Oil & gas

Issue and term of licences

Mineral rights are documented by a licence which is essentially a permit issued by the Russian state to conduct a particular type of activity in respect of a given subsoil block. Subsoil licences do not give any surface rights to the territory on which the activity is to be carried out. Therefore subsoil users must obtain land use rights (usually under a lease) separately (please see the Real estate and construction chapter).

Geological surveying licences

A licence for geological surveying is issued without a tender or auction:

• generally for up to five years;
• for up to seven years in respect of subsoil blocks located at least partially within certain Russian regions; and
• for up to ten years for offshore blocks.

The validity term of a geological surveying licence can be extended to enable the licence holder to complete the works under the licence.

Exploration and production licences

Exploration and production licences can be issued for the project life span. Their term can be extended provided that the licence holder has not breached any terms of the licence and proved the need to extend the licence term in order to complete the production cycle within the licensed area.

Exploration and production licences may only be issued through a tender or auction, except (i) where a holder of a geological surveying licence has made a commercial discovery; and (ii) in respect of some of the strategic blocks exempted by the Russian Government from the standard tender/auction procedure.

Combined licences

Combined licences cover geological surveying, exploration and production. They can be granted in respect of blocks with proven reserves that require substantial additional exploration.

The issue conditions and term of this type of licence are the same as for an exploration and production licence.

Transfer of licences

Since subsoil licences are acts of government, neither the licences themselves, nor any mineral rights thereunder, are transferable (including by way of sale, pledge or other disposal or encumbrance), except pursuant to special rules set out in the Subsoil Law.

These rules specifically permit the transfer in certain instances (except for the transfer of licences to strategic blocks to companies with foreign participation), including a transfer:

• within a group of companies (from a parent to a subsidiary, from a subsidiary to a parent and between subsidiaries as directed by the parent);
• following a merger or consolidation of the licence holder with another company;
• following a spin-off or split-off of a new company (from the licence holder);
• from a shareholder to a joint venture where the shareholder holds at least 50% of the equity interest (subject to certain conditions). Foreign investors often enter into joint ventures with Russian companies on this basis in order to obtain access to their subsoil licences.

Any such transfer requires a special decision of Rosnedra. Licences to strategic blocks may not be transferred to entities with foreign participation other than with the permission of the Russian Government.

For the above reasons, an “acquisition” of a Russian subsoil licence is mainly possible through the purchase of an interest in the company holding the licence, or by forming a joint venture with the current licence holder and subsequently transferring the licence to the joint venture. In certain cases where obtaining an equity interest in the licence is not possible for regulatory or other reasons, contractual arrangements are put in place to give the foreign investor benefit of the licence.