Energy: Oil and Gas 2019 Comparisons

Last Updated August 09, 2019

Contributed By Bech-Bruun

Law and Practice

Authors



Bech-Bruun has an energy team that is one of the largest and most specialised departments at a Danish law firm. The team consists of 37 partners and associates who have significant experience in handling regulatory and contentious matters within the energy sector and M&A of energy companies. The energy team is located in Bech-Bruun’s offices in Copenhagen, Aarhus and New York. Bech-Bruun’s office in New York is headed by partners working on major renewable energy projects. The core expertise of Bech-Bruun’s energy team includes regulatory frameworks for energy production and supply, M&A of energy companies, project financing, taxation of energy products, and negotiation and conclusion of offshore infrastructure contracts. The energy team has extensive experience in rendering advice to the oil and gas sector within all aspects from purchase/sale to the conclusion of contracts, licence applications, etc. The team has been involved in the majority of high-profile energy transactions involving Danish interests, including Total SA’s acquisition of Maersk Oil and Energinet’s acquisition of gas distribution networks and storage facilities from DONG (now Ørsted).

The system of petroleum ownership is governed by the Subsoil Act, pursuant to which the Danish State owns all petroleum deposits in Denmark’s subsoil, onshore and offshore (territorial waters, exclusive economic zone and continental shelf).

Until 1981, the system of petroleum ownership was the government granting a sole concession to explore and exploit all raw materials on the Danish territory. In 1962, shipowner A.P. Moeller was granted the sole concession for 50 years. The joint venture, the Danish Underground Consortium (DUC), collaborates on the production of petroleum from the area covered by the sole concession. Until recently, DUC consisted of the companies A.P. Moeller and Maersk Oil (with a 31.2% ownership interest), Shell (36.8% ownership interest), Chevron (12% ownership interest) and Nordsøfonden (20% ownership interest).

In March 2018, all of A.P. Moeller–Maersk A/S’s oil and gas activities, including the participation in DUC, was transferred to Total SA, by transfer of all the shares in Maersk Oil. In January 2019, Chevron’s ownership shares in DUC were transferred to Total, and in April 2019, Shell’s oil and gas activities in the Danish North Sea, including its ownership shares in DUC, were transferred to Altinex AS (part of the Noreco group). DUC now consists of Total (43.2%), Noreco (36.8%) and Nordsøfonden (20%).

In 1981, the procedure under the Subsoil Act for granting the rights to explore and produce petroleum was amended. Under the applicable Subsoil Act, the procedures for granting petroleum licences depend on the location of the area where the petroleum activities are to be carried out.

Licences in the most attractive area, according to the Danish Energy Agency, are granted following licensing rounds announced by the government. This area is situated on the Danish continental shelf in the North Sea west of 6°15' E (Central Graben). Since 1984, eight licensing rounds have been held in the North Sea.

In the remaining part of Denmark, the area east of 6°15' E, licences are granted following the so-called open-door procedure. In 2018, the Danish government decided that no more petroleum licences would be granted for the onshore areas of Denmark or the Danish internal waters. To ensure embeddedness of this political decision, the Subsoil Act has been amended on 1 July 2019 such that it includes a specific delimitation of the area available for petroleum licences in Denmark.

Petroleum activities intervene in various areas of law and are, inter alia, governed by energy law, property law, tax law, environmental law, and health and safety law.

The Minister for Energy, Utilities and Climate is the regulatory authority in the energy sector. The minister is responsible for developing and implementing the government’s energy and climate policies, delivers energy policy reports to the Danish Parliament, is authorised to provide the detailed regulation within the statutory framework applicable to the energy sector and is granted certain decision-making powers pursuant to the statutory framework, including the granting of petroleum licences.

The powers vested in the Minister for Energy, Utilities and Climate pursuant to the statutory framework are to a large extent exercised by the Danish Energy Agency. The authority to grant petroleum licences is, however, not delegated to the Danish Energy Agency. The Danish Energy Agency, for example, approves whether a licence to explore and/or produce petroleum may be assigned or otherwise transferred to a third party or between several co-licensees.

Upstream petroleum activities are mainly regulated by the Subsoil Act, which provides the framework for exploitation of resources in the Danish subsoil, but the specific terms and conditions for such activities are laid down in the specific licences granted by the Minister for Energy, Utilities and Climate.

Downstream petroleum activities are mainly regulated by the Pipeline Act and the Natural Gas Supply Act. On behalf of the Danish State, the Minister for Energy, Utilities and Climate is the sole owner of the Danish gas transmission system operator (TSO), Energinet, and is authorised to make decisions about all aspects of the affairs of Energinet pursuant to the Act on Energinet.

Fiscal matters in relation to petroleum activities are under the jurisdiction of the Minister for Taxation and are mainly regulated by the Act on Hydrocarbon Taxes and the Corporation Tax Act.

Environmental requirements applicable to offshore oil and gas installations are found in several regulations, including the Subsoil Act and the Marine Environment Protection Act. The Danish Energy Agency is responsible for the environmental impact assessment (EIA) procedures following applications for permission to construct offshore oil and gas installations. The Environmental Protection Agency under the Ministry of Environment and Food is responsible for supervising emissions and discharges to the marine environment from offshore oil and gas installations.

Health and safety conditions on offshore oil and gas installations are governed by the Offshore Safety Act. Supervision of health and safety aspects of offshore installations is carried out by the Working Environment Authority, which is an authority under the Ministry of Employment.

The principal petroleum laws and regulations mentioned above are further described in 1.4 Principal Petroleum Law(s) and Regulations.

Nordsøfonden (the Danish North Sea Fund) is the Danish petroleum entity that undertakes the Danish State’s participation in petroleum licences granted pursuant to the Subsoil Act.

From 1984, the then fully State-owned company DONG E&P A/S represented the State in petroleum licences by holding ownership shares in the licences granted. Since 2005, the public fund Nordsøfonden has represented the Danish State by holding 20% of the ownership shares in any petroleum licence granted and furthermore, since 9 July 2012, been participating as a non-operating partner in the sole concession held by DUC, holding 20% of the ownership shares in the licence.

The responsibility as the State participant was transferred to Nordsøfonden in consequence of DONG Energy A/S being partly privatised, and agreements regarding extension of the sole concession held by DUC were concluded.

Nordsøfonden is a public fund established and regulated pursuant to the Act on Nordsøenheden and Nordsøfonden, and is managed by the independent State-owned company Nordsøenheden. Nordsøenheden is also established and regulated pursuant to the Act on Nordsøenheden and Nordsøfonden. The Minister for Industry, Business and Financial Affairs supervises the activities performed by Nordsøfonden and Nordsøenheden, and lays down the articles of association for both entities.

State participation in petroleum licences is further described in 2.5 National Oil or Gas Companies.

The principal petroleum laws and regulations consist of the following.

