SUBSOIL USE AND PETROLEUM OPERATIONS

According to advanced countries research data, Kazakhstan is the 6th world’s largest holder of mineral resources.  Kazakhstan possesses 3% of global oil reserves, putting it among the world's top 15 countries in terms of oil reserves.  According to the 2021 Bulletin of the Organisation of the Petroleum Exporting Countries (OPEC), in 2020 Kazakhstan ranked eleventh in the world in terms of its oil reserves.[1]  As for gas reserves, Kazakhstan ranks twenty second globally.[2]

The oil and gas sector plays a key role in the Kazakhstan economy.  The total oil reserves of Kazakhstan are estimated 30 bln barrels (1.7% of global oil reserves), and recoverable gas reserves are estimated 3.9 trn cubic metres (1.7% of global gas reserves).[3]

The prospective oil reserves just of the Caspian Sea fields of the Kazakhstan sector exceed 124.3 bln barrels (equivalent to 17 bln tons).

Kazakhstan has about 250 oil and gas fields operated under over 250 hydrocarbons subsoil use contracts.

In 2021, Kazakhstan produced 85.7 mln tons of oil, exported 67.6 tons of oil, processed 17.1 mln tons of crude and manufactured 13.1 mln tons of petroleum products.  In 2022, the country intends to produce 87.5 mln tons and to export 69 mln tons of oil.[4]

Currently, the Kazakhstan oil and gas sector is operated by over 2,000 companies who provide over 200,000 jobs.

Legal regulation of matters arising in connection with the development of mineral deposits in Kazakhstan originates from the declaration of its independence in 1991.

Since 29 June 2018, petroleum operations in Kazakhstan are governed by the Code of the Republic of Kazakhstan On Subsoil and Subsoil Use of 27 December 2017.  This Code replaced the former Law of the Republic of Kazakhstan On Subsoil and Subsoil Use of 24 June 2010 which ceased, primarily, to be in force after 29 June 2018.

The Law of the Republic of Kazakhstan On Gas and Gas Supply of 09 January 2012 defines the legal, economic and organizational framework for regulation of relations in the gas and gas supply field in the Republic of Kazakhstan and which is aimed at creating conditions for satisfaction of Kazakhstan domestic demand for gas and at raising efficiency, reliability and safety of gas supply system.

Subsoil Use Rights

Subsoil use rights are described as an opportunity protected by the Code to make use of a specific subsoil plot for business purposes over a specific period of time, in return for a fee.

A fee-based subsoil use entitlement may be either permanent or temporary, and either alienable or non-alienable. 

A subsoil use right may be held by either Kazakhstan or foreign individuals/corporations, either on an individual or on a joint basis, unless otherwise explicitly provided by Kazakhstan law.

The Republic of Kazakhstan grants a subsoil use right to perform any of the following operations:

1)    geological study of subsurface;

2)    exploration for mineral deposits;

3)    production of mineral resources;

4)    use of a certain block of subsoil; and

5)    prospecting.

Pursuant to the current legislation of Kazakhstan, a subsoil use right arises from:

1)    granting of (or vesting with) a subsoil use right directly by the State;

2)    transfer of a subsoil use right, either in part or in whole (vesting with a subsoil use right by another subsoil user under a civil transaction); and

3)    transfer of a subsoil use right by universal succession when a legal entity is reorganised (except for restructuring or inheritance).

Granting a Subsoil Use Right

A subsoil use right may be granted under a subsoil use license (the license mode of subsoil use) or under a subsoil use contract (the contract mode of subsoil use).

The license mode of subsoil use

Currently, the right to use a certain block of subsurface for the exploration/production of solid minerals or for the production of commonly occurring minerals is licensable, although it was not provided for by the repealed Law On Subsoil and Subsoil Use of 24 June 2010.

A subsoil use license is a document issued by an appropriate government authority which entitles its holder to use a certain block of subsoil for the purpose of certain subsoil use operations within such block of subsoil.

Depending on the required subsoil use operations, the authority issues one of the following licenses:

1)    license for geological study of subsurface;

2)    license for exploration of solid minerals;

3)    license for production of solid minerals;

4)    license for production of commonly occurring minerals;

5)    license for use of a certain block of subsurface; and

6)    license for prospecting.

