A number of amendments¹ to the Subsoil Code adopted by the Amendment Law dated 28 December 2023 are expected to enter into force on 28 February 2024².

The Dossier on the draft Amendment Law states that the main purposes of these amendments are to increase the investment attractiveness of geological exploration, stimulate production at depleting deposits and reduce administrative costs in the course of subsoil use operations.

Along with the amendments aimed at achieving those objectives, the Amendment Law introduces a number of other significant changes that are worth noting (such as restoring the state's priority right to purchase objects related to subsoil use rights to strategic deposits).

Below is our brief overview of the key amendments. Where necessary for clarity, we have provided a brief summary of the law as it is currently in addition to what the changes will bring.

Priority right of the state

Currently:

The state has, in relation to strategic subsoil areas, a priority right to acquire (1) subsoil use rights, and (2) securities issued for trading at an organized market.

Changes under the amendments:

The state will have the priority right to acquire any objects related to subsoil use rights in respect of strategic subsoil areas - and not just objects issued for circulation at an organized securities market.

Additional opportunities to extend the exploration period for hydrocarbon deposits that are not classified as complex

Currently:

The maximum exploration period is six years (Article 116.1). This may be extended for up to three years for the purpose of appraising discovered reserves; thus, in total the exploration period is at most nine years.

Changes under the amendments:

It will be possible to obtain a single extension of up to three years - for the purpose of continuing exploration and/or appraisal operations - of the initial six-year period (or, if extended for appraising purposes, the nine-year period). That said, if the exploration period is extended on specified grounds, the maximum production period will be reduced by the amount of time added to the exploration period.

State assessment of projects of hydrocarbon exploration works

Currently:

An exploration works project and any amendments thereto that do not involve well drilling or testing are submitted to the competent authority on the basis of a notification.

Changes under the amendments:

Those exploration works projects and amendments thereto which do not involve appraisal, or offshore exploration operations, or expansion of a subsoil area may be submitted on a notification basis. Exploration works projects falling under the indicated categories are subject to state assessment.

Encumbrance of subsoil use rights for hydrocarbons

Currently:

Any encumbrance of the subsoil use right for hydrocarbons, including the encumbrance of shares or interests in the charter capital of any of the entities that directly or indirectly control the subsoil user, is subject to approval of the competent authority (Article 121.14).

Changes under the amendments:

Approval of the encumbrances mentioned above will be issued upon an application filed by the subsoil user or the holder of shares or interests to be encumbered. There will also be a separate procedure for filing for such approval.

Foreclosure on the subsoil use right (objects related to the subsoil use right) for hydrocarbons

Currently:

Only those persons who obtained consent from the competent authority to participate in an auction within the framework of foreclosure on the subsoil use right (objects related to the subsoil use right) for hydrocarbons are allowed to participate in such auctions.

Changes under the amendments:

The requirement to obtain the competent authority’s consent to participate in such auctions is abolished, but the winning bidder must obtain the consent of the competent authority for the transfer of the subsoil use right (objects related to the subsoil use right) prior to entering into a transaction for such transfer based on the results of the auction.

Requirements as to the contents of an application for participation in an auction for granting hydrocarbon rights

Disclosure requirements are increased under the amendments:

When submitting an application to participate in a hydrocarbon auction, applicants must include in the disclosure information the details of share/interest and form of ownership not only for the persons controlling the applicant but also information about non-controlling persons who hold participation interests or shares in the applicant. This information needs to be presented in the form of a corporate ownership structure chart certified by a notary.

The requirement to provide information about non-controlling persons holding participation interests/shares in the applicant does not apply to persons who hold such participation interests or shares through securities traded at an organized securities market.

Minimum share participation of a national company under a contract for large hydrocarbon fields

Currently:

Subsoil use rights are granted to a national hydrocarbons company on the basis of direct negotiations. The respective contract may be executed with the national company either independently or jointly with a strategic partner.

Changes under the amendments:

When granting the subsoil use right for large deposits to a national company on the basis of direct negotiations, the mandatory condition is that the share participation of the national company under the relevant subsoil use contract is 50 percent or more. The national company’s share may only be reduced if the national company retains control over the subsoil user’s decision-making under the relevant contract.

Depleting hydrocarbon deposits

The amendment introduces criteria for attributing a deposit as depleting and setting additional investment amounts:

A hydrocarbon deposit is classified as a “depleting deposit” if, during its development, at least one of the following indicators is fulfilled:

1. For large deposits, the reserve depletion is 70 percent or more of the approved recoverable reserves, and the deposit water cut is 85 percent or more.
2. The current oil recovery factor is 0.4 parts of a unit or more.

Subsoil users are required to make additional investments in the development of a depleting deposit and/or provide additional funding towards the social and economic development of the region:

• In an amount not less than the amount calculated as the investment coefficient (as established by the Subsoil Code based on the amount of the actual annual production volume) multiplied by the amount of total annual revenues for such deposit

If you have any questions regarding the amendments to the Subsoil Code, we are happy to advise.

1. Law of the Republic of Kazakhstan No. 52-VIII “On Amendments to Certain Legislative Acts of the Republic of Kazakhstan Dealing with Subsoil Use and Environment Matters”, dated 28 December 2023 (the “Amendment Law”).↩
2. Code of the Republic of Kazakhstan No. 125-VI “On Subsoil and Subsoil Use”, dated 27 December 2017 (the “Subsoil Code”).↩