  • The Subsoil Act (consolidated Act No 1190 of 21 September 2018, as subsequently amended), which provides the framework for petroleum licences and regulation of petroleum activities in general. The Minister for Energy, Utilities and Climate has, through the Danish Energy Agency, issued detailed regulations pursuant to the Subsoil Act, including a model licence, a model joint operating agreement (JOA) and a number of executive orders.
  • The Pipeline Act (consolidated Act No 277 of 25 March 2014, as subsequently amended), which regulates the establishment and use of a pipeline for the transportation of crude oil and condensate that is brought from the Danish continental shelf in the North Sea to the Danish peninsula, Jutland.
  • The Act on Nordsøenheden and Nordsøfonden (Act No 527 of 28 May 2014), which provides the statutory framework for Nordsøfonden, and mainly governs the objectives and activities of the independent State-owned company Nordsøenheden, which manages Nordsøfonden.
  • The Natural Gas Supply Act (consolidated Act No 1127 of 5 September 2018, as subsequently amended), which regulates transmission, distribution, supply and storage of natural gas, including LNG.
  • The Act on Energinet (consolidated Act No 997 of 27 June 2018), which regulates the organisation, tasks and responsibilities, etc of Energinet.
  • The Offshore Safety Act (consolidated Act No 125 of 6 February 2018, as subsequently amended), which governs health and safety conditions on offshore installations and implements parts of the Offshore Safety Directive (2013/30/EU). The Act provides a general framework under which the companies involved in offshore oil and gas activities are to handle health and safety issues themselves.

Private investors can obtain the right to explore and exploit petroleum pursuant to the framework under the Subsoil Act. A licensee can be any Danish or foreign natural or legal person.

Under the framework of the Subsoil Act, the Minister for Energy, Utilities and Climate grants licences to private investors following licensing rounds or following an open-door procedure. The licensing procedures are described in 2.2 Issuing Upstream Licences/Obtaining Petroleum Rights.

The licences granted confer exclusive rights on the licensee to explore and to produce petroleum within an area defined in the specific licence and under the terms and conditions stipulated in the specific licence. Separate licences may be granted for exploration and production, respectively. A licence to explore petroleum only is granted exceptionally if the terms and conditions for production cannot be determined at the outset. Such exploration licence may grant the licensee a preferential right to a production or extraction licence.

A licence to explore and/or produce petroleum entitles the licensee to the ownership of the petroleum produced as a result of the explorations. The licensee is free to sell the petroleum produced on the market. The Danish State, however, reserves the right to participate as a co-licence holder (joint venture partner) in any licence granted holding 20% of the ownership shares in the licences through Nordsøfonden. The Danish State’s participation in petroleum licences is described in 1.3 National Oil or Gas Company and 2.5 National Oil or Gas Companies.

When a licence for exploration and production of petroleum in an area is granted, it does not hinder permission from being granted within that area to any parties other than the licensee to undertake preliminary investigations of the subsoil with a view to (i) exploring for and producing raw materials other than those covered by the licence granted; (ii) establishing and operating pipeline facilities intended for activities falling within the scope of the Subsoil Act; or (iii) using the subsoil for storage or for purposes other than production and to carry out scientific investigations. The licensee must ensure that these activities and the hydrocarbon exploration and production activities carried out under other licences are not unnecessarily impeded.

Licences for shale gas exploration cannot be granted at present. In 2012, the issuing of licences for exploration for shale gas was suspended to investigate the possibilities of promoting safe and environmentally sound production of shale gas. See further in 6.1 Unconventional Upstream Interests.

Licences for exploration and production of petroleum are granted by the Minister for Energy, Utilities and Climate following the approval of a special committee set up by the Danish Parliament.

Licences can be issued following four procedures.

Licensing Rounds

In the North Sea west of 6°15' E (Central Graben), licences are granted following licensing rounds as the Central Graben with adjoining areas is still likely to hold attractive potential according to the Danish Energy Agency, and as there may be competition for licences covering certain parts of the area offered for licensing. When a licensing round is opened, a letter inviting applications is published in the Danish Official Gazette and in the Official Journal of the European Union. The invitation letter will contain the requirements for applications, selection criteria, and terms and conditions, etc.

The minister can require that licence applications must state which company is to undertake the operatorship, and that if the companies that are granted a licence disagree about the appointment of the operator, the DEA reserves the right to appoint the operator on the basis of the potential candidates’ qualifications.

Applications submitted by groups of companies as well as individual companies will be considered. Moreover, applications may be submitted for licence shares of less than 80% (100% when including State participation).

If there is more than one qualified applicant for an area and the work programmes offered are considered to be of equal merit, the final selection between these applicants will be made on the basis of a supplementary offer made by the applicants regarding the size of the share to be offered to Nordsøfonden over and above the obligatory 20% but not exceeding 40%.

The minister is authorised to refrain from granting licences following licensing rounds.

Since 1984, eight licensing rounds have been held in the North Sea. The eighth licensing round was closed on 1 February 2019. The Danish Energy Agency received five applications for licences to explore and produce oil and gas, and expects to issue new licences in summer 2019. The Danish Energy Agency further expects to open the ninth licensing round in 2020.

Mini Licensing Rounds

If a licensing round is not opened, but the minister receives an application for a licence to a specific area, and the minister wishes to consider this application, the minister announces the reception of the application in the Danish Official Gazette and in the Official Journal of the European Union, including a deadline for other interested parties to submit their application for a licence to the area concerned.

The minister is authorised to refrain from granting licences following mini licensing rounds.

Open-door Procedure

Under the open-door procedure, applications for licences covering specific areas are submitted to the Danish Energy Agency within an annual application period from 2 January to 30 September. Applications received during the period from 1 October to 31 December will be considered as having been received on 2 January in the following year.

Under this procedure there is no element of competition. The applications received are considered in the order they are submitted and licences will be granted successively. The minister can refrain from granting the licences; eg, if applications are received on the same day from qualified applicants and it is not possible to meet all applications by adjusting the areas applied for, and there is no major difference between the applicants' qualifications or the quality of the work programmes offered. In such case the minister may choose to offer the areas for licensing through mini licensing rounds; see the second point above.

From 1997 to 2018, the open-door procedure comprised the part of the Danish area not offered for licensing through licensing rounds (cf the first point above); ie, both onshore and offshore areas of Denmark. In the beginning of 2018, the Danish government decided that no petroleum licences would be granted in onshore areas or internal waters. To ensure embeddedness of this political decision, the Subsoil Act has been amended on 1 July 2019 such that it includes a specific delimitation of the area available for petroleum licences in Denmark. There have never been any findings of commercial importance in onshore areas or internal waters during the past 80 years of prospecting for petroleum. In addition, there have been local and national concerns in connection with onshore exploration and extraction.

Neighbouring Block Procedure

The minister can grant a licence for a neighbouring block without following the procedures for licensing rounds, or the open-door procedure, if geological or production reasons apply. The neighbouring block procedure may apply in situations where an accumulation or a potential discovery already licensed extends into an unlicensed area. In these situations, the most commercially viable solution may be to explore the border-straddling accumulation in connection with the already licensed accumulation.

General Requirements

Applications will be considered on the basis of the applicant’s technical competencies and financial capacity, and on the basis of the exploration activities that the applicant intends to carry out, or the way in which the applicant intends to carry out production in the area comprised by the application (proposed work programme). The requirement of technical competence can be met by agreements with third parties that have such technical capacity or, for instance, through the operator of the licence.

The minister may also attach importance to the amount an applicant is prepared to pay for the granting of a licence, any lack of efficiency on the part of the applicant or the applicant's non-performance of obligations under licences previously granted and other relevant, objective and non-discriminatory criteria.

In all existing licences, the companies participating in the licence share the economic risk and pay expenses according to the JOA. The JOA must be approved by the Danish Energy Agency.

Fees will typically be charged in connection with processing of applications and issuance of petroleum licences. A fee of DKK25,000 is to be paid no later than on submission of the application. Upon issuance of the licence, an additional fee of DKK100,000 is to be paid by the companies participating in the licence as a whole no later than on the issuance of the licence.

