COMMENTARY TO ARTICLES CHAPTER 17. PERIODS OF EXPLORATION AND PRODUCTION OF HYDROCARBONS TO THE CODE OF THE REPUBLIC OF KAZAKHSTAN "ON SUBSOIL AND SUBSOIL USE"
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(Mukhamedov R.N.)
1. The system of validity periods of subsurface use contracts provided for in Article 69 of the 2010 Law on Subsurface Resources had a number of problematic issues. Thus, the exploration contract was concluded for six years (with an extension of up to two years), however, in case of discovery of a deposit, the subsurface user had the right to extend the period "for the period necessary for its assessment." Thus, the Law did not regulate either the procedure for determining the initial period within the established maximum, or the maximum duration of the exploration period. As a result, in practice, there were risks of unreasonably prolonged exploration by subsurface users of small deposits and extraction of a significant proportion of their reserves under the guise of trial operation.
At the same time, the 2010 Law did not clearly link the terms and the contractual territory. For example, when the exploration contract was extended for trial operation, it was extended for the entire territory, while the trial operation itself was carried out only in a certain part of it.
2. The specified problematic issues have been fully resolved in the Subsoil Code. Regardless of the planned work, only the initial exploration period (for exploration and production contracts) and the preparatory period (for production contracts) remained to be established. The remaining deadlines were strictly linked to the relevant project documents.
The validity of the contract in time has become clearly correlated with the subsurface area (its parts). An extension for evaluation is now allowed only for the subsurface area within which the deposit (their totality) has been discovered, for the purposes of trial operation – only for the deposit on which it is planned to be
implementation. As for the rest of the Territory, the previously established deadlines continue to apply – until their expiration. Upon expiration of such periods, the relevant subsurface areas (parts of the site) are considered automatically returned to the state (Article 107 of the Subsurface Code), and the subsurface user is obliged to eliminate the consequences of his operations (Article 54 of the Subsurface Code).
3. In addition, a new tool has been introduced in the Subsoil Code – the preparatory period, which may be necessary both for exploration and production contracts for field development and preparation of a project for its development, and for production contracts, since the duration of the production period cannot be determined when granting the right of subsurface use, but is set at based on the field development project.
Questions about these innovations are discussed in more detail in the comments to the relevant articles in this chapter.
Commentary to the article Code of the Republic of Kazakhstan “On Subsoil and subsoil Use”
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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
