Commentary to article 277. The procedure for the enactment of this Code to the Code of the Republic of Kazakhstan “On Subsoil and Subsoil Use”
1. This Code shall enter into force six months after the date of its first official publication, with the exception of:
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2) paragraphs 5 and 6 of Article 144, which enter into force on January 1, 2020;
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(Nogaibai Z.M.)
1. The Code on Subsurface Resources shall enter into force six months after the date of its first official publication, with the exception of its individual norms, in respect of which other deadlines for their entry into force are provided.
2. Clauses 5 and 6 of Article 144 of the Subsoil Code establish the obligation of entities operating in the field of crude oil and gas condensate turnover to equip their production facilities with metering devices, with a ban on their operations for the extraction and (or) turnover of crude oil and gas condensate without equipping production facilities with such devices, a list and the terms of equipping of which are approved by the authorized body in the field of hydrocarbons.
Due to the serious consequences of violating the above obligation, the legislator decided to postpone the introduction of these standards until January 1, 2020. Additional terms of equipment for individual production facilities may, in our opinion, also follow from the NPA approved by the authorized body and providing for the appropriate "list and terms of equipment."
It should be borne in mind that Article 144, according to paragraph 3 of Article 277 of the Subsoil Code, is applicable to relations under previously concluded contracts (i.e. it has a "retrospective" effect).
2. To establish that this Code applies to subsurface use relations that have arisen after its entry into force, with the exception of the cases provided for in this chapter.
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1. The commented norm provides for a conceptually important provision that the norms of the General and Special parts of the Subsoil Code, as a general rule, apply only to subsurface use relations (under contracts concluded and licenses issued) that arose after its entry into force.
It should be noted that there is (in our opinion, controversial) the possibility of a slightly different interpretation of the commented norm, namely, that the subsoil use relations that arose after the Code was put into effect should be understood as relations within the framework of new contracts (i.e. concluded after the Code was put into effect). so is the relationship within the framework of previously concluded contracts. At the same time, the above interpretation, with a systematic interpretation of paragraphs 2 and 3 of art. 277 raises the question – if the Code applies to relationships (that arose after its introduction) for both new and previously concluded contracts, then why was it necessary to cite a number of norms in paragraph 3 of Article 277 as applicable to relations under previously concluded contracts? Another issue that calls into question the above (controversial) interpretation is that paragraph 2 of art. 277 literally speaks of "subsurface use relations that have arisen ...", while subsurface use relations arise on the basis of a concluded contract (ATC), therefore, such relations have already arisen under previously concluded contracts (before the Code was put into effect). Based on the above, in our opinion, the norm in paragraph 2 of Article 277 of the Code still implies that "relations that arose after the Code was put into effect" refers to relations under contracts concluded after the Code was put into effect.
2. The clause "except for the cases provided for in this chapter" refers mainly to the list of norms set out in paragraph 3 of Article 277 of the Subsoil Code. The legal meaning of this clause is that exceptions are allowed from the general rule on the non-retroactivity of the Subsoil Code, which are specified in its final and transitional provisions.
Some inconsistency within the Subsurface Code arises if we consider that in some cases the "retroactive effect" of certain norms of the General and Special parts of the Subsurface Code is established directly in such norms themselves, and not only in the final and transitional provisions of the Subsurface Code (see paragraph 2.2.1 of the introductory commentary to Chapter 35 of the Code about the subsoil).
3. To establish that from the date of the entry into force of this Code, the relations on permits, licenses and contracts for subsurface use, issued and concluded before the entry into force of this Code, shall be subject to its provisions governing the relevant relations provided for by: …
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1. As noted above, paragraph 3 of the commented Article 277 of the Subsoil Code is, in our opinion, crucial in the question of the applicability of a particular rule of the General and Special parts of the Subsoil Code to relations under previously concluded contracts and licenses.
2. The commented norm uses a link not directly to previously concluded contracts and issued licenses, but to the relations under them.
3. The Code does not provide an unambiguous answer to the question of the possibility of the subsurface user and the competent authority, by agreement of the parties, to introduce into a previously concluded contract (without switching to a standard form, as provided for in the special provisions of art. 278 of the Subsoil Code), any of the new regulatory approaches and provisions of the Subsoil Code that are not listed in Paragraph 3 of Article 277 of the Subsoil Code as applicable to relations under previously concluded contracts. In our opinion, even if we assume that such a possibility exists, then it becomes unclear why paragraph 3 of art. 277 of the Code cite a number of norms as applicable to relations under previously concluded contracts?
At the same time, this does not mean that all the norms listed in paragraph 3 of Article 277 of the Code are "automatically" applicable to relations under previously concluded contracts. The new provisions of the Code may conflict with the provisions of previously concluded and existing contracts (in accordance with paragraph 1 of Article 278 of the Subsoil Code). In such cases, the parties to the contract will need to carefully check on a case-by-case basis the possibility of applying guarantees for the stability of the contract terms from legislative changes and a number of other issues (see the introductory commentary to Chapter 35 of the Subsoil Code).