Government Take

The terms in the petroleum licences granted may stipulate that the licensee must pay a periodic charge based on the size of the area covered by the licence (area rental), or a charge on the volume of raw materials produced (royalty). Moreover, the licence may stipulate that a share of the profit from the activities covered by the licence must be paid to the State (profit share).

The licences granted in recent years do not include terms regarding payment of royalties or profit shares, but they do include terms regarding area rental.

The State has a 20% ownership share in the licences granted through the participation in the licence of the State-owned fund, Nordsøfonden, which will have to pay its proportionate share and will thus not be granted a carried interest.

Pursuant to the Subsoil Act, the Minister for Energy, Utilities and Climate may decide that the State or a State-owned company shall be entitled to purchase up to half a licensee’s ongoing production of oil. However, such decision cannot apply to production carried out pursuant to a licence granted after 1 January 1995. In addition, some licences contain provisions on a share of the profits from the activities covered by the licence being payable to the Danish State.

Fees

Where, as a necessary element of the production of hydrocarbons, other raw materials within the scope of the Subsoil Act are produced at the same time, the licensee shall be entitled to such raw materials. The Danish Energy Agency reserves the right to impose upon the licensee specific terms and conditions with respect thereto, including payment of a special fee if the production is economically significant.

Further, the Danish Energy Agency’s approval of an agreement about transfer of the licence or change of control in the licensee is subject to a fee.

Securities

Participants in petroleum licences must provide security in favour of the Danish State for all public-law and private-law obligations incurred vis-à-vis the Danish State and for all liabilities incurred under Section 35 of the Subsoil Act or any other present or future liability regulations. The terms in the licence granted will typically stipulate that each individual participant is to furnish security for the fulfilment of its obligations under the licence within 30 days of the granting of the licence. The amount and nature of such security must be acceptable to the Danish Energy Agency. Generally, the participant must provide a parent-company guarantee, which must be unlimited, irrevocable and without any time limit but does impose a monetary limit. After a specific assessment, the Danish Energy Agency may in exceptional cases seek to uncover any options for the participants in a licence to provide other types of security.

Costs for administrative case-handling

The licensees must reimburse the expenditures for administrative case-handling, including the expenses incurred in connection with processing of applications by the Danish Energy Agency. The costs are calculated on the basis of the time consumed for performing the work. The specific rules are listed in Executive Order No 661 of 1 June 2018 with later amendments.

The taxes applicable to income from upstream activities are:

  • 25% corporate income tax – corporate income tax is deductible from the basis for assessing hydrocarbon tax; and
  • 52% hydrocarbon tax – in determining the basis for assessing hydrocarbon tax, a 5% hydrocarbon allowance is granted for investments over six years (a total of 30%).

On 1 January 2018, an investment window covering certain types of investments implemented in the period 2017-25 was introduced in the Act on Hydrocarbon Taxes. The investment window entails that the hydrocarbon allowance over a six-year period is raised from 5% to 6.5% a year. In addition, the rate of reducing balance depreciations in the hydrocarbon tax is raised from 15% to 20% and the time of deduction for the two deductions is changed from the date on which the investments are put into use to the date of payment. However, the deduction is subject to the condition that oil prices remain below USD75/barrel (2017 figures, rising by 2% per annum). If the price is higher, the tax deduction must be repaid. The special scheme for investments made in 2017-25 is stipulated in Chapter 3B of the Act on Hydrocarbon Taxes. The application of the rules in Chapter 3B is optional but binding on the companies that choose to make use of the scheme.

The State has a 20% ownership share in the licences granted through the participation in the licence of the State-owned fund Nordsøfonden, which cannot be the operator of petroleum licences. But as a shareholder in the licences, Nordsøfonden participates on equal terms and with equal rights and liabilities like the other commercial petroleum companies pursuant to the JOA. Nordsøfonden will have to pay its proportionate share of its ownership share in the licence and thus it will not be granted a carried interest.

Under Nordsøfonden’s articles of association, Nordsøfonden is entitled to make portfolio adjustments with a view to carrying out the objectives of the fund, including making use of its pre-emption rights, sole risk operation rights and rights to acquire neighbouring licences in accordance with the JOA. Such portfolio adjustments must be approved by the Minister for Industry, Business and Financial Affairs.

Under certain circumstances, the State participation through Nordsøfonden may be increased, including if there is more than one qualified applicant for an area and the work programmes offered are considered to be of equal merit. The final selection between these applicants will be made on the basis of a supplementary offer made by the applicants regarding the size of the share to be offered to Nordsøfonden over and above the mandatory 20%. Nordsøfonden’s ownership shares may not go beyond 40% in each licence.

As concerns Nordsøfonden’s increased share, it will not have to contribute to licence costs already defrayed. Thus, Nordsøfonden will have to contribute financially for its total share (the mandatory 20% of the licence shares and the increased share) as from the date when the increased share is transferred.

Nordsøfonden will be entitled to assign, in whole or in part, its rights in and under the JOA and the licence to the State, to a company owned by the State, or to a subsidiary of any such company. The State or the company to which Nordsøfonden transfers its rights and obligations will also be entitled to assign its rights and obligations in whole or in part to the State, to a company owned by the State, or to a subsidiary of any such company. The assignee must assume the corresponding obligations that, as of the time of the assignment, were the responsibility of the assignor in its capacity as a party to the JOA.

No requirements apply to upstream operations regarding the use of a minimum of locally sourced goods, services or capital. Denmark is a member of the EU, therefore Danish statutes and regulations must comply with EU regulations; inter alia, rules regarding non-discrimination and free movement of goods, services and capital within the EU.

No local presence is required for foreign private investors.

General labour law applies to upstream operation onshore and offshore. Next to these regulations, the labour in upstream operations is regulated by collective bargaining agreements between employer organisations, authorities and trade unions. Most petroleum companies are members of the Danish Employers’ Association of the Petrol and Oil Industry.

All foreign nationals – besides citizens in Nordic countries, EU member states, European Economic Area states and Switzerland – must obtain a work permit in order to work in Denmark. Work permits are issued by the Danish Immigration Service pursuant to the Aliens Act. Foreigners working in Denmark without the necessary permits may be expelled from the country. Additionally, both the employee and the employer may be fined or imprisoned.

In general, Danish authorities and Danish employers are under an obligation to treat EU citizens in a non-discriminatory manner. Further, Danish authorities and Danish employers are obligated to treat individuals in a non-discriminatory manner pursuant to the European Convention on Human Rights.

A licensee must carry out the exploration works as are specified in the work programme. The licences granted will lay down the requirement that the applicant, after the performance of an initial work programme, is to perform additional work obligations during the remaining term of the licence, as a condition for retaining the exclusive right to the whole licence area for the six-year term, which will be the usual term for licences granted.

Notice must promptly be given to the Danish Energy Agency where the licensee makes any hydrocarbon discoveries, and not later than six months after the completion of the drilling activity during which the discovery is made. The licensee must prepare an evaluation programme on the discovery and on further works that are necessary, in accordance with good practice within the oil industry in the North Sea countries, to ascertain whether a hydrocarbon deposit has been demonstrated under conditions such that production is technically feasible and must be considered economically profitable. The evaluation programme shall be subject to the Danish Energy Agency’s approval.

When the terms and conditions in an exploration licence have been met, the licensee is entitled to an extension of the licence with a view to production. The licence term may only be extended for those parts of the area that contain commercial accumulations that the licensees plan to exploit, and not by more than 30 years. Licences granted for the purpose of production may be prolonged where warranted by special circumstances.

