Oil and gas regulation in the Russian Federation: overview

A Q&A guide to oil and gas regulation in the Russian Federation.

The Q&A gives a high level overview of the domestic oil and gas sector, rights to oil and gas, health safety and the environment, sale and trade in oil and gas, tax and enforcement of regulation. It covers transfer of rights; transportation by pipeline; environmental impact assessments; decommissioning; waste regulations and proposals for reform.

To compare answers across multiple jurisdictions, visit the energy and natural resources Oil and gas regulation Country Q&A tool.

This Q&A is part of the global guide to energy and natural resources. For a full list of content visit www.practicallaw.com/energy-guide.

Jennifer Josefson, Alexandra Rotar and Brandon Rice, King & Spalding LLP
Contents

Domestic sector

1. What is the role of the domestic oil sector in your jurisdiction?

Domestic industrial production

Russia is one of the globe's leading producers and exporters of both oil and gas. Its proven oil reserves total approximately 80 billion barrels, which equates to nearly 5% of global totals.

The country's proven gas reserves are the largest in the world and amount to roughly 48 trillion cubic meters, or about 25% of total global reserves and enough to suffice for approximately 80 years at current production rates. The majority of the reserves are located in Siberia, with the Yamburg, Urengoy, and Medvezh'ye fields alone accounting for more than 40% of the country's total reserves. Despite a small decline in natural gas production in 2012 (-2.7%), Russia remains the globe's second largest producer (behind the US) and the top exporter of gas. The vast majority of Russian gas is shipped via pipelines, but in 2012 the country produced nearly 15 billion cubic meters of LNG, all of which was produced by the Sakhalin II project and exported. Potential future LNG sites are located in the Russian Far East and in the Russian Arctic.

The state policy for oil and gas has been recently marked by state efforts to attract foreign investment and technology, especially regarding off-shore production and unconventional resources. In line with this intention, the authorities have introduced a number of legislative amendments aimed at incentivising the inflow of capital and technology into the domestic oil and gas industry. At the same time, however, state companies continue to have a dominant position in the market.

The import/export market

While Russia has a relatively high internal demand for energy, it produces far more oil and gas than is consumed domestically and thus has substantial volumes to export. In 2012, around 7.5 million barrels of oil and oil products were shipped abroad daily (5 million of this was crude oil, 2.5 million was refined products). While more than 80% of all crude exports are pumped through state-monopoly Transneft's pipelines, the share of seaborne shipments among exports has increased in recent years. Smaller volumes of oil are exported by rail to Latvia, Estonia and China as well. Europe is the primary importer of Russian oil, accounting for more than three-quarters of exports.

Around 75% of all gas exports are shipped to Europe, with Germany and Turkey accounting for approximately 25% and 20% respectively. State-controlled Gazprom owns the Unified Gas Supply System (UGSS), which is the exclusive exporter of piped natural gas. By law, the UGSS must be majority-owned by the state or state-controlled companies. However, unlike with oil, Russian law restricts the right to natural gas pipeline exports to Gazprom (or its subsidiaries). In December 2013, the export law was amended to allow certain companies to export LNG. As for existing LNG exports, in 2013, 76% of the liquefied gas produced by Sakhalin II went to Japan, 20% went to South Korea and small amounts went to China and Taiwan.

Domestic market structure

While there was substantial privatisation and diversification in the oil industry in the 1990s, the trend over the past decade has been one of increasing concentration of oil-production assets in the hands of state-controlled companies (for example, Rosneft's acquisition of Yukos's and TNK-BP's assets). State-controlled oil companies (primarily Rosneft, Gazprom Neft and Gazprom) accounted for about half of all oil production in the country. Of those, Rosneft is by far the largest, particularly after its 2013 acquisition of TNK-BP. In 2013, Rosneft produced 4.8 million barrels of oil per day. The largest private oil producer is Lukoil, pumping around 1.6 million barrels daily.