4. Among the provisions of paragraph 3 of Article 277, special attention should be paid to the norms on the application to relations under previously concluded contracts of the provisions of the Subsoil Code on ensuring the elimination of the consequences of exploration and production of hydrocarbons (Articles 54, 55, 126, 128 of the Subsoil Code).
This issue should be discussed in particular, since in practice it raises quite a lot of questions and difficulties in understanding the Code on the Subsoil.
The Subsoil Code as a whole undertook a large-scale reform in the issue of ensuring liquidation: if, according to the previously existing legislative and contractual practice, in order to ensure the fulfillment of obligations to eliminate the consequences of subsurface use, the subsurface user was usually required to make contributions to the liquidation fund, the funds of which he could, with the permission of the competent authority, use for the purpose of eliminating the consequences of subsurface use, then, According to the Subsoil Code, it is now a question of securing liquidation obligations., which in the oil and gas sector is allowed only as collateral for a bank deposit (see paragraph 6 of Article 126 of the Code). This means that the subsurface user must form an appropriate bank deposit and pledge it to the state represented by the competent authority. The funds on such a deposit should remain intact, as a general rule, until the moment when the subsurface user properly and fully performs the liquidation of the consequences of subsurface use at his own expense.
At the same time, when developing the reform of the Subsoil Code, it became obvious that it actually entails a "double" financial burden on oil and gas enterprises. In this regard, certain exceptions were made for enterprises operating under previously concluded contracts, which were reflected in paragraph 3 of Article 277 when describing the retroactive wording of paragraph 6 of Article 126 of the Subsoil Code.
For a correct understanding of the norm of clause 6 of Article 126 as set out in clause 3 of Article 277 of the Subsoil Code, it is necessary to keep in mind the following:
4.1. The basic (general) requirements for ensuring liquidation under contracts concluded after the entry into force of the Subsoil Code (i.e., under "new" contracts) are provided for in the provisions of the General Part of the Subsoil Code (Articles 54-58 of the Subsoil Code).
Special attention should be paid to paragraph 5 of Article 55 of the Subsoil Code, according to which it is prohibited to conduct subsurface use operations requiring the elimination of their consequences without security provided in accordance with the Subsoil Code.
4.2. Special requirements for ensuring the elimination of the consequences of subsurface use in the oil and gas sector under contracts concluded after the entry into force of the Subsoil Code (i.e., under "new" contracts) are provided for in Article 126 of the Subsoil Code.
This article is of a special nature in relation to Articles 54-58 of the Subsoil Code, as it is located in a Special part of the Subsoil Code. This means that the general rules of Articles 54-58 of the Subsoil Code apply to subsurface users under contracts for hydrocarbons, taking into account the specifics provided for in Article 126 of the Subsoil Code.
Such features of the "new" contracts relate, in particular, to three key points:
1) for contracts in the field of subsurface use of hydrocarbons, of the three methods of ensuring liquidation (pledge of a bank deposit, guarantee and insurance) provided for in Articles 54-58 of the Subsoil Code, only one, the most stringent and reliable method is applied – pledge of a bank deposit (see paragraph 6 of Article 126 of the Subsoil Code);
2) during the exploration period under hydrocarbon contracts, the amount of collateral specified in the PRR is paid in full immediately, i.e. before the start of operations provided for in such a project document (see paragraph 7 of Article 126 of the Subsoil Code). Thus, by virtue of paragraph 5 of Article 55 of the Subsoil Code, taking into account paragraph 7 of Article 126 of the Subsoil Code, a subsurface user is not entitled to start operations for the exploration of hydrocarbons without making a bank deposit with the full amount of collateral.;
3) during the production period, the amount of collateral specified in the PRM is not paid immediately in full, but in proportion to the planned volumes of hydrocarbon production (see paragraph 8, Article 126 of the Subsoil Code). The ideology of this rule is to ease the financial burden on the subsurface user by establishing a correlation between his income from the sale of extracted hydrocarbons and his expenses for depositing funds in a bank deposit as collateral, when, for example, at the peak of production with the maximum amount of revenue, the amounts of collateral should also be proportionally higher than at the beginning and at the end. mining. Thus, by virtue of clause 5 of Article 55 of the Subsoil Code, taking into account clause 8 of Article 126 of the Subsoil Code, a subsurface user has the right to start mining operations without the obligation to pledge a bank deposit with the full amount of collateral, limited to depositing a portion of the payment determined in proportion to the planned production volumes.
4.3. The above-mentioned norms (in particular, paragraphs 5 of Articles 55, 126 of the Subsoil Code) also apply to "old" contracts by virtue of paragraph 3 of Article 277 of the Subsoil Code.
