New Regulation for Exploration and Production of Hydrocarbons in Poland

by K&L Gates LLP

On May 7, 2014, the Polish Parliament debated the next version of the bill to amend the Act on Mining and Geological Law of April 23, 2014 (the “Bill”).

The Bill introduces new approaches with respect to the exploration and production of hydrocarbons, both conventional and unconventional, and hence is of particular importance for the shale gas industry.

The first version of the Bill was introduced two years ago, followed by several subsequent versions. During that period, consultations took place among three government agencies, the Ministry of Environment, the Ministry of Finance, and later the Ministry of State Treasury, which presented different views on various aspects of the new regulation.

In addition, the Ministry of Finance proposed tax rules in the form of a separate proposed act - Hydrocarbons Tax Law, under which the special hydrocarbon tax rates will amount to either zero, 12.5% or 25%, depending on the ratio of cumulated income to expenditure.

Currently, the Bill is under discussion in the Polish Parliament with a possibility that some amendments might be introduced. However, it is rather unlikely that the scope of the regulation and the main rules will change significantly.

Key features of the Bill.

  • Under the Bill, both exploration and production activities will be covered by a single concession, to be awarded for a fixed term - not shorter than 10 years and not longer than 30 years to a winning single bidder or a bidding consortium. Concessions, each covering a particular concession area or a portion of such area, will be awarded, as before, by the Minister of Environment.
  • The concession will be divided into two stages:

    (i) prospecting and exploration stage;
    (ii) production stage.

    An “investment decision” to be issued by the Minister of Environment upon request of concessionaire will be required to move from the exploration to the production phase. The request should cover among others the title to the relevant plots of land, time schedule for anticipated works, description of geological and hydrogeological conditions for hydrocarbons production. The investment decision will determine among others approved production methods, the borders of mining area and the time schedule for commencing the production.
  • No concession will be needed for hydrocarbon prospecting alone.
  • Concession for exploration and production of hydrocarbons will be issued in a three-stage procedure:

    (i) prequalification – where the applicant will be assessed whether it meets all criteria stipulated by the Bill,
    (ii) tender – aiming to select the most eligible investor in a transparent and objective manner,
    (iii) signing of a cooperation agreement with other investors, if required.
  • Apart from a notification to the Ministry of Environment, no decision will be needed for approval of geophysical surveys to investigate geological structures associated with the occurrence of hydrocarbons.
  • An environmental decision by relevant governmental authorities will be obligatory at a later stage - before obtaining an investment decision to execute the rights from the concession for exploration and production of hydrocarbons, i.e. just before the start of drilling.
  • Concessions for exploration obtained before the entry into force of the Bill will remain valid until the expiry of the term of the cconcessions; the rights from the already obtained concessions will remain in force.
  • Elimination of NOKE.

    In the previous versions of the Bill, NOKE (short for National Operator of Energy Resources) was to be established as a state-owned company overseen by the Minister of the Treasury, which would participate in hydrocarbons projects and hold a share in the concessions. However, after several stormy discussions, in the final version of the Bill the idea of establishing NOKE was abandoned, which in the opinion of industry players is a positive change.
  • Control instruments

    Instead of NOKE, the Bill introduces several levels and instruments of State control over the process before and during the concession (prequalification, triggers for concession expiration and withdrawal).

What are the next steps?
For now, after the first reading in Sejm, the lower chamber of the Parliament, Bill is under discussion in the parliamentary Special Energy and Energy Resources Commission. According to the latest press releases, the Commission will prepare an opinion on the Bill by the end of May.

Following that, the Bill will need to be voted by the Parliament (both chambers - Sejm and Senate) and signed by the President. In the most optimistic scenario, the new act will come into force in the first quarter of 2015.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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