The natural gas sector is even more dominated by state players, most obviously Gazprom. The company, which is majority owned by the Russian Government, boasts more than 65% of the country's proven reserves and is responsible for roughly 75% of domestic natural gas production. According to its own figures, in 2013 Gazprom produced nearly 490 billion cubic meters. Highlighting the disparity between Gazprom and the rest of the industry, the second largest producer is privately owned Novatek, which produced some 62 billion cubic meters of gas in 2013.

The only operating LNG producer is Sakhalin Energy, which operates the Sakhalin II project. A Gazprom subsidiary holds a 50%+1 share stake in the company while the remaining shares are split between subsidiaries of Shell (27.5%), Mitsui (12.5%) and Mitsubishi (10%).

Government policy objectives

The official Government policy objectives as set out in the Energy Strategy of Russia up to 2030 are as follows:

  • Transition to innovative development and energy efficiency.

  • Transformation of the structure and scale of the energy resources production.

  • Creation of a competitive market in the energy sector.

  • Further integration into the global energy system.

The above objectives, however, have been in place since 2009, and the state policy occasionally loses sight of them as a result of economic and political challenges that arise from time to time. In addition, some recent trends indicate there are other policy goals that are not contained in the Energy Strategy of Russia. For example, in May 2012, then-Prime Minister Vladimir Putin issued an order that contained measures to stimulate the development of unconventional oil. Further, in July 2013 a federal law was adopted that offers tax breaks for tight oil (also known as shale oil or light tight oil) producers. The law enumerates a list of specific formations to qualify for the discounted tax rates:

  • Bazhenov.

  • Abalak.

  • Khadym.

  • Domanic.

  • Tymen

The law also sets rock permeability and oil formation thickness specifications for non-enumerated formations to qualify.

Another example is the amendments to the Tax Code and Continental Shelf Law in September 2013. These formally recognised the notion of a third-party joint venture company that acts as the operator for field exploration and development (JV Operator) (as opposed to the subsoil licence holder itself), which was previously not recognised under Russian law and created of the possibility that the risk sharing structure would be deemed invalid. The amendments also clarify that the special tax treatment for offshore operations is equally available to both the JV Operator and the subsoil licence holder.

Finally, the Strategic Programme for the Development of the Arctic up to 2020, adopted in 2013 also sets out state policy goals. The Programme envisages a complex geological study of oil and gas resources in the Arctic and preparation for their exploration. The Programme underlines the strategic importance of the natural resources in the region to satisfy future domestic demand and envisages the creation of an Arctic reserve fund for this purpose.

Current market trends

Spurred on by both government programmes and natural dynamics, the development of offshore reserves and unconventional deposits are the most obvious market trends at the moment.

 
2. What is the role of the natural gas sector in your jurisdiction?
 
3. Are domestic energy requirements met by oil and gas production?

Natural gas accounted for 54% of Russia's primary energy consumption in 2012, while oil constituted 21%. None of the LNG produced in Russia went towards domestic consumption.

 
4. Are there specific government policies to encourage the exploration and production of unconventional gas or oil?

There is currently no answer content for this Question, as it was added to the guide after this article was written.

 

Regulation

Regulatory bodies

5. Who regulates the extraction of oil and gas?

The licensing regime is administered by the Ministry of Natural Resources and Ecology of the Russian Federation and federal agencies under its jurisdiction. Subordinate to that Ministry, the Federal Agency for Subsoil Use (Rosnedra) is the administrative agency primarily responsible for the regulation of oil and gas extraction. Rosnedra is responsible for the:

  • Issuance, suspension and revocation of subsoil use licences.

  • Approval of deposit development plans.

  • Transfer and storage of geological information.

The Federal Service for Supervision of Nature Use (Rosprirodnadzor) oversees compliance with legislation regulating subsoil use and protection of the environment. Additionally, the Federal Environmental, Industrial and Nuclear Supervision Service (Rostekhnadzor) issues mining allotments determining deposit boundaries, safety certificates and operating licences.

See box, The regulatory authorities.

 

The regulatory regime

6. What is the regulatory regime for onshore and offshore oil and gas exploration and production?

There are two kinds of regimes provided for under Russian law:

  • Tax-royalty regime. This is, by far, the dominant regime governing oil and gas extraction in Russia. The main body of legislation is contained in the Federal Law "On Subsoil" dated 21 February 1992 (Subsoil Law), and relevant regulations.

