Home / Doing business in Russia 2020 / Oil & gas / Restrictions on foreign investors
  1. Introduction
    1. Political and administrative structure
    2. Legal environment
  2. Common forms of business structures for foreign investors
    1. Main types of structure
    2. Registration, liquidation and reorganisation of business structures
    3. Shareholders’ and participants’ agreements
    4. Strategic industries
  3. Anti-monopoly issues
    1. General legal and regulatory framework
    2. Scope of application of the Competition Law
    3. Anti-competitive practices and restriction of competition
    4. Liability
  4. Tax system
    1. General approach
    2. Corporate taxation
    3. Incentives
    4. Special tax regimes
    5. Taxation of individuals
    6. Double taxation treaties
  5. Customs regulations
    1. General approach
    2. Trade between EEU and non-EEU countries
    3. Mutual trade between the EEU members
  6. Currency control
    1. Foreign currency transactions
    2. Consequences of breach/Penalties
  7. Lending in Russia
    1. Lending documents and governing law
    2. Jurisdiction
    3. International finance transactions and repatriation requirements
    4. Security interests
    5. Recognition of security trusts
    6. Syndicated loans
    7. Enforcement
    8. Suretyships and guarantees
    9. Bankruptcy considerations
    10. Other lending related issues
  8. Employment and migration
    1. Formalising the employment relationship
    2. Managing employment relationships
    3. Terminating an employment agreement
    4. Specifics of employing foreign nationals
  9. Personal data protection
    1. General approach
    2. Scope of the Data Protection Law
    3. Liability
    4. Right to be forgotten
  10. Intellectual property
    1. General approach
    2. Contractual aspects of intellectual property rights
    3. Rights over the results of intellectual activity
    4. Company names, trade names, trademarks and appellations of origin
    5. Intellectual property rights infringements
    6. IP Court
  11. Advertising issues
    1. General approach
    2. Scope of application of the Advertising Law
    3. Violations of the Advertising Law
    4. Liability
  12. Anti-corruption and compliance
    1. General approach
    2. Legal framework
    3. Compliance requirements for companies
    4. Concept of corruption in Russian law
    5. Possible targets of bribery
    6. Liability and penalties for corruption
    7. Example of sector-specific anti-corruption measures
  13. Real estate and construction
    1. Rights to real estate
    2. Real estate transactions
    3. Resolution of real estate disputes
    4. Planning and construction issues
  14. Corporate bankruptcy
    1. Insolvency criteria
    2. Stages of bankruptcy proceedings
  15. Import substitution and production localisation in Russia
    1. Measures affecting goods importation and current import substitution legislation
    2. Localisation incentives
    3. Sector-specific impact of import restrictions and localisation requirements
  16. Banking sector
    1. Legislative and regulatory framework
    2. Licensing and operations
    3. Deposit insurance
    4. The anti-money laundering law
    5. Bank secrecy
    6. FATCA and CRS
  17. Environment, energy efficiency and renewables
    1. Environment
    2. Energy efficiency
    3. Renewables
  18. Infrastructure and public private partnerships
    1. General approach
    2. Key PPP legislation
    3. Russian PPP environment
    4. Financing
    5. Legal issues
    6. Prospects for infrastructure projects
  19. Oil & gas
    1. Legislative framework
    2. Ownership and licensing
    3. Restrictions on foreign investors
    4. Licences
    5. PSAs

Oil & gas

Alongside other natural resources, oil and gas remains the “flagship” and one of the most highly regulated sectors of the Russian economy. Its legal framework is centred around the regime of the Russian subsoil, its use and licensing.

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Contact
Kozyrenko Natalia
Natalia Kozyrenko
Partner
Head of Energy & Climate Change

Restrictions on foreign investors

Strategic blocks

 
Licences

Under the Subsoil Law, companies incorporated in foreign jurisdictions are prohibited from obtaining licences to use strategic blocks (blocks of federal significance), which include:

  • those containing deposits with the following reserves, as evidenced by the state register of reserves:
    — recoverable oil reserves of 70m tons or more; or
    — gas reserves of 50bn cubic meters or more;
  • subsoil plots located in the inland sea waters, territorial sea waters or on the continental shelf of the Russian Federation (the so-called “offshore” blocks); and
  • subsoil plots that can only be developed using land used for defence or security purposes.

Only a company established in Russia may hold a licence for a strategic block. Special requirements apply to the acquisition by a foreign investor of “control” over such company. Additional limitations are also established in relation to companies holding licences for the areas extending to the Russian continental shelf (see below). 

The Russian Government may restrict the ability of Russian companies with direct or indirect foreign ownership to participate in an auction or tender for the right of subsoil use of a strategic block.

Unless otherwise provided by federal law, if a subsoil plot is included in the published list of subsoil blocks of federal significance, such subsoil block will retain this status indefinitely, notwithstanding any subsequent change to the criteria listed above.

Acquisitions of Russian companies operating a strategic block

Under the Strategic Industries Law1 when a foreign investor, wishes to acquire “control” over a Russian company holding a licence for a strategic block, it must seek the approval of a special commission headed by the Chairman of the Russian Government (please see the Strategic industries section of the Common forms of business structures for foreign investors chapter). The requirement is trigged if a foreign investor acquires at least a 25% interest in the licence holder. It also applies in certain other cases, including, for example, if under a shareholders’ agreement the acquirer is given at least 25% of the seats on the board of directors.

Special restrictions are established for foreign investors controlled by any foreign state. Such investors may not acquire “control” over a strategic licence holder (and so their aggregate interest must be less than 25%). Approval is also required for the acquisition by such investors of an interest in a strategic licence exceeding 5%.

Exceptions to these requirements may be set out in relevant international agreements which Russia is a party to. In addition, most of the rules do not apply if, following the acquisition, the strategic licence holder would remain more than 50% owned by state-controlled companies such as Gazprom or Rosneft.

Offshore blocks

Subsoil blocks that are fully or partially located on the Russian continental shelf may only be licensed to a Russian company (i) that is more than 50% owned or controlled by the Russian state; and (ii) that has at least five years of development experience within the Russian continental shelf.

These special limitations do not apply to other offshore blocks – the inland sea/territorial sea waters. They remain within the category of “strategic” and are subject only to the general requirements applying to strategic licence holders. 

Non-strategic blocks

Foreign companies are not disqualified by law from obtaining a licence in respect of a non-strategic block. However, in practice, foreign licence holders of a non-strategic block in Russia are rarely encountered. Therefore, foreign companies usually hold mineral rights to such blocks indirectly through their Russian subsidiaries.


[1] Federal Law No. 57-FZ “On Procedures for Foreign Investment in Companies of Strategic Significance for National Defence and Security of the Russian Federation” dated 29 April 2008. Back ↑

Key contacts

Kozyrenko Natalia
Natalia Kozyrenko
Partner
Head of Energy & Climate Change