A subsoil use license shall be renewed when:

1)    the address or other details of the license holder change, in particular:

• when an individual changes their first name, middle name (if specified in the identification document) or surname, or when an individual changes their citizenship; or
• when a corporate entity changes its name or address;

2)    the subsoil use right and/or an interest therein is transferred;

3)    the license term is extended; or

4)    the boundaries of the licensed block change.

A subsoil use license shall terminate when:

1) the initial term of the license expires, unless otherwise provided for by the Kazakhstan Code On Subsoil and Subsoil Use of 27 December 2017;

2) the sole holder of the license dies (or is legally declared dead), provided that the subsoil use right arising from the license is recognised as an escheat property under Kazakhstan civil law;

3) the license is revoked or invalidated; or

4) the subsoil user abandons the licensed block of subsurface.

A subsoil use license may be invalidated through a judicial procedure when:

1) the licensor ascertains the fact that they have been provided with deliberately misleading information which affected their decision to issue the license;

2) the license issuance procedure was diverged from by a licensor’s officer who had entered into a bad faith collusion with the applicant thus affecting the licensor’s decision to issue the license in their reasonable discretion;

3) the license was issued to an individual who had been declared legally incapable and remained legally incapable on the date of the license issuance; or

4) the license issuance is not provided for or prohibited by the Kazakhstan Code On Subsoil and Subsoil Use of 27 December 2017.

The contract mode of subsoil use

The right to explore/produce or to produce hydrocarbons and the right to produce uranium is granted by the government under a subsoil use contract the substance of which and the matters of execution, performance and termination of which are regulated by Kazakhstan subsoil use legislation.

Subject to a subsoil use contract, the Republic of Kazakhstan represented by the competent authority commits to grant a subsoil use right to the other party (i.e. a subsoil user), and the subsoil user commits to exercise the granted subsoil use right at their own risk and expense in compliance with the contract terms and the provisions of the Kazakhstan Code On Subsoil and Subsoil Use of 27 December 2017.  With limited exceptions provided for by Kazakhstan law, one and the same person may enter into an unlimited number of subsoil use contracts.

A subsoil use contract shall be drafted in accordance with a model contract adopted by the competent authority, and any deviation from such model contract is permitted only to the extent and in the manner prescribed by Kazakhstan subsoil use legislation.

In Kazakhstan all subsoil use contracts shall be governed by Kazakhstan law.

The term of a hydrocarbons exploration and production contract is composed of the exploration term, preparation term (if applicable) and production term, successively.  The term of a hydrocarbons production contract is composed of the preparation term and production term, successively.  The term of a uranium production contract is composed of the pilot production term and production term, successively.

Any and all amendments or modifications to a subsoil use contract shall be executed by the parties in the form of an addendum to such contract in the following instances:

1)    changes in the address and other details of the subsoil user;

2)    changes in the address and other details of the competent authority;

3)    transfer of the subsoil use right and/or an interest therein;

4)    determination of the site(s) of production and preparation term(s);

5)    determination of the production site(s) and term(s) or just production term(s);

6)    extension of the exploration or production term(s);

7)    increase or reduction of the allocated block(s) of subsurface;

8)    allocation of block(s) of subsurface; or

9)    changes in the economic interests of the Republic of Kazakhstan posing risks to the national security (applicable only to the strategic blocks of subsurface).

The term of a subsoil use contract expires when:

1) the initial term of the contract expires under a number of circumstances, including, but not limited to, the following:

• no addendum to the contract that would determine the preparation or production term has been executed before the expiration date of the exploration term;
• no addendum to the contract that would determine the production term has been executed before the expiration date of the preparation term;

2) the sole holder of the subsoil use right under the contract has died (or has been declared dead), provided that such subsoil use right is recognised as an escheat property under Kazakhstan civil law;

3) the subsoil user (if a legal entity) is being liquidated;

4) the contract is prematurely terminated or invalidated;

5) the contract is terminated by mutual consent of the parties;

6) the Kazakhstan Government resolves to prohibit the use of the block in pursuance of Kazakhstan subsoil use legislation; or

7) the subsoil user abandons/returns the block(s) in relation to which the contract was signed.

A subsoil use contract may be invalidated when:

1) the results of an auction for the right of subsoil use are nullified;

2) the subsoil use contract does not contain the imperative clauses required by the Kazakhstan Code On Subsoil and Subsoil Use of 27 December 2017;

3) the competent authority ascertains the fact that they have been provided with deliberately misleading information which affected their decision to sign the subsoil use contract with the person; or

4) otherwise provided by Kazakhstan law.