Before production and measures aimed at production are initiated, a plan for the production activities, including the organisation of production and the layout of production installations and any pipelines (production measures, etc) (development plan), must be submitted for the Danish Energy Agency’s approval. Substantial changes and supplements to an approved development plan are subject to the Danish Energy Agency’s approval before being initiated.

Under the JOA, parties that participate in the development under the licences granted must, before submission of a development plan to the Danish Energy Agency, agree on the terms of an abandonment agreement. Such agreement shall state the terms for the security that each party must provide to the other parties for its percentage interest share of the costs of abandonment (demolition and removal together with any necessary site reinstatement) of all or part of any facilities, equipment, installations and pipelines used in connection with the joint operations. The abandonment agreement is subject to the Danish Energy Agency’s approval.

These decisions of the Danish Energy Agency cannot be brought before an administrative authority other than the Energy Board of Appeal. Appeals must be submitted to the Energy Board of Appeal within four weeks from the time when the Danish Energy Agency’s decision was announced. The Danish Energy Agency’s decision to approve a production plan may not be utilised until the time for lodging appeals has expired.

Regardless of the procedures following which upstream licences are granted (see 2.2 Issuing Upstream Licences/Obtaining Petroleum Rights), some key terms and conditions in the licences granted generally recur.

Exploration Periods

Licences for exploration of petroleum are in general granted for a period of six years. The licence period may be extended by up to four years at a time for the purpose of further explorations. The total licence period for explorations may only exceed ten years in exceptional cases.

Production Periods

When the terms and conditions in an exploration licence have been met, the licensee shall be entitled to an extension of the licence with a view to production. The licence term may only be extended for those parts of the area that contain commercial accumulations that the licensees plan to exploit, and not by more than 30 years. Licences granted for the purpose of production may be prolonged where warranted by special circumstances.

Minimum Work Programme

Under the work programme covering the exploration activities of a licence, the licensee must as a minimum have acquired in the licence granted a specified amount of new 2D/3D seismic data not later than on a deadline specified in the licence granted.

The licensee must drill one exploration well and must commence drilling the well not later than on a deadline specified in the licence granted.

When the licence for an area terminates, the licensee must submit a final report to the Danish Energy Agency on the hydrocarbon potential in the relevant area. The wells must be drilled in conformity with any guidelines laid down by the Danish Energy Agency in connection with the approval of each individual drilling programme.

A licensee must carry out the exploration works as are specified in the work programme. The licences granted will lay down the requirement that the applicant, after the performance of an initial work programme, is to perform additional work obligations during the remaining term of the licence, as a condition for retaining the exclusive right to the whole licence area for the six-year period.

Security deposits are generally not required for work commitments or otherwise. However, pursuant to the model licence, the Danish Energy Agency may require additional security in any form, if necessary.

Relinquishment

Relinquishment of rights under a licence during the exploration period applies to the entire licence area. Where the licence has been extended in respect of one or more areas for the purpose of production, the licensee may relinquish the right to any such area upon one year's notice.

Where any part of the work programme or in prolongations to the licence granted is not performed, the licensee must pay to the Treasury an amount equal to the cost of performance of the obligations unless this is exempted by the Danish Energy Agency.

Domestic Supply Requirements

The Minister for Energy, Utilities and Climate may decide that the State or a State-owned company shall be entitled to purchase up to half a licensee's ongoing production of liquid hydrocarbons. Any such decision shall take effect six months at the earliest after the seller has been notified of the decision. However, such decision cannot apply to production carried out pursuant to a licence granted after 1 January 1995.

Liability and Risk

Under the Subsoil Act, a licensee is liable to pay damages for any loss, damage or injury caused by the activities carried out under the licence granted, even though such loss, damage or injury was caused accidentally. The general prerequisites for imposing liability under Danish law must be fulfilled. The licensee’s liability for damages must be covered by insurance.

When a licence is granted to several parties jointly, the parties are jointly and severally liable for any damages claimed under the Subsoil Act. All existing licences granted, both offshore and onshore, consist of joint ventures. The companies participating in a licence share the economic risk and pay expenses according to the JOA.

Termination and Abandonment

Not later than two years before the termination of the licence, or two years before the time when one or more installations, etc are expected to be abandoned or disused, the licensee must submit a plan for discontinuing the use of all installations, etc (winding-up plan or decommissioning plan) for the approval of the Danish Energy Agency. See 5.4 Requirements for Decommissioning.

The Danish Energy Agency must approve any transfer of the licence or interests therein to third parties or between several co-licensees whether the transfer is direct or indirect (change of control).

A written application for the Danish Energy Agency’s approval of the proposed transfer must be submitted to the Danish Energy Agency and the Danish Energy Agency must receive a copy of the transfer agreement concerned, including all commercial and financial terms for the transfer, as well as any required information regarding the new licensee’s technical competencies and financial capacity.

The duration of the Danish Energy Agency’s consideration of the transfer application can be expected to be at least one month. The Danish Energy Agency may charge a fee for processing such application; see 2.3 Typical Fiscal Terms Under Upstream Licences/Leases.

Where the licence is granted to several parties jointly, and a JOA is concluded, the JOA will regulate the transfer of the operator's rights and responsibilities. The operator’s rights cannot be assigned without the written consent of the other licensees and the Danish Energy Agency.

Further, the JOA will lay down pre-emptive rights. According to the current model JOA, if a licensee receives or makes a bona fide offer that it or the prospective purchaser (a co-licensee or a third party) is willing to accept for the purchase of all or a part of such licensee’s percentage interest, the licensee receiving or making such offer must give written notice thereof to each of the other parties to the JOA. For a period of 60 days after the receipt of such notice, the other parties have the prior and preferred right and option, in proportion to their respective percentage interests in the licence, to purchase the offered interest.

In the event that some but not all the other parties exercise their pre-emptive rights, the parties that choose to exercise such rights have the right to purchase the offered interest in proportion to their respective percentage interests. If none of the other parties exercises its pre-emptive rights, the party having received an offer or made an offer for the purchase of shares in the licence is entitled to receive the written approval of the other parties and may complete the sale to the prospective purchaser within six months after the 60-day period in which the pre-emptive rights applied. If the party fails to do so, the pre-emptive rights revive.

Under the JOA, a party that withdraws from the licence remains liable and obligated for its share of all net costs and obligations that in any way relate to the abandonment of joint operations or a sole risk project in which the withdrawing party participated.

As of July 2019, there are no legal or regulatory restrictions on production rates set out in the Subsoil Act.

There is one upstream pipeline for the transportation of oil from the North Sea to the onshore processing facilities in Frederica on the Danish peninsula, Jutland. The ownership and use of the pipeline are regulated within the framework of the Pipeline Act.

The pipeline and associated pumping and terminal facilities for the transportation of crude oil and condensate are owned and operated by a subsidiary of Ørsted. Anyone that recovers liquid hydrocarbons from the Danish continental shelf in the North Sea must be connected to the pipeline pursuant to the provisions under the Pipeline Act.

Ørsted further owns the upstream natural gas transportation pipeline network. It transports natural gas from the North Sea to the onshore processing facilities in Nybro on the Danish peninsula, Jutland. Ownership and use of this pipeline network are regulated within the framework of the Natural Gas Supply Act, which, inter alia, implements the rules under the Third Gas Directive (2009/73/EC).

In 2015, the Danish Parliament entered into a political agreement regarding the stock market listing of DONG Energy A/S (now Ørsted). Before DONG Energy A/S was listed on the stock market, the company was controlled by the State.

