On 15 March 2017 the Ministry of Ecology and Natural Resources of Ukraine adopted the Rules for Development of Oil and Natural Gas Fields (the Ministry’s Order No 118 dated 15 March 2017, hereinafter – the “Rules”). The Rules came into effect on 30 June 2017.
The Rules govern oil and gas exploration and production covering the basics and fundamentals of development activity, establishing definitions, categories of wells, stages of exploration and technical regulations applicable to different types of activities, etc. A short summary of the main chapters is outlined below:
- Chapter I “General Provisions”: the Rules contain numerous provisions applicable to the exploratory and commercial development of the fields, production of hydrocarbons during commercial development and installation of downhole equipment in the oil and gas wells etc. The Rules are mandatory for any legal entities engaged in exploration and production activities, irrespective of their form of incorporation and/or ownership.
- Chapter II “Definitions”: the Rules provide for a number of new technical definitions and legal terms necessary for the due regulation of the industry (including terms such as “hydraulic fracturing treatment”, “cycling process”, “commercial development”, “well production testing”, "unconventional accumulation of hydrocarbons" etc.)
- Chapter III “Preparation of the Oil and Gas Fields for Development and Classification”: provides criteria for the classification of different categories and types of fields and wells. The exploration works shall include the following stages:
- regional stage, i.e. studying the geological aspects of the field (in particular by drilling offset and parametric wells);
- survey, which provides for drilling of exploratory wells, discovery of new oil and gas deposits and selection of the most promising ones for the purpose of further development; and
- reconnaissance works, which imply evaluation of the explored hydrocarbon reserves and preparation of the project documentation for development of the field, and include supplementary exploration of the reserves (at this stage extension and development wells may be drilled).
- Chapter IV “Exploration and Well Testing”: contains detailed regulations regarding the performance of explorative works and well tests. For example, according to the Rules, the well testing period may not exceed 1 year and may only be extended for 1 year in the event that the data obtained is not sufficient for estimation of the reserves and preparation of the project documentation.
- Chapter V “Pilot Commercial Production”: sets out the terms and conditions for performance of the pilot commercial development (PCD). In particular, PCD may only commence after: (i) the project for PCD has been duly prepared and approved; and (ii) construction of the necessary premises and buildings (including the ones designed for use of the extracted hydrocarbons) has been duly completed.
- Chapter VI “Estimation of the Reserves and Evaluation of the Deposits”: estimation of the oil, gas and gas condensate reserves shall be conducted in three stages:
- estimation of the preliminary explored reserves (based on results of preliminary evaluation of reserves, so-called GEO-2), which serves as the basis for preparation of the project for PCD;
- estimation of the explored reserves (based on PCD results), which is the basis for preparation of the project for commercial development (CD) of the field; and
- update of the estimation of approved reserves (based on the performance results of a detailed evaluation of the reserves , so-called GEO-1).
- Chapter VII “Commercial Development of the Deposits”: commencement of CD may be performed inter alia after: (i) the state expert review and detailed evaluation of the reserves are duly completed; (ii) PCD is completed; (iii) the project for the field CD is prepared and approved; (iv) the mine allotment is duly obtained; (v) the project for installation of the equipment is approved; (vi) the engineering survey works are completed; (vii) construction of the buildings necessary for the production and sale of hydrocarbons and for drilling and commissioning of the wells is duly completed.
- Chapter VIII “Exploration and Development of Unconventional Hydrocarbons”: the Rules define unconventional accumulations of hydrocarbons as accumulations that include natural gas, oil or any other hydrocarbons contained in shale formations, tight sands, coal bed methane, or basin-centred gas etc. In case of a development of such accumulations, the Rules allow selective development of separate parts of the subsoil plot (subject to compliance with the project documentation). The Rules also regulate performance of the hydraulic fracturing, establishing in particular that the relevant circuit of water must be closed for the purpose of fracturing.
- Chapter XV “Commercial Accounting of Oil and Gas”: the real-time accounting of the extracted hydrocarbons shall be performed separately for each well and - if the well is used for extraction of hydrocarbons from several fractions – separately for each such fraction. The amount of the extracted hydrocarbons shall be calculated as a total of the amounts of hydrocarbons extracted from active wells, on the basis of the relevant metering data.
The introduction of transparent and clear regulations and their successful implementation is crucial in order to attract new foreign and local investors in the oil and gas production sector. The adoption of the Rules is considered to be an attempt by the Government to improve the legal environment for gas producers and to increase domestic natural gas extraction.
LAW: Order No 118 of the Ministry of Ecology and Natural Resources “On Approval of the Rules for Development of Oil and Natural Gas Fields” adopted on 15 March 2017, effective since 30 June 2017