The invalidation of a subsoil use contract entails the invalidation of all subsequent transactions with the subsoil use right provided under such contract.

Transferring a Subsoil Use Right

A subsoil use right (or an interest therein) is transferred when such subsoil use right (or an interest therein) is alienated in favour of a third party as a result of a civil transaction or otherwise in compliance with Kazakhstan law.

Kazakhstan law prohibits transferring the subsoil use rights or interests therein granted under the following types of licenses:

1) license for the exploration of solid mineral deposits (only within the first year of such license);

2) license for the geological study of subsurface; or

3) license for prospecting.

A subsoil use right (or an interest therein) is transferred through the re-issuance of the relevant subsoil use license or the appropriate amendment of the relevant subsoil use contract for which purpose the transferee shall apply to the competent authority which issued the license or signed the contract.

Granting a Subsoil Use Right for Exploration and Production of Hydrocarbons

In general (with some below exceptions), a subsoil use right for exploration and production of hydrocarbons is granted by the government through an auction.

The party seeking a subsoil use right for the exploration or production of hydrocarbons shall apply to the competent authority (Ministry of Energy of the Republic of Kazakhstan) for the arrangement of an auction.  Such application shall be processed within twenty business days from the date of its filing with the competent authority.  Having considered the application, the competent authority shall, maximum twice a year, publish the relevant auction announcement or reject the application on the grounds provided for by Kazakhstan subsoil use legislation.

An auction for a hydrocarbons-related subsoil use right shall be arranged by the competent authority and conducted by the operator of electronic auctions for hydrocarbons-related subsoil use rights, i.e. a corporate entity appointed by the competent authority and conducting auctions for hydrocarbons-related subsoil use rights in the manner prescribed by the Code.

The qualification requirements to the operator of electronic auctions for hydrocarbons-related subsoil use rights are determined by the competent authority.

An announcement of the auction and its terms and conditions shall be posted on the official website of the competent authority and shall be published in printed periodicals, both in Kazakh and Russian, circulated throughout Kazakhstan.  The time limit for submission of bids is two months from the date of the auction announcement publication.

An auction bidder for a hydrocarbons-related subsoil use right shall apply to the competent authority for the participation in such auction.  The application shall be processed by the competent authority within ten business days from the date of its filing with the competent authority.  Having considered the application, the competent authority decides whether to admit the applicant to the auction or to reject the application on the grounds provided by Kazakhstan subsoil use legislation.  The competent authority shall, at least ten business days prior to the date of the auction, notify the applicants admitted to the auction of the date and time of the auction.

The auction may be attended only by the applicants admitted to the auction and registered on the official website of the operator of electronic auctions for hydrocarbons-related subsoil use rights as the auction bidders.  The auction shall be conducted in an open form when the auction bidders proclaim their bids as the amount of a subscription bonus starting with the subscription bonus amount specified in the auction notice and increasing it by a bid increment ranging between five and fifty percent of the starting subscription bonus amount.

The auction is won by the bidder who suggests the highest subscription bonus.

When, within the stated 2-month limit for submission of applications, no application has been submitted and/or no applicant has been admitted to the auction (except for the person who initiated such auction), the commission for granting a hydrocarbons-related subsoil use right shall, within three business days after the expiration of the stated time limit for submission of applications or after the completion of the applications processing, adopt a decision on the cancellation of such auction, in which case the competent authority awards the contract to the initiator of the auction after they pay the starting subscription bonus (i.e. a fixed lump sum payable by a subsoil user upon acquisition of the right to use their license area (subsoil block) or for extension of their license area (subsoil block) in the manner prescribed by Kazakhstan law).  Within three business days after the adoption by the commission of the decision on granting a hydrocarbons-related subsoil use right, the competent authority shall post the announcement on auction cancellation, both in Kazakh and Russian.

The competent authority shall, within twenty business days after the receipt of the signed counterpart of the contract and the confirmation of the subscription bonus payment from the auction winner, sign the contract for exploration/production or for production of hydrocarbons on their part and deliver the signed counterpart of the contract to the auction winner.  When the auction winner fails to pay the subscription bonus and/or to deliver the signed counterpart of the contract to the competent authority, such person shall be deprived of the right to sign the contract and the relevant block shall be put up for auction again.