  • Production sharing regime. The provisions governing production sharing regimes are set out in the Federal Law "On Production Sharing Agreements" dated 30 December 1995 (PSA Law), which has been subject to substantial amendments. All existing PSAs in Russia, however, were concluded before the PSA Law and therefore pre-date many of its provisions.

 

Rights to oil and gas

Ownership

7. How are rights to oil and gas held?

Ownership of Russia's subsoil minerals is allocated to the state by the Russian Constitution and is subject to the joint jurisdiction of the federal government and the regional government where the deposit is located. As such, subsoil deposits themselves cannot be subject to purchase, sale, gift, inheritance, contribution or pledge. Land surface owners enjoy no rights by virtue of their land ownership to the subsoil under their property. The Subsoil Law provides that once minerals have been extracted from the ground, they can be owned by the federal, regional or municipal government, or by private persons holding a subsoil use licence for such a licence area. Thus, property rights in oil and gas can only pass to the licence holder once they have been extracted.

 

Nature of oil and gas rights

8. What are the key features of the leases, licences or concessions which are issued under the regulatory regime?

Lease/ licence/ concession term

Russia is primarily a licence regime. There are three types of subsoil licences:

  • Exploration licences. The maximum term for an exploration licence is generally five years; however it can be given for up to seven years if geological survey works are carried out on subsoil plots located within the regions of Yakutia, Kamchatka, Khabarovsk, Sakhalin and certain other regions specified in the Subsoil Law. Additionally, the exploration licence term is increased to ten years for geological survey works that are carried out on subsoil plots located within internal seawaters, the territorial sea and the continental shelf of the Russian Federation. Exploration licences are awarded without a tender or auction on the decision of a special commission formed by Rosnedra. On discovery of oil, a production licence is issued without a tender or auction to the holder of the exploration licence. Production may not be undertaken under an exploration licence.

  • Production licences. Production licences are issued with respect to deposits that have been explored and for which reserves have been registered in the state balance of reserves. The term for a production licence may be as long as is required for rational, full exploitation of the deposit. Production licences are awarded by tender or auction.

  • Combined licences. Combined licences are issued with respect to deposits that have already proven reserves but require substantial additional exploration. The term of a combined licence is split between the period required for the exploration and the period required for production. Combined licences are awarded by tender or auction.

Normally subsoil licences terminate on expiration of their designated term, but they can also be revoked by state authorities for the following reasons:

  • Appearance of immediate danger to the health of the people working or living in the areas affected by operations related to subsoil use.

  • Violation by the subsoil user of material terms of the licence.

  • Systematic violation by the subsoil user of the established rules for subsoil use.

  • Occurrence of emergency situations (natural disasters, war and others).

  • The subsoil user's failure to commence operations in accordance with the established scope and term of the licence.

  • Liquidation of an enterprise or other subject of economic activities that holds the licence for subsoil use.

  • The subsoil user's failure to file the reports required by Russian law.

  • At the initiative of a subsoil user on submission of the appropriate application.

Fees

See Question 11.

Liability

The licensee generally undertakes certain commitments under the subsoil use licence, the most important and capital intensive of which are to:

  • Meet certain annual exploration and/or production targets.

  • Construct the infrastructure facilities specified in the licence.

  • Provide for decommissioning or temporary shut-down of facilities in compliance with the industrial safety requirements and the provisions of the subsoil use licence.

  • Keep environmental contamination within specified limits and remedy instances of environmental pollution.

The licensee may also be obliged to fulfil certain social obligations, such as paying compensation to local indigenous groups and providing other types of support to local communities.

Failure to comply with the terms of the subsoil licence (or with the provisions of the Subsoil Law or implementing regulations) can lead to penalties, suspension of production and revocation of the subsoil licence. Rosprirodnadzor is the federal agency empowered to oversee compliance with the terms of the subsoil licence.

