Production Sharing Agreements: can investors trust be restored

On 30 November the Association of International Petroleum Negotiators (AIPN) organized a roundtable dedicated to Production Sharing Agreements and how to restore investors trust.

In his speech Jon Hines, AIPN member, partner at Morgan Lewis, described the work of Association itself, its history and participants. The Association of International Petroleum Negotiators is an independent non-profit professional membership association that supports international energy negotiators around the world, which enhances their effectiveness and professionalism in the international energy community. It has over 4,000 members in more than 110 countries. In Ukraine the Association is represented by the CIS-FSU regional chapter.

Production-Sharing Agreements (PSAs) are among the most common types of contractual arrangements for petroleum exploration and development. Under a PSA the state, as the owner of mineral resources, engages a foreign oil company as a contractor to provide technical and financial services for exploration and development operations. The state is traditionally represented by the government or one of its agencies, such as the national oil company.

Vitaliy Radchenko, AIPN member, partner at CMS Cameron McKenna, pointed out the key advantages of PSAs. Among the main advantages PSAs are: ability to regulate dealers methods in contracts and the taxation system. Other key points touch upon stability and convenience.

Dmytro Fedoruk, AIPN member, partner at Redcliff Partners, on moderator`s rights, asked Alistair MCBain, managing director at Arawak Energy International Ltd, to describe the most attractive points for foreign investors. Mr. MCBain admitted that PSAs were designed to become a substitute for taxation.

Albert Sych, partner at EY, said that the benefits of PSAs include the flexibility that it brings to contracts. 

Victor Nazarkevych, director at Nadra Yuzivska LLC and Nadra Oleska LLC, shared his experience of attracting investors for hydrocarbons` production in Donetsk and Kharkov Regions.

Oleg Prokhomenko, chairman of the Board at UkrGasVydobuvannya, stressed that the Government has to make the tendering process as transparent as possible.

Volodymyr Ignashchenko, advisor to the Minister of Energy and coal industry of Ukraine, Roman Opimakh, executive director at Association of Gas Producers of Ukraine took an active part in the discussion.