In late May 2017, it was announced that DONG and the Swiss company Ineos had entered into an agreement on Ineos taking over all of DONG’s oil and gas activities.

The upstream oil pipeline and separation facilities in connection thereto and the upstream natural gas transportation pipeline network are sought divested to the Danish gas TSO, Energinet, in response to the agreement on the stock market listing in 2015. Energinet is a company owned by the Ministry of Energy, Utilities and Climate on behalf of the Danish State. Energinet is authorised to operate the Danish upstream oil transportation pipeline and the Danish upstream natural gas transportation pipeline network under the Act on Energinet.

Transmission, distribution, supply and storage of natural gas, including LNG, are regulated within the framework of the Natural Gas Supply Act.

Natural gas transmission, distribution and storage activities require that the Minister for Energy, Utilities and Climate has granted a licence to carry out the activities under Section 10 of the Natural Gas Supply Act. Activities carried out by Energinet, or Energinet’s wholly-owned subsidiaries, pursuant to the Act on Energinet, do not require the minister’s granting of licences.

Energinet owns and operates the natural gas transmission network in Denmark and therefore holds a natural monopoly. Energinet is also the owner of two underground natural gas storage facilities: one in Jutland (Lille Torup) and one on Zealand (Stenlille).

By a political agreement from 2017 regarding the future organisation of gas distribution, it was decided that the geographically divided natural gas distribution networks should be consolidated by transferring them to the publicly owned company Energinet. The consolidation process is implemented, and the natural gas distribution network is owned by Energinet.

Please note that the remainder of this section applies to downstream operations where private investment is permitted.

The rules applicable to the use of the transmission network are set out in the latest version of Energinet’s Rules for Gas Transport (RfG). The RfG constitutes the framework of terms agreed among Energinet and the distribution system operators. Energinet will enter into individual contracts with shippers on the basis of the regulated terms. The rules applicable for the use of the two storage facilities in Denmark are set out in the latest version of Gas Storage Denmark′s Rules for Gas Storage. Both the RfG and the Rules for Gas Storage must be notified to the Danish Utility Regulator.

Against payment, anyone is entitled to access the transmission system, the distribution systems and LNG facilities if such access is technically and economically necessary to enable efficient system access, storage and line pack facilities, and other help functions (the system).

Requests for access to the system must be addressed to the company owning the system – ie, Energinet – and the distribution, storage or LNG companies concerned. Access must be granted on objective and non-discriminatory conditions. Access can only be denied if circumstances specified in the Natural Supply Gas Act apply. Further, a refusal to grant access to the system must be reasoned and can be appealed to the Danish Utility Regulator.

Payment for access to the system is laid down by Energinet, the distribution, storage or LNG companies and must consider the costs of the system operators and a reasonable return on investments. In determining the prices and terms, there must be no discrimination between customers. Payment of storage services is determined through negotiation between the parties. Prices, conditions and the applicable basis must be made publicly available and notified to the Danish Utility Regulator.

As TSO and storage company, Energinet annually publishes its main commercial conditions for access to storage, line pack and other ancillary services. The Danish Utility Regulator supervises the procurement procedures and the main condition for access to storage, line pack and other ancillary services based on objective, transparent and non-discriminatory criteria.

Licences for transmission, distribution and storage activities are granted by the Minister for Energy, Utilities and Climate. The licences granted are for a specifically defined area and the term of the licence is at least 20 years.

Companies that are granted downstream licences pursuant to the Natural Gas Supply Act are obligated to own their respective facilities. Therefore, the companies cannot transfer the essential assets and continue their activities based on a lease. See further in 3.13 Requirements for Transfers of Interest in Downstream Licences.

The licences may only be granted to applicants that demonstrate having the necessary technical and financial capacity. Licences for transmission activities, specifically, must only be granted to applicants that comply with unbundling requirements in the Natural Gas Supply Act deriving from implementation of the Third Gas Directive. Upon application, the Danish Utility Regulator certifies applicants if they comply with the unbundling requirements.

Licences to carry out activities pursuant to a supply obligation in a natural gas supply area are granted by the Minister for Energy, Utilities and Climate following public licensing rounds. The licences are awarded to the supplier that bids the lowest price for gas supply in an area provided that the supplier has the necessary technical and financial capacity. The licences may only be granted for a period of up to five years.

Licensees must carry out the necessary maintenance, changes and expansion of the relevant transportation pipelines or storage facilities. Significant changes, as well as the construction of new pipelines or facilities, remain subject to prior approval by the minister, except the activities carried out by Energinet, or its wholly-owned subsidiaries.

The Danish Utility Regulator and the Energy Board of Appeal generally oversee compliance with respect to the applicable energy laws, including supervising prices and licence requirements. Decisions by the Minister for Energy, Utilities and Climate, the Danish Energy Agency and the Danish Utility Regulator may be appealed to the Energy Board of Appeal.

The fiscal terms under downstream licences vary according to which natural gas product they concern.

Most natural gas products are commercial products that the seller offers on the free market. These include storage facility services, as well as line pack and other help functions. They also include natural gas supply from companies not carrying out the activity pursuant to a supply obligation and upstream pipeline network services. The prices and terms for commercial products are determined by negotiations between the parties on the market. The prices and terms for storage facility services, as well as line pack and other help functions, must take into due consideration the costs of the system operators and a reasonable return on investments. The Danish Utility Regulator monitors the level of transparency in wholesale pricing and restrictive practices in the market, and must inform the competition authorities of cases of non-compliance with competition law.

Another group of products are mostly purchased by consumers having small-size natural gas consumption (households and small businesses). These products consist of natural gas that is supplied by companies having a supply obligation under the Natural Gas Supply Act. The supply obligation is granted by the Minister for Energy, Utilities and Climate, and exists because some costumers have not exercised their right to choose a supplier on the retail market. The price for natural gas supplied by companies with supply obligations under such existing licences is determined by taking into consideration the relevant costs and prices, and the terms and the applicable basis must be notified to the Danish Utility Regulator. The price of natural gas supplied by companies with a supply obligation, whose licences are granted following licensing rounds, is based on the offered price with an addition of the transmission price as well as a fixed addition covering other costs; eg, storage costs. The prices for these products are under the supervision of the Danish Utility Regulator.

The prices and terms for Energinet’s transmission services are regulated. Energinet’s transmission prices consist of a capacity element reflecting the level of occupation of the transmission system that the transport in question represents and a variable price element depending on the amount of natural gas transported. Furthermore, the prices consist of a payment for security of supply. The price for storage facilities also consists of a combination of a capacity element and a variable volume-related price element. Prices, conditions and the applicable basis must be notified to the Danish Utility Regulator and will be published. The Danish Utility Regulator may impose changes, if necessary, because of, for example, discriminatory or otherwise unreasonable pricing.

The Danish energy taxation regime consists of three different types of taxes:

  • energy charges on electricity, natural gas, coal and oil;
  • a CO₂ charge, which, in principle, is imposed on each of the energy products (gas, coal and oil) that are also subject to energy charges; and
  • a sulphur charge imposed on emissions of sulphur or the sulphur content of fuels in the use of several energy products.

Companies that carry out transmission, distribution, supply and storage of natural gas, including LNG, pursuant to licences granted under the Natural Gas Supply Act are subject to a charge under the Act on Gas Charge. CO₂ charges must be paid for the gas liable to a charge under the Act on Gas Charge. Companies covered by the European CO₂ allowance scheme may receive compensation for the CO₂ charge with certain exceptions.

