Press releases

Public misinformation about projects of hydrocarbon production. In whose interest?

18 April 2013

Until now the Ministry of Economics has not fulfilled requirements of the law “On amendments to the law “On Subsoil”” of 7 July 2010, where was provided that the Cabinet till 1 September 2001 had to issue regulations regarding exploration and production of hydrocarbons. Ministry’s official’s nonfeasance developing legal regulation of hydrocarbons exploration and production is unjustifiable, but it does not prevent the Ministry of Economics to disseminate false information:

“We have some indications that oil from test wells actually is being exported in commercial purposes“said to DB after the meeting of Economic, Agricultural, Environmental and Regional Policy Committee of the Saeima director of Ministry of Economics (ME) Energy department Dins Merirands. This is one of causes why ME promotes amendments to the law “On subsoil”, where usually is included a provision that hydrocarbon from test wells may be obtained not longer than 180 days.” (DB.LV, 11 April 2013).

Any allegations that term of hydrocarbon test production established by current law affords an opportunity for unfair re-use of wells or absurd idea that during 10 years through the test wells may be pumped out all Latvian oil are to be considered as unsound and bias. After such disinformation other flawed information, for example, reference on environmental pollution risk due to construction regulations applied to test wells, can’t be a surprise.

Continuous work is very important for the operation of wells, and any stoppage or suspension is fraught with new losses. In fact, the new regulation establishes that operation of some wells is to be suspended, but industrial production can not be started before October, 2013. This item is reasoned by simply impudent phrase of ME officials pointing at “preclusion of never-ending test production”, but much more it looks as intentional wish to suspend this production, for in 2011 on the shelve of ME laid businessman’s petition for permission of hydrocarbon industrial production.

Since restoration of independence the Constitution established that all natural resources in the Republic of Latvia is the property of landowners; however, legal regulation of hydrocarbon production is not arranged until now, and for a long time are being created hindrances to this innovative branch of national economy. Now we must again return to the sore point – who is to profit from enactment of absurd requirements, which practically suspend further onshore hydrocarbon prospecting, exploration and production projects?

The Association denunciates this ME representative’s position and invites to revise state institution’s attitude towards legislative proceedings and decisions which affect sphere of private business and may cause significant losses, thus threatening investments already made in high risk branch not sufficiently developed in Latvia.

To supplement explanation of the problematic situation, the Association offers comments of several experts about practical, theoretical and legal angles of the matter in question.

- Daiga Silina, Attorney at law:

Comment of Energy department director Dins Merirands shows both his manifest disregard to the legal regulation in the country and incompetence. The term “indications” used by him implies that this official possibly knows the difference between indicatio casualis and indicatio vitalis, but medical terminology knowledge is insufficient for dissemination of irresponsible allegations.

Subject to the Commercial law, commercial activity is an open economic activity which is performed by merchants in their name for the purposes of gaining a profit (Section 1 of the Law). Exploration and production of hydrocarbon is one of commercial activities and “Baltic Oil Management” received a hydrocarbon exploration and production license, Baltic Oil Management is carrying out activity permitted by law. Hydrocarbon exploration is conducted in commercial purposes and product obtained in result of this activity is being documented and exported in the permitted order.

Export and payment of taxes from this commercial activity can not be commented so, that unrelated person could get an idea that these activities are illegal. There are no grounds for allegations about existence of test wells, for Baltic Oil Management hydrocarbon wells are put in commission, registered and reports showing their quantity and location is submitted to the Ministry of Economics.

- Marita Stradere (Msc.oec, high doctoral studies completed at the faculty of Engineering Economics of RTU, Mechanics and Technology College of Olaine lecturer in Environment Protection Technologies program)

In this case the merchant on his own initiative commenced procedure of environmental impact assessment of commercial production as provided by law “On environmental impact assessment”, at his own expense summarized information presented by environmental specialists and certified experts regarding possible environmental impact of planned activities, developed proposals for prevention or minimization of negative impact, as well as pointed to the alternative solutions of implementation of the project. Report on environmental impact assessment is to be prepared in accordance with the program issued by competent state authority, taking into account interests of merchant, public and state, it is to be published in accordance with the procedure established by the legislation. Basic requirement of the procedure is that the merchant to whose project the environmental impact assessment is applied to, does not take decision regarding accept of the planned activity – after competent authority conclusion about environmental impact assessment such decision take local governments, in whose territory is planned to carry out commercial production of hydrocarbon, in all probability carefully assessing benefits and losses in case of implementation of the project.

- Astrīds Freimanis, Dr.geol., Dr. h.c. of the Latvian Academy of Sciences:

Test production may be performed in one or several wells depending on dimensions of the field and volume of deposits. The wells are to be drilled progressively, and each of them after completion must be put into production. Any interruption in well operation has a negative affect on a volume of oil production and may lead to additional expenses. Account must be taken of particular characteristics of each deposit, especially developing small deposits. The license holder due to difficulties in use of small deposits has a right to request the Ministry of Finance for tax holidays in order to promote profitability of such deposits. If the state didn’t request to sell produced hydrocarbon (oil) or to use it otherwise, export is the only way to realize it.

- Anatoly Houbldikov, Geologist, Ex-Deputy Director General of Kaliningradneftegazprom Production Association shares his experience in regulation of the branch:

Russian laws establish that oil production may be commenced after completion of well exploration and production testing. The term provided for the stage of test withdrawal in license area is 5 years, but yearly are drilled average 5-7 wells. One of the main objectives of production testing cycle is obtaining of full information about condition of the field and possible productivity of the reservoir. To obtain objective data any shutdowns of wells in this period of production testing are not recommended, for after the well is drilled in oil bearing rocks of the field take place inevitable geophysical processes. Experience has shown that after suspension of wells oil production may reduce several times in volume; moreover, the well may become unworkable. These conditions are specific to different regions; even conditions in Lithuania differs form Latvian conditions, to say nothing of comparison with, for example, the USA, as these conditions determines composition and chemical properties of rocks.