An auction for a subsoil use right is declared void and is not subject to adjournment if on the date of the auction less than two bidders check in.  If the initiator of the auction is the only bidder who checks in, the auctioned subsoil use contract is awarded to such person.

The only exception from the above procedure for auctioning a hydrocarbons-related subsoil use right is the granting of such right to a national company dealing with hydrocarbons through direct negotiations with regard to certain subsoil blocks located in the territories determined by the national mineral wealth management programme, in which case the national company seeking the subsoil use right shall apply for such direct negotiations.

It is worth noting that such hydrocarbons exploration/production contract or hydrocarbons production contract awarded to a national company dealing with hydrocarbons through direct negotiations may be signed with such national company alone or with the national company and its strategic partner together, where the term ‘strategic partner’ means a legal entity (or a consortium of legal entities) that meets the qualification requirements adopted by the national company and approved by the competent authority and that commits to invest into the subsoil use project.

A subsoil use right (or an interest therein) granted to a national company dealing with hydrocarbons through direct negotiations may not be transferred for at least two years from the date of the relevant contract registration, unless such right is transferred to a legal entity fifty or more percent of voting shares/interests in which are, either directly or indirectly, held by such national company.  Please note that such legal entity also may not transfer the acquired subsoil use right (or an interest therein) within two years from the date of the contract registration.

Granting a Subsoil Use Right for Production of Uranium

A subsoil use right for production of uranium may be granted to a national company dealing with uranium in compliance with Kazakhstan law which is incorporated by the resolution of the Kazakhstan Government in the form of a joint stock company a controlling interest in which is held by the Kazakhstan Government or by a national management holding. 

Such national company intending to produce uranium is allocated a block of subsurface through direct negotiations.

A subsoil use right (or an interest therein) granted to the national company producing uranium through direct negotiations may be transferred only to a legal entity fifty or more percent of voting shares/interests in which are, either directly or indirectly, held by such national company.  Subsequently, the legal entity may transfer the acquired subsoil use right (or an interest therein) only to such legal entity over fifty percent of voting shares/interests in which are, either directly or indirectly, held by the national company producing uranium.

When the competent authority decides to sign a contract for production of uranium with the relevant national company, such national company shall, within twelve calendar months from the effective date of such decision:

1)    pay a subscription bonus determined in the course of direct negotiations;

2)    arrange for the development of a project for pilot production of uranium and for its legal review in compliance with the Kazakhstan Code On Subsoil and Subsoil Use of 27 December 2017; and

3)    deliver to the competent authority documentary evidence of the subscription bonus payment and a signed counterpart of the uranium production contract based on the model uranium production contract adopted by the competent authority.

The competent authority shall, within twenty business days after the receipt of the signed counterpart of the uranium production contract and documentary evidence of the subscription bonus payment, sign the contract on their behalf and deliver the signed counterpart(s) to the national company.

Granting a Subsoil Use Right for Solid Minerals Exploration

A subsoil use right for solid minerals exploration is granted by the Government subject to a license.  A holder of a solid minerals exploration license enjoys an exclusive right to use the relevant block of subsurface for the exploration of solid minerals therein, including solid minerals prospecting and evaluation of solid minerals resources and reserves for their future production.  A solid minerals exploration license applies only to the territories determined by the national mineral wealth management programme.

A person seeking a solid minerals exploration license shall apply to the competent authority in the statutory form.  The territory specified in the application for a solid minerals exploration license may not cover more than two hundred blocks.  The competent authority shall process the application within ten business days from the date of its filing and shall decide whether to issue or to deny the license.  The above application filing and processing procedures are regulated by the competent authority.

Granting a Subsoil Use Right for Solid Minerals Production

A subsoil use right for solid minerals production is granted by the Government subject to a license.  A holder of a solid minerals production license enjoys an exclusive right to use the relevant block of subsurface for the following operations:

1) production (extraction) of solid minerals;

2) use of a block of subsurface for the performance of mining operations and for the deployment of mining and/or processing facilities and technogenic mineral formations; and

3) in-mine (operational) exploration.

