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Ukraine Upstream Fiscal and Regulatory Report - Improved Fiscal Terms but Possible Political Risks

Ukraine Upstream Fiscal and Regulatory Report - Improved Fiscal Terms but Possible Political Risks

Summary


Ukraine is organizing a series of licensing rounds for 2019 with the goal of increasing its gas production, but the political risks linked to the imminent presidential elections raise the possibility of further fiscal and regulatory changes and may reduce the attractiveness for international oil companies.

Based on analysis of Ukraine’s 2019 three online concession tenders and PSA tender, through which the country is offering in total 42 onshore blocks (20,000 sq. km). The first online concession tender was concluded on March 6 with the assignment of three blocks to Neftegazopromyshlennaya Geology LLC (Burisma Group), DTEK Naftogaz, and Ukrgazdobycha.

As a result of low natural gas royalty rates, fixed at 12% and 6% for new gas wells at reservoir depth of less than and more than 5,000 meters respectively, Ukraine’s gas fiscal framework is competitive at a regional level. However, no international oil company is among the winners of the first concession tender at a time when Ukraine needs capital and technology to develop its hydrocarbons sector.

Ukraine has modified its petroleum fiscal framework several times over the last 10 years and that, as a result of economic and political reasons, it is possible that it may change again in the coming years. The current government has promised that the existing royalty structure will be stable until 2023, but the March 2019 presidential elections add risk. President Petro Poroshenko, who has pursued an investor-friendly approach to the hydrocarbons sector, faces strong competition from former Prime Minister Yulia Tymoshenko and the anti-elite presidential candidate, comedian Volodymyr Zelensky.

Election polls suggest that no candidate will win the presidency on the first ballot and the overall result remains difficult to predict. The continuity of policy in the oil and gas sector is, therefore, far from clear as it is uncertain whether the next president will implement a liberalization agenda as suggested by the International Monetary Fund or introduce a populist agenda centered on reducing utility prices for households and increasing public spending.

The report Ukraine Upstream Fiscal and Regulatory Report - Improved Fiscal Terms but Possible Political Risks, presents the essential information relating to the terms which govern investment into Ukraine’s upstream oil and gas sector. The report sets out in detail the contractual framework under which firms must operate in the industry, clearly defining factors affecting profitability and quantifying the state’s take from hydrocarbon production. Considering political, economic and industry specific variables, the report also analyses future trends for Ukraine’s upstream oil and gas investment climate.

Scope

  • Overview of current fiscal terms governing upstream oil and gas operations in Ukraine
  • Assessment of the current fiscal regime’s state take and attractiveness to investors
  • Charts illustrating the regime structure, and legal and institutional frameworks
  • Detail on legal framework and governing bodies administering the industry
  • Levels of upfront payments and taxation applicable to oil and gas production
  • Information on application of fiscal and regulatory terms to specific licenses
  • Outlook on future of fiscal and regulatory terms in Ukraine.
Reasons to buy
  • Understand the complex regulations and contractual requirements applicable to Ukraine’s upstream oil and gas sector
  • Evaluate factors determining profit levels in the industry
  • Identify potential regulatory issues facing investors in the country’s upstream sector
  • Utilize considered insight on future trends to inform decision-making.


1 Table of Contents
1.1. List of Tables
1.2. List of Figures
2. Regime Overview
3. State Take Assessment
4. Key Fiscal Terms - Royalty/Tax
4.1. Subsoil Use Fees (2013 onward)
4.1.1. Commodity Valuation (P)
4.1.2. Subsoil Use Fee Rates
4.1.3. Adjustment Coefficient (A))
4.1.4. Reduced Rate (Only for Companies With at Least 25% State Ownership)
4.2. Pre-2013 Regime
4.2.1. Rental (Royalty) (Abolished December 31, 2012)
4.2.2. Subsoil Tax
4.2.3. Geological Tax (Abolished December 31, 2010)
4.3. Gas Export Duty
4.4. Direct Taxation
4.4.1. Corporate Income Tax (CIT)
4.4.2. Deductions and Depreciation
4.4.3. Withholding Tax
4.5. Indirect Taxation
4.5.1. Value-Added Tax
4.5.2. Unified Social Contribution
5. Key Fiscal Terms - Production Sharing Agreements
5.1. Upfront Payments
5.1.1. Bonuses and Fees
5.1.2. Subsoil Use Fees
5.2. Cost Recovery
5.2.1. Limit on Recovery
5.2.2. Recoverable Costs
5.3. Profit-Sharing
5.3.1. Export Duty
5.4. Direct Taxation
5.4.1. Corporate Income Tax (CIT)
5.4.2. Fiscal Stability
5.5. Indirect Taxation
5.5.1. Value-Added Tax
5.5.2. Customs Duties
5.6. State Participation
6. Regulation and Licensing
6.1. Legal Framework
6.1.1. Governing Law
6.1.2. Contract Type
6.1.3. Title to Hydrocarbons
6.2. Institutional Framework
6.2.1. Licensing Authority
6.2.2. Regulatory Agency
6.2.3. National Oil Company
6.3. Licensing Process
6.3.1. Auctions for Special Permits
6.3.2. Direct Award of Special Permits
6.3.3. Award via PSA Tender
6.4. License Terms
6.4.1. Duration
6.4.2. Work Obligations
6.4.3. Domestic Market Obligations
6.4.4. Local Content
7. Outlook
8. Appendix
8.1. Bibliography
8.2. Contact Us
8.3. Disclaimer
1.1 List of Tables
Table 1: Regime Overview
Table 2: Ukraine, Subsoil Use Fee Rates (%), 2018 Onwards
Table 3: Ukraine, Subsoil Use Fee Rates (%), 2013 - 2017
Table 4: Ukraine, Crude Oil Rental Rates, 2001-2012
Table 5: Ukraine, Condensate Rental Rates, 2001-2012
Table 6: Ukraine, Gas Rental Rates, 2001-2012
Table 7: Ukraine, Subsoil Tax, Oil, Condensate and Gas 2001-2012
Table 8: Ukraine, Geological Tax Rates, 1999-2012
Table 9: Ukraine, Corporate Income Tax Rates, 1991 onwards
Table 10: Ukraine, Minimum Useful Lives (years), Fixed and Non-Current Assets (other than wells), 2015 Onwards
Table 11: Ukraine, Pre-2015 Development Well Depreciation Schedule
Table 12: Ukraine, Bonuses and Fees, Yuzivska PSA, 2013
Table 13: Ukraine, Profit-Sharing (%), Yuzivska PSA (2013)
Table 14: Ukraine, Profit Sharing (%), Oleska PSA (2013)
Table 15: Ukraine, Special Permit Bidding Increments
Table 16: Ukraine, Special Permit Maximum Duration (years)
Table 17: References
1.2 List of Figures
Figure 1: Regime Flow Chart - Royalty/Tax
Figure 2: Regime Flow Chart - Production Sharing Agreement
Figure 3: Ukraine, Indicative NPV10/boe, IRR and State Take Comparison, Regional
Figure 4: Ukraine, Legal Framework
Figure 5: Ukraine, Institutional Framework

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