Ukrainian JSC Ukrgazvydobuvannya presented options for PEC cooperation re 35 brownfield oil&gas fields

On 25 January 2022 JSC Ukrgazvydobuvannya ?from Naftogaz group presented the second stage of the project on engaging partners for operation of its fields in the format of production enhancement contracts (PEC). The second stage will cover 35 fields. Notably, the first stage covered 13 fields in the Western Ukraine where JSC Ukrgazvydobuvannya ?which is currently managed by Romanian Expert Petroleum which won PEC one year ago.

For the second stage JSC Ukrgazvydobuvannya ?selected 35 fields in the following clusters:

·???Karlivsky cluster (3 fields);

·???Yuliivsky cluster (8 fields);

·???Izyumsky cluster (11 fields);

·???Pereschepynsky cluster (13 fields).

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All of them are located in close proximity to each other in Dnieper-Donts basin.

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Total production of the 4 clusters makes 11% of overall UGV’s gas production and 5% of 2P reserves, they also contribute 14% of all UGV’s liquids production.

In terms of the schedule of the project the following key stages are expected:

1.??February 2022 – prequalification, signing cooperation agreement and access to data room;

2.??March - August 2022 – provision of preliminary commercial proposal;

3.??September- November 2022 -?official tender on Prozoro, including submission of final bids;

4.??December 2022 – signing the PEC.

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Key requirements for qualification:

1.??Experience

1.1.??PEC-type relevant partnerships (including risk-based service contracts) over last 10 years with daily production under operatorship at/or above the level of relevant cluster (or)

1.2.??Daily production under operatorship at/or above the level of relevant cluster.

2.??Financial conditions

2.1.??Prove of financial capability (e.g. Debt/EBITDA and/or OCF meet certain threshold).

2.2.??Submit the bid bond 0,5% - 3% of the Contract value (to be specified in the tender documentation).

3.??Personnel

3.1.??Main domain functions covered in-house. Availability of experienced professionals in key functions – G&G, reservoir management, production engineering, workovers, well interventions, drilling, etc.

4.??Compliance

4.1.??Anticorruption program;

4.2.??No financing terrorism;

4.3.???No antimonopoly law violation during last 3 years;

4.4.??Other.

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Key information about the tender process:

1.??Each cluster will be tendered on Prozorro and all clusters will be run simultaneously.

2.??Bidders submit proposed tariffs for baseline and incremental production and incremental production profile.

3.??Winner defined basing on lowest level of tariffs (both baseline and incremental) and highest incremental production profile.

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Key commercial terms of the PEC to be signed:

1.??The main task of the contractor: development and operation of the brownfields (provision of the technical and managerial expertise and execution of works) by the contractor with the purpose of increasing production levels, while decreasing / limiting production costs through contractor’s investment.

2.??Contractual term: 15 years (+optional prolongation for another 10).

3.??Title: no transfer of assets title (as well as title to production and/or reserves) to the contractor, all assets created during the contract term to be transferred to UGV in the end of the contract.

4.??Operational Control: Contractor Management: Joint – JSC Ukrgazvydobuvannya ?approves Work Program & Budget, Development Plan and other key decisions, while proposals are made by the contractor

5.??Compensation mechanism:

5.1.??Service fee: 2-stage $/tcm tariff (baseline and two types of incremental – for old and new wells); incremental > baseline;

5.2.??Service fee is the only compensation to the Contractor, and covers its CAPEX, profit share, OPEX and all other expenses.

6.??CAPEX: 100% financed by the contractor. Minimum Spend Obligations (MSO) guarantee for the first 5 years and on annual basis. ?

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More information about the clusters and PEC process is available in English at https://ugv.com.ua/uploads/PECs_Phase2.pdf

This information does not constitute legal advice and is merely the opinion of the author.

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Best regards, ????????????????????????????????????????????????????????????????????????????????????????????????????????????

Maksym Sysoiev

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