B' C' Toms

1
B. C. Toms CoLAW OFFICESKYIV LONDON

• Investing in the Ukrainian
• Petroleum Sector
• Clearing the Hurdles
• Taras Dumych
• B. C. Toms Co
• London
• 15-16 March 2005

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Legal Framework

• The Subsoil Code
• The Law on Oil and Gas
• The Law on Production Sharing Agreements
• The Law on Pipeline Transport
• The Law on Concessions
• International Treaties
• the Bilateral Investment Treaties and
• the Energy Charter Treaty
• B.C. TOMS CO

3
Nota Bene

• The Oil and Gas Law
• has a priority over the Subsoil Code
• B.C. TOMS CO

4
Legal Framework

• The Subsoil Code
• The Law on Oil and Gas
• The Law on Production Sharing Agreements
• The Law on Pipeline Transport
• The Law on Concessions
• International Treaties
• the Bilateral Investment Treaties and
• the Energy Charter Treaty
• B.C. TOMS CO

5
Types of the Licences under the Oil and Gas Law

• Exploration 5 years on the land and 10 years on
  the continental shelf
• Exploration-Production 20 years on the land and
  30 years on the continental shelf
• Production 20 years on the land and 30 years on
  the continental shelf
• Storage 50 years
• B.C. TOMS CO

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Typical JV Structures

• Corporate JV
• Through a company incorporated in Ukraine,
  usually in the form of a limited liability
  company or a joint stock company

• Contractual JV
• A joint activity / joint venture without
  establishing a legal entity (company) based on an
  agreement

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Recommended Oil and Gas Licenses Holding

• Using a wholly owned subsidiary company
  incorporated in Ukraine
• OR
• Using a Corporate JV a Ukrainian company in
  which the investor is a majority shareholder
• B.C. TOMS CO

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Protection of the Priority Rights under the Oil
and Gas Law

• The investor was conducting oil and gas
  exploration under a exploration licence
  a priority right to be granted a production
  licence
• The investor was conducting oil and gas
  production and duly fulfilled the licensing terms
  a priority right to extend the production
  licence
• B.C. TOMS CO

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Priority Rights Limitations under the State
Budget Laws

• The State Budget Law 2004
• Licences are to be issued on a tender basis,
  subject to exceptions determined by the State
  Committee on Natural Resources

• The State Budget Law 2005
• Licences are to issued on a tender basis
  according to the procedure established by the law

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The 2004 Tender Exceptions

• when the applicant for the production licence was
  conducting oil and gas exploration
• when the applicant holds a property complex,
  defined as production facilities which are
  equipped with modern technology, at the subsoil
  plot in question
• when the subsoil plot is transferred under a
  production sharing agreement and,
• in those cases where the licence is extended
  provided that the applicant was duly fulfilling
  the licensing terms
• B.C. TOMS CO

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No tender exceptions are available under the law
for 2005 investors priority right cannot be
exercised.This must be changed to encourage
private investments in oil and gas
exploration.B.C. TOMS CO
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How to Clear the Licensing Hurdles

• For Investors Duly structure the oil and gas
  licenses holding using wholly owned or controlled
  Ukrainian companies
• For the State Not to limit the priority rights
  of investors who funded exploration of oil and
  gas to be issued production licences
• B.C. TOMS CO

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B. C. Toms CoLAW OFFICES

• Kyiv Office
• 18/1 Prorizna St.,
• Office 1,
• Kyiv 01034,
• UKRAINE

• London Office
• 64 London Wall,
• London EC 2M 5TP,
• UNITED
• KINGDOM