Solid minerals production implies a range of works aimed at, and directly connected with, the extraction of solid minerals from deposits and/or recovery of solid minerals from the earth’s crust, including in-situ gasification and smelting, chemical and bacterial leaching, dredging and hydraulicking of placer deposits through evaporation, sedimentation and condensation, as well as the gathering, temporary storage, fragmenting and sorting of extracted minerals at the production site.

A solid minerals production license applies only to the territories determined by the national mineral wealth management programme.

A person seeking a solid minerals production license shall apply to the competent authority (licensor) in the statutory form.  The competent authority shall process the application within ten business days from the date of its filing and, if Kazakhstan subsoil use legislation does not provide for any ground to deny the license, the competent authority shall forward the documents supporting the application, in particular, solid mineral resource and solid mineral reserve estimates and detailed information about the requested block of subsurface, to the authority responsible for the study of subsurface.  The latter shall copy the data from the solid mineral resource and solid mineral reserve estimates to the unified cadastre of the national mineral wealth and shall, within ten business days, review the application and supporting documentation for any grounds to deny the license under Kazakhstan subsoil use legislation.  Upon the approval of the requested block boundaries by the authority responsible for the study of subsurface, the licensor shall, within three business days, notify the applicant in writing of the need to discuss a plan of mining operations and to review an abandonment plan. The approved plan of mining operations and abandonment plan together with the experts’ favourable opinions shall be submitted by the applicant to the licensor within one year after the receipt of the notice of the need to discuss the plan of mining operations and to review the abandonment plan.

The licensor shall issue a solid minerals production license within five business days after the submission of the state experts’ favourable opinions.  Subject to the issued solid minerals production license, local (on the level of an oblast, republican status city or capital city) executive authorities shall grant to the subsoil user the right to use the land allotment in compliance with the Kazakhstan Land Code.

Granting a Subsoil Use Right for Geological Study of Subsurface

A subsoil use right for geological study of subsurface is granted by the Government subject to a license.  A holder of a geological study license may, within three years, use the relevant block of subsurface for geological and/or geophysical surveys and for prospecting and evaluation of groundwater.  Such geological study license does not provide its holder with an exclusive right to the studied block, unless the Kazakhstan Government resolves otherwise.  A geological study license may cover the entire territory of the Republic of Kazakhstan.

A person seeking a geological study license shall apply to the competent authority responsible for the study of subsurface (licensor) in the statutory form.  The latter shall process the application within ten business days from the date of its filing and shall either issue or deny the license.

Granting a Subsoil Use Right for Commonly Occurring Minerals Production

A commonly occurring minerals production license is issued only for the production of commonly occurring minerals for commercial use.  A holder of such commonly occurring minerals production license enjoys an exclusive right to use the relevant block of subsurface for the performance of the following operations:

1) production of commonly occurring minerals;

2) use of a block of subsurface for the performance of mining operations and for the deployment of mining and/or processing facilities and technogenic mineral formations; and

3) in-mine (operational) exploration.

Commonly occurring minerals production implies a range of operations aimed at, and directly connected with, the extraction and/or recovery of commonly occurring minerals from deposits.

A person seeking a commonly occurring minerals production license shall apply to the local (oblast) executive authorities in writing.

The term of a commonly occurring minerals production license may not exceed ten consecutive years.

Land owners and users may, free of charge, extract commonly occurring minerals within the boundaries of their land allotments for their own household or other needs not connected with any business activity.  In such case, subsoil use does not require any permit, reporting or other documentation usually required from the holders of subsoil use licenses or contracts, and commonly occurring minerals shall be extracted without any explosives, chemicals or toxic agents.

The commonly occurring minerals deposited within the boundaries of a land allotment and used by the owner/user of such land allotment for their own household or other needs not connected with any business activity may not be sold to any third party.

Subsoil-related Pre-emptive Right of the State

The Republic of Kazakhstan has a pre-emptive right to purchase hydrocarbons at below subsoil users’ transaction prices prevailing on the date of the relevant transaction, less the hydrocarbons transportation and selling costs.  In the absence of information about the subsoil users’ transaction prices, the State applies the prices below world market prices prevailing on the date when the State purchases hydrocarbons, less the hydrocarbons transportation and selling costs.

The maximum limit of purchased hydrocarbons and payment terms shall be determined by the relevant subsoil use contract.

The procedure for the exercise of the pre-emptive right of the Republic of Kazakhstan to purchase hydrocarbons is regulated by the Kazakhstan Government.

