Gentech

HYDROCARBON LAW

Hydrocarbon Legislation1


Subsoil resources such as oil and gas are the exclusive property of the State. However, rights to use the subsoil may be granted to foreign individuals and legal entities on the basis of a subsoil use contract concluded with the Ministry of Energy and Mineral Resources following an investment tender.


The primary legislative acts regulating the oil and gas industry in Kazakhstan are the Subsoil Law2 , the Oil Law3 , and the PSA Law4. A number of other laws regulate specific aspects of subsoil use.


The Subsoil Law sets out the basic framework for oil and mining operations in Kazakhstan, while the Oil Law addresses only oil operations. The PSA Law regulates production sharing agreements ("PSA's") with respect to offshore oil fields.


Kazakhstan's legal regime governing the development of natural resources has evolved significantly over the years. Certain serious amendments were introduced to the Subsoil Law and the Oil Law in 1999, 2004 and 2005. Amendments adopted in 1999 eliminated the licensing requirement for subsurface use operations, giving contractors the right to engage in subsoil use operations by executing a subsoil use contract with the Competent Body of the Government, currently the Ministry of Energy and Mineral Resources. However, under these amendments all previously issued subsoil licenses remain in effect until their expiry, including any periods of extension granted under legislation in effect at the time of their issuance.


As a result of 2004 and 2005 amendments to the Subsoil Law, the State was granted a pre-emptive right of acquisition in the event of a direct or indirect transfer of a subsoil use right or shares in a subsoil user. The Government has not yet adopted any implementing procedures concerning this pre-emptive right. Therefore, it is not yet clear what procedures must be followed by the subsoil user in this respect.



Contracts


The Government annually approves a list of subsoil blocks to be put out to tender. Organizations wishing to participate in a tender must submit an application to the Ministry of Energy and Mineral Resources. Tenders can be open or closed.


The Oil Law provides for the following types of contracts:



Exploration contracts are concluded for a period of six years. This term may be extended twice for two year periods if the contractor applies for such extensions no later than three months prior to the contract's expiry. Production contracts are concluded for a period of 25 years. A contract for production at a deposit with recoverable reserves exceeding 100 million tons of crude oil and/or exceeding 100 billion cubic meters may be concluded for a period of up to 45 years. The effective term of a production contract may be extended if the contractor applies for an extension no later than 12 months prior to the expiration of the effective terms of the contract.


The specific terms of the contract are determined by agreement between the parties in accordance with applicable laws. Every subsoil use contract must reflect the conditions of the Model Subsoil Use Contract5 , although it is simply a framework which may be modified to meet specific requirements of the transaction.


Before a contract is signed, it must undergo, among other things, economic, tax, ecological, and legal expert examination and must be approved by the executive agencies responsible for sanitation, health and safety. The contract must also be registered with the Ministry if Energy and Mineral Resources and becomes effective from the date of registration, unless the parties agree it will become effective at a later date.


Kazakhstan legislation requires all oil and gas companies operating in Kazakhstan under licenses and/or contracts to organize tenders for most goods, works, and services that they procure in the course of undertaking oil and gas operations in Kazakhstan, and to give preference to local goods, works and services.


Based on new tax legislation that is expected to be enacted and take effect on 1 January 2009, PSA's will no longer be the basis for any new Subsurface Use Contract.




  1. 1   The information contained in this section is taken primarily from "Doing Business in Kazakhstan", prepared by Baker & McKenzie - CIS, Limited, Almaty, Kazakhstan, dated 1 January 2007, and as subsequently updated. This information may not include the latest developments, judgments or interpretations, and should not be construed as legal advice.
  2. 2   The Law on the Subsoil and Subsoil Use, dated 27 January 1996, as amended.
  3. 3   The Law on Oil, dated 28 June 1995, as amended.
  4. 4   The Law on Production Sharing Agreements for Conducting Offshore Petroleum Operations, dated 8 July 2005
  5. 5   Resolution of the Government of the Republic of Kazakhstan On the Approval of the Model Contract for Carrying Out Subsoil Use Operations in the Republic of Kazakhstan, dated 31 July 2001, as amended.