4.4. However, in relation to "old" contracts, i.e. those concluded before the entry into force of the Subsoil Code, the above requirements are applied subject to special provisions in the final and transitional provisions of the Subsoil Code.
In particular, paragraph 3 of Article 277 of the Subsoil Code stipulates that:
1) Article 126 of the Subsoil Code in full (except for its paragraph6) applies to "old" contracts;
2) However, clause 6 of Article 126 of the Subsoil Code also applies to "old" contracts.:
a) but - only after the expiration of thirty-six months from the date of entry into force of the Code on Subsoil;
b) and only in a special wording set out for this case directly in the text of paragraph 3 of Article 277 of the Code on Subsoil.
4.5. The above means that:
1) upon the expiration of 36 months from the date of the entry into force of the Subsoil Code, subsurface users under previously concluded contracts have an obligation to comply with the new requirements for ensuring liquidation provided for by the Subsoil Code, in particular, paragraphs 6, 7 and 8 of Articles 126, paragraph 5 of Article 55, etc. the norms listed in paragraph 3 of Article 277 of the Code on Subsoil;
2) at the same time, a special wording of paragraph 6 of Article 126 of the Subsoil Code in paragraph 3 of Article 277 of the Subsoil Code is of crucial importance, addressed to "old" contracts, which provides for a more lenient regime than for "new" contracts, since it allows for a reduction in the amount of liquidation security by the amount of the liquidation fund actually formed.;
3) if a subsurface user does not have a previously formed liquidation fund, or if the funds accumulated in the liquidation fund are insufficient to fully cover the market value of work to eliminate the consequences of operations for exploration and (or) production of hydrocarbons under this contract, then such a subsurface user has an obligation to contribute the missing amounts to ensure fulfillment of obligations to the state for liquidation consequences of subsurface use;
The difference in these amounts will represent the required amount of collateral, which the subsurface user is obliged to form in favor of the state (it is interesting to emphasize that it follows from the content of the commented norm that in a situation where (if) the amount actually accumulated in the liquidation fund exceeds the required amount of the full market value of work on the elimination of the consequences of subsurface use under a specific contract – The liquidation fund formed in accordance with the established procedure will be considered as collateral.; At the same time, the commented norm leaves unclear the question of whether the amount of funds actually accumulated in the liquidation fund should be transferred as collateral to the state.;
According to the commented norm, the practically significant question remains whether the provisions of the Code "cancel" the obligation of the subsurface user to continue making contractual contributions to the liquidation fund.;
Also, the question remains unclear, which arises in a situation where a previously concluded contract provides for obligations for contributions to the liquidation fund that have not yet occurred (will occur in the future).;
these and other possible practical issues, due to the lack of a direct indication in the commented norm, should, in our opinion, be resolved based on the general principles and approaches of the Code regarding ensuring the liquidation and stability of the provisions of concluded contracts).
4) the security in the amount of the specified missing amounts will be formed in two ways – by pledging a bank deposit and (or) by providing a full, unconditional and irrevocable guarantee from guarantors with a credit rating established by the Subsoil Code.
5) according to the procedure for depositing these missing amounts, it should be noted that if a subsurface user is in the exploration period, then in order to continue exploration operations, he will need to deposit the full (missing) amount of collateral by pledging a bank deposit and (or) providing a guarantee (see paragraph 5 of Article 55, paragraph 7 of Article 126 and paragraph 3 of Article 277 of the Code about the subsoil).
If the company operates within the production period, then it has two basic options for continuing mining operations.:
- she will need to pay the entire missing amount of collateral by providing a guarantee (see paragraph 6 of Article 126 as amended by paragraph 3 of Article 277 of the Subsoil Code); or
- she will need to pay part of the missing security amount through a bank deposit (see paragraph 6 of ct126 as amended by paragraph 3 of Article 277 of the Subsoil Code) according to a schedule agreed with the competent authority, which is formed in proportion to the planned volumes of hydrocarbon production (see paragraph 8 of Article 126 of the Subsoil Code, which applies to "old" contracts according to paragraph 3 of Article 277 of the Subsoil Code). At the same time, since the text of clause 6 of Article 126, as amended by clause 3 of Article 277 of the Subsoil Code, uses the union "and/or", this, in our understanding, means the opportunity for the subsurface user to contribute the specified missing amounts using a combination of both security methods (bank deposit collateral and guarantee)..
6) it is important to pay attention to the calculation of the market value of work to eliminate the consequences of operations for the exploration and (or) production of hydrocarbons under this contract, which, by virtue of clauses 7 and 8 of Article 126, applicable to "old" contracts by virtue of clause 3 of Article 277 of the Subsoil Code, is carried out under the PRR or PRM.