Restrictions

The Russian law establishes a number of restrictions in relation to "deposits of federal significance". For a deposit to be considered "of federal significance" it must:

  • Contain recoverable oil reserves of no less than 70 million tons.

  • Contain gas reserves of no less than 50 billion cubic meters.

  • Be located in internal waters, territorial waters or on the continental shelf of the Russian Federation.

  • Require the use of land plots designated for defence or security purposes.

The Government may restrict the participation of Russian entities in which foreign investors directly or indirectly hold shares in any auction or tender for the right of subsoil use of a deposit of federal significance.

As a general rule, with respect to deposits of federal significance, licences for exploration and production as well as combined licences are issued pursuant to a decision of the Russian Government, based either on the results of a tender or auction, or on the discovery of a deposit of federal significance or of a subsoil block that becomes one of federal significance. Under a combined licence, advanced exploration and production operations in a deposit of federal significance may commence only after the geological study operations are fully completed, and after the commencement has been authorised by a Russian Government decision. (This is different from the general rule, applicable to other deposits, that advanced exploration and production under a combined licence may be conducted simultaneously with geological study.)

Only advanced exploration and production or combined licences may be issued for deposits of federal significance. Geological study licences may be issued for subsoil blocks that do not qualify as deposits of federal significance. If a discovery is made which results in the relevant block meeting the deposits of federal significance criteria in the course of such geological study, the Russian Government may deny issuing the advanced exploration and production licence to the subsoil user that made the discovery. If the relevant discovery is made under a combined licence by an entity in which a foreign investor has an interest, the Russian Government has the right to terminate the licence.

In addition to the general restrictions applicable to the deposits of federal significance, there are others that apply to deposits of federal significance located in or extending to the continental shelf. The exploration and development of such deposits is reserved to Russian legal entities in which the Russian state accounts for more than 50% of the charter capital and which have more than five years' experience in subsoil use operations on the continental shelf. This provision effectively limits off-shore subsoil use to Gazprom and Rosneft.

 
9. How are such leases, licences or concessions awarded?

Subsoil licences are generally awarded through tenders or auctions. For tenders, the participant that submits the most competitive bid with respect to the overall terms of subsoil use operations will win. For auctions, the participant that offers the highest one-time payment for the award of the subsoil licence will win.

Russian law establishes a number of instances when the licence is granted without a tender or licence:

  • Exploration licences are awarded without a tender or auction on the decision of a special commission formed by Rosnedra.

  • Additionally, the exploration licence holder can be awarded a production licence without a tender or auction if a deposit is discovered. However, if the discovered deposit is classified as a deposit "of federal significance," the exploration-licence holder may be denied a production licence if the percentage of shares in the entity owned by foreign entities exceeds the threshold established in the Strategic Investments Law.

  • Subsoil use licences for deposits located in or extending to the continental shelf are issued to entities that meet the special criteria that permit off-shore subsoil use rights to be awarded without a tender or auction upon the decision of the Government.

  • Subsoil use licences under a production sharing agreement are granted without a tender or auction, on execution of the relevant production sharing agreement.

 

Transfer of rights

10. How are oil and gas rights transferred?

The rights granted by a Russian subsoil use licence are generally not assignable and can only be transferred in a limited number of circumstances. The subsoil licence evidences the rights of a particular entity to develop a particular subsoil deposit within a mining allotment limited by defined borders. The subsoil licence itself and the rights evidenced by it cannot be sold, assigned or pledged. However, the law provides a procedure for certain instances in which such rights may be transferred, which results in the reissuance of the subsoil use licence.

The transfer of subsoil use rights is possible under limited circumstances, such as when the licensee:

  • Changes its organisational form or legal status.

  • Merges with another legal entity.

  • Undergoes a division or spin-off.

  • Is deemed insolvent.

A licensee can also transfer its subsoil use rights to a newly created subsidiary established to carry out operations on a particular field, provided that:

  • The new subsidiary is a Russian company.

  • The property (physical assets) required to perform the operations (including the facilities located within the particular field) are transferred to the new subsidiary.

  • The new subsidiary possesses the permits (operational licences) necessary to carry out the operations.

