Shale Gas Production Sharing Agreements in Ukraine — Status Limbo

Cтатья посвящена проблемам, связанным с договорами о разделе продукции в сфере добычи газа в Украине. Хотя между Украиной и крупными компаниями заключено довольно большое количество подобных договоров, они отнюдь не гарантируют успешную реализацию проектов, являющихся предметом таких договоров. Особенно большие проблемы возникают в связи с аннексией Крымского полуострова Российской Федерацией.

Getting rid of gas depen­dence on Russia has been a hot topic in Ukraine in the last few years. In or­der to diversify energy sources Ukraine has, for a while now, been negotiating shale gas exploration with a number of inter­national oil extractors such as Shell, Chevron, ExxonMobil, Eni and EDF.

On 24 January 2013, Shell, Nadra Yuzivska LLC and the government of Ukraine signed a production shar­ing agreement (PSA) concerning un­conventional gas extraction in the Yuzivska area (Kharkov and Donetsk Regions) at the Economic Forum in Davos, and on 12 September 2013 an operating agreement was signed, which actually permits commence­ment of work in the Yuzivska area. The SO-year deal envisages the drill­ing of 15 wells to exploit the shale gas potential in the area, in the east of the country. The share held the state in the distribution of profitable hydrocarbon products extracted un­der a PSA will range between 31% and 60%.

On 30 October 2013, the gov­ernment approved the draft product distribution agreement between Chevron Ukraine and Nadra Oleska LLC for the Oleska field (Lviv and Ivano-Frankivsk Regions), which was signed within the framework of an investment forum on 5 No­vember 2013 in Kiev. The PSA en­visages an initial investment of USD 350 million by Chevron in ex­ploratory work aimed at establish­ing how commercially viable shale reserves are at the Oleska field, which covers 5,260 square kilome­ters.

And finally, on 27 November 2013, Ukraine signed a third produc­tion sharing agreement for explora­tion and development of unconven­tional hydrocarbons in the eastern part of the Crimean peninsula with a consortium of investors — Italian group Eni and Electricite de France.

Apart from the above-mentioned agreements in August 2012, Exxon Mobil, Royal Dutch Shell, Petrom and NJSC Nadra Ukraine, bidding Jointly, won a PSA for the Skifske oil and gas field on the Black Sea shelf. Having signed the agreement on conclusion of the PSA in September 2013, according to the ex-Minister of Energy, the Parties were to sign the PSA in January 2014. But the signing was postponed once again.

Despite big hopes for Ukraine, signing of the PSA does not yet mean the success of the project.

Referring to the failure to sign the PSA on time Shell withdrew its par­ticipation in the negotiation process on PSA in Crimea in January 2014. However, the company made this announcement public only in March 2013,   after the annexation of Crimea by Russia.

In addition, implementation of the above-mentioned PSA was complicated by recent events in Ukraine, namely the annexation of Crimea, hostilities, rebellion and mass riots, public disturbance, etc. in the east of Ukraine and conflict between Ukraine and Russia with regard to those territories. In reac­tion to this political instability and ambiguous status of the Crimean peninsula, at the beginning of March the senior vice-president of Exxon Mobile issued a notice on the suspension of the PSA proj­ect’s implementation. Shortly after the statement by the American Oil and Gas Company, general director of Eni declared that the company was waiting for normalization of the situation in Ukraine and was intending to contact the new Ukrai­nian government.

The Anglo-Dutch Oil and Gas Company Shell is dealing with an equally unstable situation, as the epicenter of the current riots is the Yuzivska area.

So what could be the possible actions by those investors who have already spent significant amounts of money for filed exploration and find themselves in such an ambiguous situation? Could they claim for dam­ages against Ukraine, or they are compelled to accept the situation, as such events are nothing short of force majeure?

To start with, one should turn to the general provisions of the Ukrai­nian civil and commercial law, which govern cases of force majeure. In ac­cordance with Article 263 of the Civil Code of Ukraine and part 2 of Article 218 of the Commercial Code of Ukraine, under “force majeure” are meant ex­traordinary and inevitable under the given conditions events. Article 617 of the Civil Code of Ukraine states that “a person who violates the obli­gation is exempted from liability for breach of the obligation, provided that he/she proves that the violation occurred as a result of accident or force majeure”. Thus, current leg­islation entitles the parties to draft specific force majeure events direct­ly in the agreement.

However, it is obvious that it is impossible to give an exhaustive list of force majeure events. Also, it may so happen that the parties do not provide for a force majeure clause in the contract, which does not mean that the parties may not refer to force majeure as a reason for relief from guilt in case of, for example, natural disaster or war, which is im­possible to predict/foresee, and they do not depend on the parties.

Anyway, when proving force majeure the parties shall appeal to the concrete provisions of the Agreement in order to comply with the terms of notification of the other party on the occurrence of force majeure as well as the very procedure of such notification. In ad­dition, the Parties usually stipulate the document, which confirms the force majeure event. In Ukraine the Chamber of Commerce is entitled to issue such certificates, though parties may provide for another au­thority issuing such confirmation. Nevertheless, one should take into account that court practice is rather ambiguous in recognition of docu­ments. issued by authorities, other than by the Ukrainian Chamber of Commerce. In any case, in order to declare force majeure, the party shall prove the cause-and-effect con­nection between the concrete events and impossibility to perform its ob­ligations under the contract.

Thus, the concrete provisions of the PSA are to be analyzed. Howev­er, as a general rule, the provisions of such agreements are confidential[1]. At the same time, the Ukrainian mass media have made public the provi­sions of the draft PSA, concluded between the Ukrainian government and Chevron on Oleska field and PSA on Yuzivske field, to which Shell is a contract party. Meanwhile, it should be noted that Ukrainian legislation provides for only a list of essential terms of the PSA, being not limited to the template of such an agreement. The investor drafts such an agree­ment in compliance with the provi­sions of the On PSA Act.

The uncertainty of a status of current PSAs, in particular a risk of suspension of their performance or even termination due to the situa­tion in Ukraine, may force investors to consider investment protection op­tions under applicable bilateral and multilateral investment protection treaties. This will raise a number of issues, such as: is there an investment protection claim against Ukraine or Russia? In the case of the former, does Ukraine have a legitimate defence for alleged violation of its investment guarantees? Can Ukraine rely on Rus­sia’s annexation of Crimea or mass ri­ots, rebellions and public disturbance in the eastern regions of Ukraine as an excuse from accepting liable (e.g. as an event of force majeure)? It seems that those and a number of other re­lated questions are on the minds of a number of investors in Ukraine’s cur­rently unstable and rebelious regions and the answers to which still have to be found…


[1] It is worth mentioning that a non-govem- mental organization was claiming the con­fidentiality of the PSA. However, both the administrative court and court of appeal did not secure the claim, referring to the provi­sions of the PSA Act and to the Instruction on conclusion of the PSA, which do not provide for obligation of the Cabinet of the Ministers or other state authority to make provisions of the PSA public. See http://epl.org.ua/ekologija/ slancevii-gaz/spravi/oskarzhennja-konfidenci- inosti-ugodt-pro-rozpodil-vuglevodniv/

Авторы:

Volodymyr V. YAREMKO

is a senior associate, head of International Litigation & Arbitration Group at Arzinger

Maryna M. ILCHUK

is an associate at Energy Practice at Arzinger

Источник: The Ukrainian Journal of Business Law. – 2014. – № 6. – Р. 30-31.

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