Pursuant to the Kazakhstan Law On Gas and Gas Supply of 9 January 2012, in order to ensure energy security and to satisfy the domestic demand for commercial gas, the Republic of Kazakhstan enjoys the pre-emptive right to purchase any facilities of the unified commercial gas supply system, participatory interests in any facilities of the unified commercial gas supply system, as well as shares/interests in corporate owners of facilities of the unified commercial gas supply system disposed of by the unified commercial gas supply system.

Such pre-emptive right shall be exercised by the State via its national operator.

The ceiling prices of crude gas purchased by the national operator under the State’s pre-emptive right are determined by the subsoil user in accordance with the rules adopted by the competent authority and comprise the following:

crude gas production cost based on the production cost per unit calculated in accordance with the International Financial Reporting Standards and Kazakhstan accounting and financial reporting laws and regulations; 

crude gas transportation cost to the place where the gas is sold to the national operator; andcost-benefit ratio of maximum 10 percent.

Priority Subsoil Use Right of the State

All newly signed and earlier signed subsoil use contracts provide the State with a priority over other persons and organisations, including those who enjoy pre-emptive rights by operation of Kazakhstan law or contract, to acquire a disposed subsoil use right (or an interest therein) in relation to a strategic block of subsurface, as well as shares and other securities associated with such subsoil use right in relation to the strategic block of subsurface which are traded on a regulated market.

The term ‘strategic block of subsurface’ means a block of subsurface which:

1)    contains over fifty million tons of original oil in place or over fifteen billion cubic metres of natural gas in place; or

2)    is located within the Kazakhstan sector of the Caspian Sea; or

3)    contains uranium deposit.

The list of strategic blocks of subsurface is subject to the Kazakhstan Government approval.

The priority right shall be exercised upon a decision of the competent authority via a national management holding or a national company in compliance with Kazakhstan law.  When the competent authority decides that the State should exercise its priority right, the competent authority shall appoint a national management holding or a national company as the purchaser of a disposed subsoil use right (or an interest therein) and/or any assets associated with such right for the benefit of the State.

The price (and its payment terms) of a subsoil use right (or an interest therein) and/or any assets associated with such right purchased by a national management holding or a national company under the State’s priority right shall be no worse than the price and its payment terms set out in the relevant application or notice of the proposed disposal of the subsoil use right (or an interest therein) and/or assets sent by an authorised person to the competent authority.

When a subsoil use right (or an interest therein) and/or any assets associated with such right are disposed on a gratuitous basis or contributed to the authorised capital of a legal entity, they shall be purchased (under the priority right) at a market price determined in compliance with the Kazakhstan standards of professional appraisal practice.  When the applicant does not agree with such purchase price of the subsoil use right purchased under the priority right, the applicant may challenge the appraisal results in a judicial procedure.

Permission to assign a subsoil use right and assets associated therewith

A subsoil use right (or an interest therein) granted under a subsoil use contract, solid minerals exploration license, solid minerals production license or subsoil use license, as well as assets associated with such right, may be assigned only subject to the permission issued by the competent authority in accordance with the requirements of Kazakhstan subsoil use legislation.  Any transaction for assignment of a subsoil use right or assets associated with such right consummated without, or upon expiration of, such permission of the competent authority shall be recognised null and void.

Any person willing to purchase a subsoil use right (or an interest therein) granted under a subsoil use contract, solid minerals exploration license, solid minerals production license or subsoil use license, as well as assets associated with such right, shall apply to the competent authority in writing for such permission.

The competent authority shall process the application within one month (or, if the application relates to large deposits or strategic blocks, within three months) from the date of the application and supporting documentation filing.  Within five business days from the date of the application and supporting documentation filing, the competent authority shall present them for consideration of the subsoil expertise commission.

The subsoil expertise commission is an advisory/consultative body of the competent authority called to elaborate recommendations with regard to the considered applications for the permission to assign a subsoil use right and/or assets associated therewith and any other matters provided for by the Kazakhstan Code On Subsoil and Subsoil Use of 27 December 2017.

The subsoil expertise commission composition and regulations are adopted by the competent authority.

The subsoil expertise commission shall consider an application and supporting documentation within fifteen business days (or, if the application relates to large deposits or strategic blocks, within forty five business days).