  • At the time of the transfer and reissuance of the subsoil licence, the original licensee owns at least 50% in the charter capital of the new subsidiary.

The Subsoil Law also permits the transfer of subsoil use rights within a group of companies:

  • From a parent company to its subsidiary.

  • From a subsidiary to the parent company.

  • Between subsidiaries as directed by the parent company.

As a result of such restrictions, acquiring shares in Russian entities that already hold subsoil licences is the most common way to "transfer" existing oil and gas rights.

 

Tax

11. What payments, such as taxes or royalties, are payable by oil and gas interest holders to the government?

Oil and gas revenues account for around 50% of federal budget revenues.

Subsoil use involves the following payment obligations:

  • Participation fee for tenders or auctions.

  • One-time payments for the award of the subsoil licence and other instances established in the subsoil use licence.

  • Regular payments for geological study, exploration, construction of underground facilities.

  • Mineral extraction tax.

  • Other taxes and duties.

The specific tax payable by producers is the mineral extraction tax, which is calculated based on the physical volume of oil and gas extracted:

  • Oil extraction tax is adjusted based on fluctuations in the world oil price as well as the depletion and volume of reserves. In 2014, it is currently RUB493 per ton. Energy Minister Alexander Novak has proposed raising oil extraction tax in 2015 (to compensate for proposed reduced export duties). However, deposits in numerous regions (for example, Yakutia, Irkutsk, Krasnoyarsk, Yamal Peninsula and the Arctic Circle) are exempted from the mineral extraction tax, up to a certain amount of production.

  • Gas extraction tax has a base rate of RUB622 per 1,000 cubic metres, which is multiplied by 0.673. For gas condensate, the rate is RUB647 per ton.

In July 2013, the legislature adopted amendments to Russia's tax and customs duties codes that grant special tax treatment to unconventional oil and offshore projects. The amendments establish a number of tax breaks and customs privileges for offshore operations including:

  • Exemption from customs duty.

  • Discounts ranging from 5% to 30% on the mineral extraction tax.

  • Various privileges with respect to a number of other taxes, including property tax, VAT and import duty.

The amendments came into force in January 2014, with the respective tax breaks and customs privileges applying to offshore fields with commercial operations beginning after 2016.

As regards unconventional oil, the amendments reduce the mineral extraction tax burden for tight oil producers by between 20% and 100%, depending on reservoir permeability and layer thickness.

In addition to the mineral extraction tax, subsoil users are also subject to other taxes and duties, such as:

  • Corporate profit tax.

  • Social tax.

  • VAT.

 
12. Does the government derive any other economic benefits from oil and gas exploration and production?

This overview deals only with the primary economic benefits derived by the Russian Government from oil and gas exploration and production.

 
13. What taxes and duties apply on import and export of oil and gas?

Export customs duty rates are calculated on a monthly basis for oil, oil products and liquefied petroleum gas (LPG) based on government-approved formulae. The formulae for export duty rates for oil and oil products take into account the average price of Urals crude oil traded on the Mediterranean and Rotterdam markets. For LPG, the average price at the border with Poland is used in the rate calculation. The Ministry of Economic Development is responsible for monitoring these prices and posts them on its website. The export duty is calculated using a base rate (US$29.2 in 2013) that is multiplied by 59% of the difference between the average price per ton and US$182.5. However, if the price for oil falls below US$182.5 per ton, a different formula is used. If the price falls below $146 per ton, yet another formula applies. If the price dips below US$109.5, no export duty is applied.

Diesel exports are taxed at 66% of the oil export tax, and gasoline at 99%.

The duty for the export of gas is 30% of its customs value. In 2013 Russia introduced 0% tax rate for LNG exports. In April 2014 Russia abolished the zero export duty rate for gas export to Ukraine.

The above tax rates apply for export outside the territory of the customs union between Russia, Belarus and Kazakhstan. The transportation of goods within the customs union is not subject to export duty.

 

Transportation by pipeline

14. What regulatory requirements apply to the construction and operation of oil and gas pipelines?

Pipeline transport of oil, oil products and gas is entrusted to three state-owned "natural" monopolies:

  • Transneft is responsible for oil shipments.

