Today, the Ukrainian government has opened a public tender for Dolphin offshore block under a production sharing agreement (PSA), covering a total area of 9,496 sq. km of the northwestern part of continental shelf of the Black Sea. Interested parties have 60 days to submit applications to PSA Interagency Commission. Winning bidders will be notified by July 2019.
Certain of the key terms of the PSAs are:
- The total PSA duration is 50 years.
- A non-refundable bid participation fee is UAH 300 000 (~US$ 11,000).
- A minimum financial commitment in the five-year exploration period is UAH 1,500,000,000 (~US$ 55,550,000)
- During the five-year exploration period, a minimum work programme must be completed which is to include drilling of no less than five exploration wells.
- 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 of Ukrainian or foreign natural persons or legal entities will be evaluated in line with the Tender terms. The following eight main 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).
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