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. Last Updated: 07/27/2016

Duma Adopts Draft Oil and Gas Law

The State Duma overwhelmingly adopted in a combined second and third reading Wednesday the draft law On Oil and Gas, which seeks to set out some fundamental rules for Russia's burgeoning energy sector.

While the draft law has attracted less attention than the production-sharing legislation which passed the Duma on June 15, analysts point out that the legislation fills gaps left by other mineral extraction laws.

Unlike the more general law On Subsoil Resources, the draft law On Oil and Gas lays down specifics about hydrocarbon licenses: the status they hold and the rights and obligations of the parties, for example.

"This is good news. The law On Oil and Gas is a good framework law for the oil and gas industry," said Maya Makhlina, an attorney with Denton Hall.

Makhlina also praised the draft for addressing pipeline ownership, maintenance, environmental safety and land relations.

"It provides legislative rules in place of governmental regulations," she said.

The Duma will now send the bill to the Federation Council where it will have 14 days to consider it. The Duma recesses for the summer July 21.

The draft law regulates the development of oil and gas resources by spelling out ownership rights and licensing procedures, including license transfers.

It also clarifies federal and regional jurisdiction over resources.

Exploration and production licenses are to be issued on the basis of auctions or tenders.

They can also be granted without an auction by state and local authorities under certain circumstances -- if a company has unique technology required to develop the field, for example.

The law allows the assignment of a license to a third party with the consent of the licensing agencies. Assignment of rights to a subsidiary requires only that the assigning party notify the licensing agency.

In addition, a grandfather clause guarantees investors that changes in legislation will not adversely affect their projects' commercial outcomes.

The clause states that if laws establish conditions that worsen the license holder's economic condition, amendments shall be made to the license agreement that guarantee the holder the commercial results implied when the agreement was signed. There is no mention of how the provision would be enforced.