  • Transnefteprodukt controls oil products movement.

  • Gazprom owns the unified gas supply system (UGSS) that operates the natural gas trunk pipeline. By law, UGSS must be majority owned by state-controlled companies (that is, companies more than 50% owned by the Russian Federation).

As natural monopolies, the transportation tariffs for services rendered within Russia are established by the Federal Tariff Service.

 
15. Is there a system of third party access to pipelines and other infrastructure?

For the purpose of exporting oil, access rights to the pipeline are allocated among oil producers and their parent companies in proportion to the volume of oil produced and delivered to the Transneft pipeline system (and not in proportion simply to oil production volumes). Each quarter, the Ministry of Energy sets the precise volume of oil that each oil producer can pump through the Transneft system. Once access rights are allocated, oil producers generally cannot increase their allotted capacity in the export pipeline system, although they have limited flexibility in altering delivery routes. Oil producers are generally allowed to assign their access rights to others.

Gazprom is required to give independent suppliers access to the unified gas supply system (UGSS). This obligation is subject to the:

  • Availability of spare capacity in the UGSS.

  • Natural gas from independent suppliers meeting certain quality specifications.

  • Availability of connecting and branch pipelines to consumers.

 

Health, safety and the environment

Health and safety

16. What is the health and safety regime for oil and gas exploration and extraction, and transportation by pipeline?

Virtually all major aspects of oil and gas production are considered hazardous industrial activities. The Law on Industrial Safety of Hazardous Industrial Objects is the main law governing health and safety of such hazardous activities. Rostekhnadzor is the agency tasked with implementing the provisions of the law and adopting relevant regulations.

Exploration

Exploration and production are governed by the following regulations:

  • Safety Regulations for Oil and Gas Industry, adopted by Rostekhnadzor in 2013.

  • Safety Regulations in Exploration and Extraction, adopted by Gosgortechnadzor in 2003.

  • Industrial Safety Regulations for Oil Processing Works, adopted by Gosgortechnadzor in 2003.

Extraction

See above, Exploration.

Transportation

The transportation of oil, oil products and gas is governed by the following regulations:

  • Rules for operation, review, repair and scrappage of infield oil pipelines of 1993.

  • Rules for liquidation of accidents and damage at industrial pipelines of 2001.

 

Environmental impact assessments (EIAs)

17. Is an EIA required before extracting or processing onshore or offshore oil and gas?

Under the Constitution, environmental protection falls within the joint competence of the Russian Federation and its constituent entities. Russian environmental legislation is enacted at both federal and regional levels.

The main federal laws regulating environmental protection are:

  • Federal Law No. 7-FZ, "On Environmental Protection," dated 10 January 2001 (Environmental Protection Law).

  • Federal Law No. 174-FZ, "On Environmental Expert Review," dated 23 November 1995 (Environmental Expert Review Law).

Both the Environmental Expert Review Law and the Environmental Protection Law require an EIA prior to the implementation of a project that may have an impact on the environment (such as oil and gas production projects).

At the regional level Russian environmental legislation comprises various standards and procedures related to environmental permits and approvals that largely fall within the regulations established by the federal laws. In most cases, the regional legislation simply adds detail to the federal laws rather than introducing entirely new region-specific regulations.

 
18. What are the different stages of the EIA?

The EIA must be completed by an independent expert. The expert's conclusions are subject to review and approval by the relevant state authorities. The preparation of the EIA by the independent expert and its approval by state authorities can take from a few weeks to several months.

 

Environmental permits

19. Is there a permit regime for environmental damage or emissions produced during the extraction or processing of oil and gas?

The Environmental Protection Law includes a "pay-to-pollute" provision that requires companies to obtain permits and pay the respective tariffs for adverse environmental impact caused by their activities. Pollution or emissions in excess of the amount permitted triggers higher payments (for example, see the information on flaring in Question 22). The regime is overseen by Rostekhnadzor.

Environmental concerns

. Are there any specific government policies and/or incentives aimed at meeting the environmental concerns associated with the exploration and production of oil and gas?