7) it is also important to pay attention to the application of the provisions of Article 128 of the Subsoil Code to "old" contracts, which makes it possible not to include in the calculation of the market value of work on the liquidation of technological facilities carried out outside the framework of the elimination of the consequences of subsurface use of hydrocarbons at the expense of the subsoil user (the purpose of this rule, as we understand it, is to adequately reduce financial burden on subsurface users).
6. Establish that by January 1, 2024:
Paragraphs 3, 4 and 5 of Article 141 of this Code are valid in the following wording:
"3. The report on the calculation (operational calculation) of geological reserves is compiled in accordance with the regulatory and technical documents approved by the authorized body in the field of subsoil exploration.
4. The state examination of subsurface resources is carried out by the State Commission on Hydrocarbon Reserves of the Republic of Kazakhstan (the State Commission on reserves) with the involvement of independent experts with special knowledge in the field of geology and subsoil use and not interested in the results of the examination.
5. The organization of the activities of the state commission on reserves, its composition, work regulations and record keeping are determined by the regulations on the State Commission on Mineral Reserves of the Republic of Kazakhstan, approved by the authorized body for the study of mineral resources.";
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12. Establish that by January 1, 2024:
1) in paragraph 4 and subparagraph 2) of paragraph 7 of Article 118, subparagraph 2) of paragraph 10 of Article 119, paragraph 4 of Article 139, subparagraphs 6) and 7) of paragraph 10 of Article 140 and Article 141 of this Code, the words "geological reserves", "geological reserves", "geological stocks" are replaced by the words "stocks", "stocks", "stocks", "stocks", respectively;
2) in Article 141 of this Code, the words "central commission" and "central commission" are replaced respectively by the words "State commission" and "State commission".;
3) Article 143 of this Code is valid in the following wording:
"Article 143. Indicators of project documents for the exploration and production of hydrocarbons related to the contractual obligations of the subsurface user
The contract for the subsurface use of hydrocarbons establishes the fulfillment of the following indicators of the project documents as an obligation of the subsurface user:
1) the density of the grid of production wells;
2) the ratio of producing and injection wells for each production facility;
3) the coefficient of compensation for deposits;
4) the ratio of reservoir and bottom-hole pressure to saturation pressure or condensation pressure;
5) the ratio of reservoir pressure to bottom-hole pressure;
6) the maximum allowable value of the gas factor for wells;
7) hydrocarbon production volumes;
8) back-injection volumes of the working agent to increase reservoir pressure;
9) indicators of the commissioning of production wells.
At the same time, the values of the indicators specified in this paragraph are not included in the contract and are determined based on the project documents.".
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1. The totality of the provisions in the commented clauses 6 and 12 of art.277 reflects the proposed changes in reporting on reserves provided for in the Subsoil Code.
2. The key change, as we understand it, is expressed in the fact that since 01.01.2024, the state retains only "control" over the geological reserves of hydrocarbons, which, in particular, is expressed in the authority to conduct a state examination of the subsurface only in relation to reports on the calculation (operational calculation) of geological reserves. This probably explains the appearance in the Code of a new mechanism for "critical indicators" of project documents, the violation of which entails serious contractual liability (art. 143 of the Subsoil Code, in force in various editions before and after 01.01.2024).
In addition, the Code provides for the transition from 01.01.2024 to the jurisdiction of the Ministry of Energy, as the authorized body in the field of hydrocarbons, issues of approving the necessary regulatory and technical documents for calculating geological reserves, as well as ensuring state expertise of geological reserves in the form of the work of the central commission under the Ministry of Energy (instead of the existing GKZ).
3. In our opinion, these components of the ongoing reform follow from the current wording of Articles 118, 119, 139, 140, 141 and 143 of the Code on Subsoil.
4. Considering, however, that the reform will come into force only on 01.01.2024.:
– in paragraph 12 of Article 277 of the Subsoil Code, it was necessary to note separately that until the specified date, the state controls not only geological, but also recoverable reserves, which is expressed in the general wording "reserves" instead of the wording "geological reserves";
- In paragraph 14 of Article 277 of the Subsoil Code, it was necessary to note separately that Article 121 of the 2010 Law on Subsoil remains in effect until 01.01.2024.
5. Along with the above, the establishment of a separate wording of clauses 3, 4 and 5 of Article 141 within the framework of clause 6 of Article 277 of the Subsoil Code was required to establish, for the transitional period until 2024, the competence of the authorized body for the study of the subsoil in terms of approving the NDT for calculating reserves, as well as the regulations on the GKZ.
On Subsoil and Subsoil Use Administrative Procedural and Procedural Code On the Health of the People and the Healthcare System Environmental Code Social Code Commentary Article Civil Procedure Code Civil Code Code of Criminal Procedure Criminal Code Regulatory Decision of the Supreme Court
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
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