When such application for the permission to assign a subsoil use right and/or assets associated therewith relates to a block containing a large deposit of solid minerals and/or strategic block of subsurface, or when the proposed assignment of a subsoil use right and/or assets associated therewith affects the national security of the Republic of Kazakhstan, the competent authority shall, within five business days from the date of the application and supporting documentation filing, forward them to national security authorities for review of such assignment of the subsoil use right (or an interest therein) and/or assets associated therewith for its compliance with national security regulations.

When an assignment of a subsoil use right (or an interest therein) and/or assets associated therewith affect the national security, the national security agency shall notify the competent authority accordingly within ten business days from the date of receipt of the application, in which case the competent authority shall suspend the application processing until the receipt of opinion from the national security agency on the compliance of such assignment of the subsoil use right (or an interest therein) and/or assets associated therewith with national security regulations.

Having considered an application, the competent authority shall decide whether to issue or to deny the permission on the grounds provided for by Kazakhstan subsoil use legislation.

A denial to issue the permission may be appealed in court.

Such permission to assign a subsoil use right (or an interest therein) and/or assets associated therewith is valid for one year.  If such subsoil use right (or an interest therein) and/or assets associated therewith are not assigned within the specified term, the applicant shall re-apply to the competent authority for another permission.

Notice of a Change in the Ownership Structure of a Subsoil User

The holder of a subsoil use right (or an interest therein) granted under a subsoil contract, solid minerals exploration license or solid minerals production license must, within thirty calendar days, notify the competent authority which granted such right of any change in the list of individuals and/or corporations who, either directly or indirectly, control the operations of such subsoil user.

Domestic Preference and Local Content

All subsoil users and their contractors are subject to the mandatory local content requirement, i.e. they must procure works and services from Kazakhstan businesses, provided, however, that they meet the relevant project requirements and Kazakhstan technical regulations.

Those subsoil users who had signed their subsoil use contracts with the competent authority before 1 January 2015 and contractors thereof engaged in subsoil use operations in the Republic of Kazakhstan must procure goods from Kazakhstan manufacturers, provided that they meet the relevant project requirements and Kazakhstan technical regulations.

Supervisory authorities, in carrying out audits of subsoil use operations, focus on the compliance of subsoil users with the Kazakhstan (local) content requirements. 

Gas Flaring Ban

The Kazakhstan Code On Subsoil and Subsoil Use of 27 December 2017 prohibits flaring crude gas in carrying out petroleum operations, subject to the following exceptions:

1)    a risk or occurrence of emergency situations, threat to life of personnel or health of the public and the environment;

2)    well testing and/or production testing;

3)    pilot operation of a field; and

4)    technologically inevitable flaring of crude gas.

In the circumstances provided for by paragraphs 2), 3) and 4) above, crude gas may be flared subject to a prior consent of the authority in charge of hydrocarbons, provided that the subsoil user follows the respective project documentation and crude gas utilization program within the limits and rates calculated in accordance with the methodology for calculation of limits and rates for crude gas flaring in subsoil use operations adopted by the authority in charge of hydrocarbons.

Oil and Gas Exports

Kazakhstan relies on the domestic and Russian transport infrastructure in its oil and gas exports.  Currently, there are four operating export oil pipelines: the Atyrau-Samara pipeline connecting Kazakhstan with the Russian export network; the Tengiz-Novorossiysk pipeline connecting the Tengiz field with the Russian port on the Black Sea; 2 pipelines for exports of oil to the north of China, namely, Atasu – Alashankou and Kenkiyak – Kumkol.

There are plans to considerably increase exports of oil through the Kazakhstan Caspian Transport System (KCTS) which is to include the Eskene – Kuryk pipeline and the Trans Caspian System.  The KCTS is intended for export of oil across the Caspian Sea to international markets through the Baku - Tbilisi – Ceyhan and other oil transport routes.  It is also planned to increase oil exports by extension of the available oil pipelines, such as Kenkiyak – Atyrau, Kenkiyak – Kumkol, Kumkol – Atasu and Atasu – Alashankou.

A considerable volume of exports flows through the Aktau Sea Port and the primary sea routes are:

- Aktau – Baku (and from there by railway to Batumi),

- Aktau – Makhachkala (and from there through pipeline to Novorossiysk), and

- Aktau – Neka (SWAP transactions in the Persian Gulf).