There is currently no answer content for this Question, as it was added to the guide after this article was written.

 

Waste

21. What are the regulations on the disposal of waste products resulting from oil or gas extraction or processing?

The main regulations on the disposal of waste products include the:

  • Federal law No. 89-FZ "On Industrial and Consumer Waste" dated 24 June 1998.

  • Environmental Protection Law.

Under the regulations, the collection, transportation and/or disposal of waste requires:

  • A positive report from the federal state expert review with respect to project documentation for waste treatment facilities.

  • The issuance of a waste management licence or the conclusion of a services agreement with a specialised company that has a waste management licence.

  • The establishment of limits for the amounts of waste disposal with respect to certain types of hazardous waste, the receipt of a passport of hazardous waste that specifies the class of hazardous waste in accordance with the established classifications of hazardous industrial waste.

 

Flares and vents

22. Are flare and vent regulations in place?

Following a 2012 government decree (No. 1148), the penalties for excessive flaring (that is, over 5% of the produced associated petroleum gas (APG)), have substantially increased.

Between 2012 and 2014, the regular fee for harmful emissions was multiplied by 12 (previously the multiplier was 4.5). From the start of 2014, however, the multiplier has increased to 25. In the absence of acceptable measuring equipment at a field, penalties are multiplied by a factor of 120. The multiplier does not apply to fields:

  • That do not produce significant volumes of APG (less than 5 million cubic metres).

  • Whose cumulative production is less than or up to 5% of estimated recoverable reserves.

  • Where the volume of non-hydrocarbon components represents less than 50% of the APG.

In addition, to promote the utilisation of APG, amendments to the Law on Gas Supply grant priority access to the gas transport system to dry stripped gas derived from APG (No. 241-FZ, dated December 3, 2012).

 

Decommissioning

23. What are the decommissioning obligations and liabilities that arise?

On termination of subsoil use rights, the following decommissioning obligations arise:

  • Provision for decommissioning or temporary shut-in of industrial facilities in compliance with the industrial safety requirements.

  • Reclamation of land and its return to the relevant state authorities.

The subsoil licence should also include terms for decommissioning.

 

Sale and trade

24. How is trade in oil and gas usually completed?

Oil and gas are both generally sold under direct transactional agreements. Trades that occur on exchanges are subject to the regulation established by Federal law No. 325-FZ "On Organized Trading" dated 21 November 2011.

 
25. Are oil and gas prices regulated?

Crude oil prices are not regulated, while gas prices, natural gas and oil transportation tariffs are regulated. The Law on Natural Monopolies and the Gas Supply Law provide the legislative framework for their regulation.

Gas produced by Gazprom and its subsidiaries is subject to wholesale price regulations. Independent producers (which account for only a relatively small share of total production) are not subject to such regulation. However, certain consumers (such as residential consumers) are entitled to fixed retail gas prices.

The regulated prices are established by the Federal Service for Tariffs.

 

Enforcement of regulation

26. What are the regulator's enforcement powers?

Orders

A licence holder's rights to use the subsoil can be restricted, suspended or terminated for:

  • Failing to adhere to exploration or production targets.

  • Violating its licence terms.

  • Violating environmental requirements.

Oversight of compliance with the legislation regulating subsoil use and protection of the environment is conducted by Rosprirodnadzor.

Fines and penalties

Subsoil use without a licence can result in an administrative fine ranging from RUB800,000 to RUB1 million. Violating the terms of a subsoil use licence or breaching the terms of a deposit development plan is considered an administrative offence and is punishable by a fine ranging from RUB300,000 to RUB500,000. A violation of industrial safety rules can lead to an administrative fine between RUB800,000 and RUB1 million.

Russian legislation also establishes various fines for violations of environmental regulation. While the amount of a single fine, in most cases, is not substantial, repeated or continued violations can result in an administrative suspension of operations and substantial loss of profits.

Other

Depending on the gravity of the offence, in addition to administrative liability, certain individuals working for the subsoil licence holder can be subject to criminal liability.