Further, the companies are subject to the general corporation tax for companies in Denmark under the Corporation Tax Act. The rate is 22% based on the income of the company.

Companies with licence to carry out distribution activities are subject to energy-saving obligations under the Act on Energy Savings. The companies are obligated to contribute to achieving energy savings in the end users' energy consumption by arranging for such initiatives to be carried out. Annual energy savings targets for the distribution companies are set out in voluntary agreements between the Minister for Energy, Utilities and Climate and the grid and distribution companies within the electricity, natural gas, district heating and oil sectors. The latest energy-saving agreement was reached on 16 December 2016. The objective of the agreement is set out in the political agreement of 22 March 2012 on Danish energy policy for 2012-20 and in the agreement of 17 November 2016 on the abolition of the PSO tax for 2016-20.

Under the Act on Energinet, Energinet is authorised to undertake natural gas transmission and distribution activities and storage activities pursuant to the provisions in the Natural Gas Supply Act. Therefore, Energinet and its wholly-owned subsidiaries are authorised to carry out these activities without obtaining a licence. The general rules regarding Energinet’s organisation, tasks and responsibilities, etc are regulated in the Act on Energinet. The rules regarding Energinet’s rights and obligations with respect to downstream operations are further regulated in the Natural Gas Supply Act.

Energinet is responsible for the security of supply in the gas market pursuant to the Natural Gas Supply Act. If, as a result of an emergency, Energinet is unable to fulfil its obligations, in full or in part, in relation to a shipper’s capacity agreement, the fulfilment of Energinet’s obligations is suspended for as long as and to the extent that the emergency continues. In the event of an emergency, imbalances are not allowed unless otherwise instructed by Energinet.

Further, the State’s right to buy a distribution network under the provisions in the Natural Gas Supply Act is vested in Energinet. See 3.13 Requirements for Transfers of Interest in Downstream Licences.

The local content requirements applicable to downstream operations by private investors to a large extent correspond to the local content requirements applicable to upstream operations. Reference is made to 2.6 Local Content Requirements Applicable to Upstream Operations.

Transmission, distribution and storage companies are prohibited from carrying out activities outside the scope of their respective licences. Effectively, subject to limited exceptions, other activities must be vested in separate legal entities (except for certain other pipeline and storage-related activities subject to individual permission by the minister).

The Danish Utility Regulator has general supervision over the licensed companies. Therefore, the transmission, distribution and LNG companies, companies with an obligation to supply natural gas with a licence and Energinet must notify the Danish Utility Regulator of the methods used to determine their prices and conditions, the prices, tariffs and conditions, documentation for ownership unbundling, their capital and their financial records, and their economic forecasts. The Danish Utility Regulator has the authority to order changes where they find the prices and/or conditions to be unlawful; for instance, in the case of discriminatory or otherwise unreasonable pricing.

A licence or permit can be revoked in certain cases; eg, in the case of unlawful behaviour or when orders issued by the Danish Utility Regulator are not followed. The Minister for Energy, Utilities and Climate may grant the licensee a deadline to comply with the necessary changes in order to continue the activities lawfully. The decision to revoke a licence is made by the courts or, in the event of reconstruction or bankruptcy, by the Minister for Energy, Utilities and Climate.

Land rights are obtained by agreement between the investor and landowner. If it is in the public interest, the Danish Energy Agency and the relevant municipality can order a compulsory sale of the necessary rights over land if an agreement regarding the land rights to construct a natural gas transportation or storage facility cannot be reached with the landowner concerned. The licensee must compensate for any damages arising from activities carried out under the licence, even if such damage is accidental, unless the complainant has contributed to the damages by intent or gross negligence.

The general access to the infrastructure is described in 3.2 Rights and Terms of Access to Any Downstream Operation Run by a National Monopoly.

With respect to the rules for third-party access to upstream pipelines and facilities, distinction is made between upstream pipelines that are constructed as part of an oil or gas production project and upstream pipelines that are used for transportation of natural gas from one or more such projects to a final coastal landing terminal. See 3.1 Forms of Allowed Private Investment in Midstream/Downstream Operations.

Third-party access to upstream pipelines that are constructed as part of an oil or gas production project pursuant to a licence granted pursuant to the Subsoil Act is regulated in the Subsoil Act and Executive Order No 1449 of 8 December 2017. Under this framework, third-party access may be granted following negotiations between the parties.

Third-party access to upstream pipelines that are used for transportation of natural gas from one or more such projects to a final coastal landing terminal is regulated by the Natural Gas Supply Act and Executive Order No 920 of 25 June 2018. Third-party access rights apply to natural gas companies and customers with the right to choose a supplier based in a country that is governed by the Third Gas Directive. Prices and terms for third-party access are to be negotiated between the parties.

Contracts entered by transmission, distribution and storage companies with other companies, including companies within the same group, must be at arm’s length. Trading in natural gas must be organised in separate legal entities that do not carry out other gas-related activities. Ownership unbundling requirements apply to TSOs (Energinet); see also 3.1 Forms of Allowed Private Investment in Midstream/Downstream Operations. Energinet fulfils this requirement, as Energinet is the sole owner and operator of gas transmission systems in Denmark.

Natural gas as a commodity is purchased by end users from natural gas suppliers as a bundled product – namely, natural gas together with the necessary transmission and distribution services – but the end users must enter into two separate contracts for supply and distribution respectively with the relevant company.

Natural gas received, transported and delivered to the Danish gas system under a capacity agreement or storage agreement must at all times comply with the Danish gas regulation, the relevant technical specifications and quality specifications. The quality specifications can be found in the Danish Gas Regulation (gasreglementet) and the Rules for Gas Transport (RfG) appendix 1, which also contains delivery specifications on temperature of the gas delivered.

The shipper – ie, all players with access to transportation of natural gas in the transmission system – has the responsibility to ensure that the gas complies with the relevant standards. Energinet must also ensure that the natural gas delivered to the shipper at the Exit Zone or storage point or elsewhere complies with these quality and delivery specifications. Distribution companies are responsible for compliance with the pressure and temperature requirements at the consumers’ consumption sites.

Energinet’s subsidiary, Gas Storage Denmark, is responsible for compliance with the quality and delivery specifications for the gas delivered to the shipper at the storage point.

Denmark has been a net exporter of oil and natural gas since 1997. Forecasts show that Denmark will remain a net exporter until the 2020s.

The pipeline system for transportation of natural gas from the North Sea to Danish shores is owned by Ørsted. Access to the pipeline system is regulated in the Natural Gas Supply Act and an executive order issued pursuant to the Act. Prices and conditions for access are based on negotiation between the owner/operator of the pipeline system and the company requesting access. The prices are in principle market-based, but the Danish Utility Regulator monitors that the agreements are fair and that no discrimination is made. All licensees who produce oil on the continental shelf of the North Sea must be connected to the main pipeline or any service pipe constructed by Ørsted. The Danish continental shelf is also connected to the NOGAT B.V. (Northern Offshore Gas Transport) pipeline system via the Tyra West–F3 pipeline and, thus, facilitating export of Danish gas to North-West Europe.

