and then evaluated in line with the Tender terms. The following eight criteria will be accounted: work program (80 points), experience in oil and gas exploration and production (45), government share at production stages (30), amount of investment (35), financial capability (30), local content (20), rational usage of natural resources (15), and environment protection measures (15).
On top of PSA tenders, Ukraine invites investors to participate in a series of online concession auctions, where the only criteria for winner is the size of cash bonus. In the first round, to be held on 6 March 2019, ten blocks in six regions of Ukraine, covering over 1 810 sq. km will be e-auctioned. Second round includes seven blocks, covering over 1 000 sq. km and will be held on 2 May 2019. The announcement of the third round is expected to be done shortly.