 
27. Is there a right of appeal against the regulator's decisions?

The regulator's decision can be appealed to a higher-level authority or court according to procedures established by law.

 

Reform

28. Are there plans for changes to the legal and regulatory framework?

The Government is considering raising the mineral extract tax and simultaneously lowering export custom duties. The Ministry of Finance's goal is reportedly to raise additional revenue which would also be likely to stimulate exports and drive up domestic fuel prices.

As noted in Question 1, Government policy objectives, some changes to the regulatory framework have already begun, for example:

  • Tax breaks to spur development of tight oil have been adopted.

  • LNG export rights have been expanded.

  • Off-shore subsoil use is being promoted through an array of stimulus measures (such as, tax breaks, reduced customs duties and the secondment of Russian employees abroad).

  • The role of JV Operators on the shelf has been clarified.

In an effort to further promote such developments, it is possible that in the near future private companies may be granted access to the continental shelf (which is being pushed by industry players). Additionally, reforms that facilitate the secondment of foreign specialists through preferential tax treatment are also possible (with the aim of improving Russian competence in offshore exploration and production). Lastly, further changes making it easier for JV Operators to operate on the shelf are also potential reforms.

*Unless otherwise noted, facts and figures cited are based on trusted sources, including:

  • BP Statistical Review of World Energy.

  • International Energy Agency.

  • OPEC Annual Statistical Bulletin.

  • US Energy Information Administration.

 

The regulatory authority

Ministry of Energy

Address. 42 Schepkina str., bldg. 2, 107996, Moscow, Russian Federation
T +7 495 631 9858
F +7 495 631 8364
E minenergo@minenergo.gov.ru
W www.minenergo.gov.ru

Main responsibilities. The Ministry of Energy makes state energy and fuel policy, including oil, gas, electricity, coal and renewables.

Ministry of Natural Resources and Ecology

Address. 4/6 Bolshaya Gruzinskaya str., 123995, Moscow, Russian Federation
T +7 495 254 4800
F +7 495 254 4310; +7 495 254 6610
E admin@cbi-mpr.ru
W www.mnr.gov.ru

Main responsibilities. The Ministry administers the licensing regime and co-ordinates and supervises the agencies responsible for oil and gas regulation.

Federal Agency for Subsoil Use (Rosnedra)

Address. 4/6 Bolshaya Gruzinskaya str., D-242, GSP-5, 123995, Moscow, Russian Federation
T +7 499 766 2669
F +7 499 254 8277
E rosnedra@rosnedra.com
W www.rosnedra.com

Main responsibilities. This is the main government agency responsible for regulating exploration and extraction of oil and gas. It has the authority to issue subsoil licences, regulate performance of licence holders, ensure compliance with licence terms and suspend and revoke licences.

Federal Service for Supervision of Nature Use (Rosprirodnadzor)

Address. 4/6 Bolshaya Gruzinskaya str., D-242, GSP-5, 123995, Moscow, Russian Federation
T +7 499 254 5072
F +7 499 254 5888
W www.rpn.gov.ru

Main responsibilities. Oversees compliance with the legislation regulating subsoil use and protection of the environment.

Federal Environmental, Industrial and Nuclear Supervision Service (Rostekhnadzor)

Address. 4 A. Lukyanova str., bldg. 1, 105066, Moscow, Russian Federation
F +7 495 647 6081
E rostekhnadzor@gosnadzor.ru
W www.gosnadzor.ru

Main responsibilities. Rostekhnadzor is responsible for issuing mining allotments that set the boundaries of deposits, safety certificates and operating licences.



Online resources

W www.pravo.gov.ru

Description. This site is the official legal information portal.

W www.arbitr.ru

Description. The site for the High Arbitration Court of the Russian Federation, which is the highest judicial body for settling economic disputes. The site contains the most significant cases and judicial documents.

W www.garant.ru

http://english.garant.ru/about

Description. Garant is a legal information system that provides access to the database of Russian legal acts. It also contains unofficial English translations.

W www.consultant.ru

Description. ConsultantPlus is the largest service network operating in the Russian market of information and legal services. It provides access to the database of Russian legal acts.


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