The pipeline system for transportation of crude oil from the North Sea to Danish shores is owned by Ørsted. Crude oil and condensate, recovered on the Danish continental shelf in the North Sea, that is intended for refining or sale in Denmark must be transported through the pipeline system. Under the Pipeline Act, licensees that produce oil on the continental shelf of the North Sea are required to be connected to the pipeline system, but exemptions can be granted if the connection is uneconomical or inexpedient. Conditions on connection to the pipeline, transportation and any separation are based on agreement between the owner of the pipeline and the users of the pipeline (the licensees). If agreement cannot be reached, the Minster for Energy, Utilities and Climate has authority to lay down the conditions. Crude oil and condensate not intended for refining or sale in Denmark can be brought ashore by ship pursuant to the Merchant Shipping Act, the Act on Safety at Sea and other statutory regulations.

Construction and operation of pipeline installations that are connected to activities regulated by the Subsoil Act (hydrocarbon extraction) must be authorised by the Danish Energy Agency or the Minister for Energy, Utilities and Climate pursuant to the Subsoil Act.

Construction and operation of pipelines for transportation of hydrocarbons on the Danish continental shelf and Danish territorial waters must be authorised by the Danish Energy Agency or the Minister for Energy, Utilities and Climate, respectively, pursuant to the rules in the Act on the Continental Shelf and Certain Pipeline Installations in Territorial Waters (the Continental Shelf Act), and an executive order issued pursuant to the act.

Licences granted pursuant to the Natural Gas Supply Act cannot be directly or indirectly transferred without prior approval of the Minister for Energy, Utilities and Climate.

A distribution network owned by a licensee, and stakes in distribution companies that own such networks (distribution shares), may only be surrendered to the State (the State-owned company Energinet). Energinet owns the distribution network following acquisitions made in recent years. See also 3.1 Forms of Allowed Private Investment in Midstream/Downstream Operations.

There are no organisational requirements for a licence-holder under the Subsoil Act and a licence-holder can be any Danish or foreign natural or legal person. There are, further, no limitations for foreign companies acquiring interests in any part of the Danish natural gas sector but with respect to transmission activities, the Third Gas Directive contains certain requirements for the certification procedure and these are implemented in Danish law.

Environmental requirements applicable to offshore oil and gas installations are found in several regulations, including the Subsoil Act, the Marine Environment Protection Act, the Environmental Protection Act and the Environmental Assessment Act.

As mentioned in 1.2 Regulatory Bodies, the Danish Energy Agency is responsible for the environmental procedures following applications for permission to construct offshore oil and gas installations; ie, environmental impact assessment (EIA).

The Environmental Protection Agency under the Ministry of Environment and Food  is responsible for supervising emissions and discharges to the marine environment from offshore oil and gas installations. In the onshore upstream sector the local authorities have, along with the Danish Energy Agency, governmental powers with respect to the supervision of, eg, the environment. The local municipalities and emergency preparedness co-ordinators must be involved in zoning regulations and emergency procedures.

Health and safety conditions on offshore oil and gas installations are governed by the Offshore Safety Act. Supervision of health and safety aspects of offshore installations is carried out by the Working Environment Authority, which is an authority under the Ministry of Employment . The Working Environment Authority supervises the compliance of the licensees with the Offshore Safety Act and executive orders issued in pursuance thereof. The Working Environment Authority may conduct control visits on offshore installations without a prior court order and against proper identification. Non-compliance with the requirements in the Offshore Safety Act and executive orders issued in pursuance thereof may result in fines or imprisonment.

Before licences are granted to oil and gas production projects assumed to significantly affect the environment, an assessment will be made in accordance with the provisions of the Subsoil Act regarding environmental impact assessments (EIA). The requirements for an EIA derive from the EIA Directive (2011/92/EU as amended by 2014/52/EU). This means that a company is to submit an application to the Danish Energy Agency for approval of a production plan for oil and gas fields, or the installation of pipelines, together with an EIA and an account of the measures taken to reduce such impact (mitigation list). However, for some projects an EIA is not mandatory. If an EIA is not mandatory, the Danish Energy Agency decides whether an EIA is required for a project.

EIA reports are subject to public consultation. The consultation lasts not less than eight weeks. Once a decision on environmental issues has been made, information about the decision must be published. Appeals regarding the environmental circumstances in the Danish Energy Agency’s decision can be lodged to the Energy Board of Appeal.

Under the Subsoil Act, the Danish Energy Agency may grant licences for conducting certain preliminary surveys – including geophysical, geological and geochemical surveys – for the purpose of exploration and production of raw materials covered by the Act, for the use of the subsoil for storage, or purposes other than exploration. The licence will cover a specified area and may be valid for a period of three years. The licensee does not have exclusive rights under the licence. Therefore, licences covering the same specific area may be granted to others. Further, the licensee will not automatically be entitled to licences for exploration and production of petroleum.

Denmark is subject to the rules under the Strategic Environmental Assessment (SEA) Directive (2001/42/EC). The SEA Directive requires that certain plans and programmes, which are likely to have significant effects on the environment, are subject to an environmental assessment. This assessment specifically enables environmental considerations to be integrated in the preparation and adoption of these plans and programmes. As part of the preparations for the seventh licensing round held in 2014, a strategic environmental assessment was carried out in the North Sea area targeted for oil and gas exploration and production, as well as areas targeted for the injection of CO₂ in existing oil and gas fields.

Danish legislation imposes a number of environmental requirements that must be satisfied before the commencement of a petroleum project. The requirements are based on environmental, nature protection and fishing interests as well as considerations relating to the exploitation of other raw materials.

As regards fishing and shipping interests, agreements concerning oil and gas activities have been concluded with the associations and authorities affected. In considering the applications submitted, the interaction with these interests will be clarified. In addition, an agreement has been concluded between the fisheries' associations and the trade organisation Oil Gas Denmark on the payment of compensation to Danish fishermen who suffer any damage to or loss of fishing gear and fishing vessels, etc as a result of offshore oil and gas activities in Danish territory, where the concrete tortfeasor cannot be identified. Licensees must anticipate having to contribute to the financing of this scheme.

For requirements regarding standards for offshore installations, prior to the construction of offshore installations, the Working Environment Authority must approve the overall design and layout of the installation. Further, the licensee must obtain an operating permit and an approval of a health and safety plan that includes plans for staffing, organisation and an emergency plan from the Working Environment Authority prior to the commencement of exploration and production activities.

Under the Executive Order on Oil Tanks (olietankbekendtgørelsen) (Executive Order No 1611 of 10 December 2015), construction of oil pipelines comprising one or several parts having a length exceeding 70 km, and pipeline systems for transportation of oil products of third-party property between oil tanks on land, are subject to a licence granted by the Environmental Protection Agency pursuant to the Environmental Protection Act.

No later than two years before the termination of the licence, or two years before the time when one or more installations, etc are expected to be abandoned or disused, the licensee must submit a decommissioning plan for the approval of the Danish Energy Agency. The decommissioning plan must set out the procedure for removing the installations, etc that the State does not wish to take over, in whole or in part. Denmark has officially stated that all offshore constructions must be removed after the facilities have been abandoned. However, some installations may be retained for ‘other purposes’, such as importing and storing natural gas.

The procedure for decommissioning of platforms must comply with relevant rules within the international legal framework. Denmark has ratified all relevant international treaties with regard to decommissioning, such as the Convention on the Continental Shelf, the United Nations Convention for the Law of the Sea (UNCLOS), the Convention for the Protection of the Marine Environment of the North-East Atlantic (OSPAR) and the London Convention. Decommissioning of platforms is further regulated by the Subsoil Act and Offshore Safety Act. In addition, the licence and the joint operating agreement provide further guidance.

The licence-holders are jointly and severally responsible for carrying out decommissioning in accordance with the pre-approved decommissioning plan. A licensee that has in whole or in part transferred its part of the licence to a new party is secondarily financially liable for the decommissioning obligations of installations that existed at the time of the transfer.

