The State Geological Service (SGS) will shortly open a public tender for 12 blocks under a petroleum sharing agreement (PSA) covering a total area of 15,600 sq km onshore Ukraine; Balakliyska, Berestianska, Buzivska, Hrunivska, Ichnyanska, Ivanivska, Okhtyrska, Rusanivska, Sophiivska, Uhnivska, Varvynska, and Zinkivska. The tender terms are expected to be published by mid-February 2019 and interested parties will then have 90 days to submit applications. Winning bidders will be notified by November 2019, with final awards anticipated in Q3 2020. Full details at https://www.goukrainenow.com/ or https://www.geo.gov.ua/This is the first PSA bid round to be held in the country since 2012. The PSA tender will be performed under the procedure in accordance with the Resolutions and the amended Law of Ukraine No. 1039-XIV On Production Sharing Agreements dated 14 September 1999 (PSA Law). A PSA model contract has not been released, however the bid information document reveals the following details:
- A non-refundable bid participation fee of UAH 300,000 (~US$ 10,830).
- An initial exploration period of five years. A minimum financial commitment in the five-year period is a bid requirement (minimum commitments have been stipulated dependent on each block in the range UAH 450 million (~US$ 16 million) to UAH 1 billion (~US$ 36 million)
- During the first 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 Varvinska, Ichnyanska and Sofiyivska blocks.
- The total PSA duration is 50 years, with an option for a negotiated extension.
- Cost recovery ceiling not exceed 70% of gross production until the contractor has recovered all costs and expenses (this implies the ceiling may be lowered after payout).
- The state’s share of profit petroleum to be at least 11%.
- Effective from 1 January 2018, a the royalty rate for the production of oil or condensate 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%.
Fig 2 – North Carpathian blocksInternational oil companies can bid directly for PSAs. In parallel, Ukraine is offering 30 onshore blocks under royalty/tax terms to Ukrainian companies, although foreign investors can participate via a local subsidiary company. The first 10 of these blocks were tendered on 6 December 2018 as Round 1, with bidding scheduled for 6 March 2019, whilst a further seven were released on 29 January for an auction to be held on 29 April 2019; the remaining 13 blocks are expected to follow in the coming months.