Commentary to Article 128. Conservation and liquidation of technological facilities to the Code of the Republic of Kazakhstan “On Subsoil and Subsoil Use”
1. At any time before the expiration of the period of exploration or production of hydrocarbons, the subsurface user has the right to carry out the conservation or liquidation of certain technological facilities used in conducting subsurface use operations, including structures, equipment, wells and other property.
At the same time, during the production period under the contract for exploration and production or production of hydrocarbons, the subsurface user is obliged to liquidate wells that are subject to liquidation for technical and (or) geological reasons and cannot be used for other purposes in accordance with the field development project.
2. Technological facilities shall be liquidated or preserved in accordance with the project of liquidation or conservation of technological facilities approved by the subsurface user and having received positive conclusions provided for by this Code and other laws of the Republic of Kazakhstan, with the exception of certain categories of wells provided for in the rules of conservation and liquidation during exploration and production of hydrocarbons, approved by the authorized body in the field of hydrocarbons, liquidation or which are being preserved in accordance with the liquidation and conservation plan.
3. The requirements for the conservation or liquidation of technological facilities are established in the rules of conservation and liquidation during the exploration and production of hydrocarbons, approved by the authorized body in the field of hydrocarbons.
4. Financing of works on the conservation of technological facilities carried out outside the framework of the conservation of a subsurface area, the right of subsurface use for which has been terminated, in the case provided for in subparagraph 2) point
4 of Article 107 of this Code, is carried out at the expense of the funds of the subsurface user.
Financing of work on the liquidation of technological facilities carried out outside the framework of the elimination of the consequences of subsurface use of hydrocarbons is carried out at the expense of the subsoil user.
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(Mukhamedov R.N.)
1. According to paragraph 1 of the commented article, with respect to technological facilities located on a subsurface area, the subsurface user has the right, at his discretion, to carry out work on their conservation or liquidation. Unlike the elimination of the consequences of subsurface use in a subsurface area and its conservation, in this case, not complete liquidation / conservation is carried out, but only for individual objects, the further use of which is considered impossible or impractical. At the same time, despite the absence of a direct indication of this in this paragraph, such measures should not run counter to the project documents.
It should be noted that the Law of 2010 did not regulate the liquidation and conservation of individual technological facilities (without stopping other subsurface use operations).
2. Among other things, paragraph 1 of the commented article includes wells as technological facilities, as a result of which financing for their liquidation can be taken beyond the scope of mandatory expenses.
3. For wells that are not used by the subsurface user for technical and (or) geological reasons and must be liquidated, the Subsurface Code does not allow the possibility of their preservation in unused form until the termination of the contract and the commencement of work to eliminate the consequences of subsurface use, but obliges the subsurface user to liquidate within a reasonable time. This rule is related to the above-described possibility of not providing financing for such liquidation and is designed to prevent the accumulation of unused wells by the end of the mining period, when the subsoil user may not have the funds left to finance their liquidation.
4. Most technological facilities are preserved or liquidated on the basis of the relevant technical design document, however, for certain categories of wells, paragraph 2 of the commented article establishes a simplified procedure based on the liquidation (conservation) plan. To such categories of wells, paragraph 20 of the Conservation Rules and
liquidation during the exploration and production of hydrocarbons and uranium production, includes all wells, with the exception of wells:
– with a hydrogen sulfide content in the reservoir fluid of 3.5 % or more;
– with an abnormally high reservoir pressure with an anomaly coefficient of 1.5 or more;
– on land - more than five thousand meters deep;
– at sea and inland waters.
5. Paragraph 4 of the commented article establishes that the financing of conservation work carried out outside the conservation of a subsurface area for the purpose of its subsequent transfer to another person, as well as liquidation work carried out outside the liquidation of the consequences of subsurface use, is carried out at the expense of the subsoil user. It should be clarified here that all work on the subsurface area is carried out at the expense of the subsurface user, and in this paragraph, it is most likely that the cost of such work upon completion is not reimbursed to the subsurface user from the accumulated bank deposit, which is the subject of collateral.
6. By virtue of paragraph 3 of Article 277 of the Subsoil Code, the commented article is retroactive, that is, it applies to relations under subsoil use contracts concluded before the entry into force of the Subsoil Code.
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Kazakh Association of Organizations of the Oil and Gas and Energy Complex KAZENERGY
Nur Sultan 2022
The Kazenergy Association expresses its sincere gratitude for the support in preparing the commentary to the following companies: North Caspian Operating Company NV, NC KazMunayGas JSC, Mangistaumunaygas JSC, Karachaganak Petroleum Operating BV, White & Case Kazakhstan LLP, Haller Lomax LLP)", "Erlicon CG" LLP, "Signum Law Firm" LLP. © Kazenergy Association, 2022 © team of authors, 2022 © authors, 2022
Dear readers!
We offer you a scientific and practical commentary prepared by a group of Russian specialists with extensive practical experience in legislation on subsoil and subsoil use and who participated in the preparation of the Code on Subsoil and Subsoil Use.
Subsurface use is a very complex and specific area of public relations, the regulation of which has its own historical background and takes into account the technological specifics of the process of subsurface development, as well as environmental, commercial, legal and other features of exploration and development of deposits.
Kazakhstan's legislation on subsoil and subsurface use has passed through several stages in its development, and has always been based on a balance of interests between the state and subsurface users, transparency, striving for the maximum possible degree of protection of the rights and legitimate interests of investors, ensuring sustainable social, economic and environmental development of the country.
The Code "On Subsoil and Subsoil Use", adopted at the end of 2017, was developed taking into account many years of accumulated experience and law enforcement practice, as well as the results of extensive discussions with experts working in the industry.
It reflects specific, important measures on the part of the state to increase the investment attractiveness of exploration and further reduce administrative barriers.
Nevertheless, practice and legislation do not stand still, constantly evolving, taking into account new challenges facing both the subsurface use industry and the economy as a whole.
In this regard, this commentary is intended to serve as an aid for a wide range of interested persons – specialists working in the industry, in
understanding the meaning of the norms, their historical context, the interrelationship and mutual influence of the various provisions of the Code.
We also hope that studying the commentary will serve as an incentive for new generations of young domestic specialists to work scientifically and practically in this important industry, for the benefit of the development of our country, current and future generations of Kazakhstanis.
Sincerely, U. Karabalin, Deputy Chairman of the Kazenergy Association, Hero of Labor of Kazakhstan