The Subsoil Act and the model licence currently contain no specific provisions about security deposits towards the State in respect of future decommissioning liabilities. The provided security for each licensee’s obligations under the licence also covers the decommissioning phase. However, pursuant to the model licence, the Danish Energy Agency may require additional security on a case-by-case basis.

As a part of the energy agreement in 2018, the Danish Parliament decided that Denmark should work towards reducing greenhouse gas emissions to net zero in accordance with the Paris Agreement and a target of net zero emissions in the EU and Denmark by 2050.

Installations for energy production exceeding 20 MW are covered by the European CO₂ allowance scheme.

Natural gas delivered by companies that carry out transmission, distribution, supply and storage of natural gas, including LNG, pursuant to licences granted under the Natural Gas Supply Act are subject to a CO₂ charge under the Act on CO₂ Charge. See 3.5 Income or Profits Tax Regime Applicable to Midstream/Downstream Operations.

Discharges and chemical and oil residue discharged into the sea as well as material from the seabed released into the sea in connection with oil and gas production and drilling of new wells are subject to the permit granted by the Environmental Protection Agency, which also approves contingency plans for oil and chemical spills.

Further, Denmark is a party to a number of international conventions and treaties for climate and environmental protection.

No onshore areas are available for petroleum licences. The available area is delimited such that there is at least 15 km to the coastline. Petroleum licences for offshore areas are only subject to approval of the Minister for Energy, Utilities and Climate in accordance with the rules set out in the Subsoil Act. Therefore, no local governmental restrictions apply to offshore oil and gas development.

Onshore oil and gas installations – eg, transmission network and connection equipment – can be constructed based on a local development plan of the relevant municipality in accordance with the Planning Act or in accordance with a national planning directive of the Business Authority under the Planning Act. If the project developer is Energinet or the Danish State, or it is an infrastructure project involving more than two municipalities, the Danish Environmental Protection Agency is the competent EIA authority.

The Subsoil Act does not distinguish between unconventional and conventional sectors. This means, inter alia, that development of shale gas interest is covered by the licensing scheme under the Act.

Between 2008 and 2010, five licences were granted to explore the potential of natural gas in shale layers (shale gas) in onshore areas.

In 2012, the granting of new licences for exploration and production of shale gas was suspended by the Minister for Energy, Utilities and Climate with a view to investigating the possibilities of promoting safe and environmentally sound production of shale gas. In the beginning of 2018, the Danish government finally announced that no more petroleum or gas licences would be granted to the onshore areas of Denmark. See also 2.2 Issuing Upstream Licences/Obtaining Petroleum Rights.

The establishment of LNG facilities may only be carried out subject to a licence granted by the Minister for Energy, Utilities and Climate under the Natural Gas Supply Act. A licence may only be obtained if the applicant is able to establish that there is a relevant need for an LNG facility. The licence may be conditional on compliance with terms concerning the particulars of the establishment and operation of the LNG facility, including safety and environmental provisions.

There are no special rules or regulations concerning LNG prices and terms of services.

Only one LNG facility currently exists in Denmark. The facility is located in the northern part of Jutland. The facility is used in ferry operations and has a capacity of 200 tonnes or 500 cubic metres of LNG. In addition, an LNG production facility is planned for the port of Frederikshavn, also in the northern part of Jutland. The facility is to transform natural gas and biogas from the distribution network to LNG to be used as bunker fuel in the maritime sector. The facility was scheduled to commence construction in 2017 and to go into operation by the end of 2018. However, no progress has yet been made. Furthermore, an LNG pilot project, the DUAL Ports, has been launched to explore the possibility to install a bunkering system for LNG at the Port of Skagen in the northern part of Jutland. The project is still in the research phase. Thus, no concrete development plan has yet been made.

Denmark has conducted oil and gas exploitation from the Danish sector of the North Sea since 1972.

In April 2017, the Danish Energy Agency extraordinarily published a revised version of its long-term production forecast from August 2016 due to a reassessed data set. Compared to the original forecast, the expected remaining Danish resources are written down by a total of approximately 4%, mainly attributable to the postponement of the commissioning date for a number of extension projects and new information that has resulted in a revised risk weighting of a number of projects and potentials. When the volumes recoverable by means of new technology and future new discoveries made as a result of ongoing exploration activity and future licensing rounds are included in the assessment, the expected remaining Danish resources are written down by a total of approximately 10%.

Denmark's consumption of oil is expected to exceed production during the period from 2019 to 2022, while Denmark is once again forecast to be self-sufficient in oil during the period from 2024 to 2026. If the estimated volumes recoverable by means of new technology (technological resources) and future new discoveries made as a result of ongoing exploration activity and future licensing rounds (prospective resources) are included, Denmark is expected to remain self-sufficient in oil until 2031, except during the period from 2019 to 2022.

The Danish gas system is an integral part of the European gas infrastructure. It is designed to receive gas from the North Sea and through Germany. Denmark also serves as a transit country for natural gas to be passed on to the Swedish market and other European markets via Germany. The Swedish market is dependent on supply from Denmark via the Danish infrastructure. The largest amounts of transit gas are, however, transported from the North Sea to the Central European market via Germany.

Natural gas is mainly traded by long-term contracts between producers of natural gas and wholesale customers. Only a small percentage of the total gas consumption in Denmark is based on free trade through Energinet’s Gas Transfer Facility (a virtual gas trading point), where natural gas can be traded bilaterally. To increase and facilitate free trade of natural gas, a gas exchange, Nord Pool Gas, was established in 2008.

Biogas that meets the applicable requirements for technical and safe injection and transportation through the natural gas system (upgraded biogas) can be connected to the natural gas system following a so-called connecting agreement between the owner of the upgrading the facility and the network owner. Trading of upgraded biogas is accorded equal treatment to natural gas. Upgraded biogas is eligible for government support.

The Subsoil Act has been amended on 1 July 2019 such that it includes a specific delimitation of the area available for petroleum licences in Denmark (area in the Danish North Sea).

From 1 January 2018, a special scheme for certain tax reductions on investments made in 2017-25 is available (on an optional basis) and rules simplifying the process for third-party access to infrastructure in the Danish North Sea are applicable. It is against this background that DUC has undertaken to fully reconstruct the Tyra field. Production from the Tyra field will be shut down during the reconstruction work, which is expected to take place from December 2019 to March 2022. The Tyra field is by far the largest producer of natural gas in the Danish North Sea.

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Law and Practice in Denmark

Authors



Bech-Bruun has an energy team that is one of the largest and most specialised departments at a Danish law firm. The team consists of 37 partners and associates who have significant experience in handling regulatory and contentious matters within the energy sector and M&A of energy companies. The energy team is located in Bech-Bruun’s offices in Copenhagen, Aarhus and New York. Bech-Bruun’s office in New York is headed by partners working on major renewable energy projects. The core expertise of Bech-Bruun’s energy team includes regulatory frameworks for energy production and supply, M&A of energy companies, project financing, taxation of energy products, and negotiation and conclusion of offshore infrastructure contracts. The energy team has extensive experience in rendering advice to the oil and gas sector within all aspects from purchase/sale to the conclusion of contracts, licence applications, etc. The team has been involved in the majority of high-profile energy transactions involving Danish interests, including Total SA’s acquisition of Maersk Oil and Energinet’s acquisition of gas distribution networks and storage facilities from DONG (now Ørsted).