Energy: Oil & Gas 2020

Last Updated August 10, 2020

Greenland

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 43 partners, associates and legal consultants that 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 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 the high-profile energy transactions involving Danish interests, including Total S.A.’s acquisition of Maersk Oil and Energinet’s acquisition of gas distribution networks and storage facilities from DONG (now Ørsted).

Greenland is an autonomous part of the Kingdom of Denmark (the Community of the Realm), which comprises Denmark proper, Greenland and the Faroe Islands.

Under Danish Act No 473 of 12 June 2009 on Greenland Self-Government (the Self-Government Act), Greenland has self-governance in most areas, including concerning its subsoil. Thus, Greenland owns and has the right of disposal of all mineral resources, including oil and gas, within its land, territorial seas and continental shelf areas.

Private investors may obtain rights for petroleum exploration and exploitation through licensing from the Self-Government.

The Self-Government is responsible for all legal and administrative matters concerning petroleum activities (whether prospecting, exploration, exploitation or subsoil storage, etc). The Self-Government has distributed responsibilities concerning petroleum activities between different governmental bodies, which are collectively referred to as the Mineral Resources Authority.

The Mineral Resources Authority (GMA) is the overall administrative authority for mineral resources. The Mineral Resources Authority consists of the Ministry of Mineral Resources, the Mineral Licence and Safety Authority (MLSA) and the Environmental Agency for Mineral Resource Activities (EAMRA), which is a subdivision of the Ministry of Environment and Nature. The Ministry of Mineral Resources is responsible for strategy and policy making, and legal aspects of mineral resources in Greenland. It is also the authority responsible for all socio-economic aspects of mineral resources, including social impact assessment (SIA) and Impact Benefit Agreements (IBAs). The Department of Geology within the Ministry provides geological advice related to licence applications and guidelines, delivers new geoscience data and promotes Greenland’s mineral resources internationally.

The Mineral Licence and Safety Authority is the one-door administrative authority for licences, mineral resource activities and licence-related safety matters, including supervision and inspections. Licensees and other parties covered by the Mineral Resources Act communicate with the Mineral Licence and Safety Authority and receive all notifications, documents and decisions from the Mineral Licence and Safety Authority.

The Environmental Agency for Mineral Resource Activities is the administrative authority for environmental matters relating to mineral and hydrocarbon resource activities, including protection of the environment and nature, environmental liability and environmental impact assessments.

Information on all parts of the Greenland Minerals Authority is available at www.govmin.gl.

Pursuant to Greenland Parliament Act No 7 of 7 December 2009 on mineral resources and activities of importance thereto, as subsequently amended (the Mineral Resources Act), a company controlled by the Self-Government is entitled to participate in the activities covered by a petroleum licence granted by the Self-Government.

There is one national petroleum company, Nunaoil A/S, which is a limited company owned entirely by the Self-Government. Nunaoil has been a mandatory state participant in the exploration and exploitation licences up until now with a share of 6.25% of the licence. However, in line with Greenland’s newly adopted Oil Strategy, the state participation through Nunaoil has been removed in any future licence in order to attract new oil-producing companies to participate in the licensing rounds and open-door areas.

For further details on Nunaoil A/S’s participation in the activities and special rights in that context, please see 2.5 National Oil or Gas Companies. The company’s website can be found at www.nunaoil.gl.

Mineral Resources Act

Since obtaining self-government, petroleum activities have been subject to the Mineral Resources Act, which includes provisions on almost all aspects of exploration and production of petroleum, such as licensing, requirements for licensees, health and safety, environmental protection, climate protection, and decommissioning.

The main objective of the Mineral Resources Act is to ensure the appropriate exploitation of mineral resources and to ensure that the petroleum activities are performed in a sound manner as regards safety, health, the environment, resource exploitation and social sustainability in accordance with best international practices.

The concept of best international practices is established through an ongoing, dynamic process where international developments in the areas of safety, health and the environment are taken into account as well as general principles such as ALARP (As Low As Reasonably Practicable), BAT (Best Available Technique) and BEP (Best Environmental Practice).

Both onshore and offshore activities are covered by the Mineral Resources Act, as well as petroleum-related activities that are additional to prospecting, exploration and exploitation, such as transportation and infrastructure used for production, including pipelines. The regulation is not limited to hydrocarbons. Thus, other mineral resources such as precious stone are also subject to regulation by the Mineral Resources Act, whether extracted through large-scale projects or small-scale by, eg, individuals.

Generally, the Mineral Resources Act does not have detailed provisions on the subjects covered. The details are not set out in executive orders or similar instruments normally used for detailed regulation. Rather, pursuant to the Mineral Resources Act, the detailed regulation takes place in the individual licences.

Other Key Laws and Regulations

In addition to the Mineral Resources Act, the most important act concerning petroleum projects is Greenland Parliament Act No 25 of 18 December 2012, with later amendments relating to building and construction work on large-scale projects (the Large-Scale Projects Act). It applies to projects with a cost of construction exceeding DKK5 billion, including projects involving petroleum licences issued under the Mineral Resources Act. The Large-Scale Projects Act primarily set out minimum requirements with respect to foreign labour used in the comprised projects.

In 2019 the Self-Government of Greenland published a new oil strategy for 2020-24. The oil strategy sets out a number of targets for the future licensing policy, promotion of Greenland’s oil potential and framework conditions for the future licensing policy. The overall objective of the strategy is that oil exploration in Greenland gets going such that Greenland over time will be an oil-producing country.

In June 2019, the Environmental Agency for Mineral Resources Activities published a draft strategy on environmental regulation of mineral resource activities for the period 2019-23 (see 5.1 Principal Environmental Laws and Environmental Regulator(s)).

In addition to the regulation described above, the Self-Government has issued Act No 15 of 8 June 2017, as subsequently amended, and Act No 15 of 27 November 2018 (Marine Environmental Protection Act). The Marine Environmental Protection Act applies to ships, aircraft, large-scale building and construction works, and other activities on the territorial waters. It implements specific provisions regarding such activities, including on the transportation of minerals and petroleum, on marine traffic limitations and on environmental impact assessments (EIAs), alerts and reporting. Further, the Marine Environmental Protection Act regulates the operations of the covered facilities and ships, including provisions on the disposal of waste and wastewater, as well as on pollution.

Finally, activities in the Greenlandic exclusive economic zone are regulated by Act No 1,534 of 19 December 2017 (the Marine Environment Protection Act), which aims to prevent and limit pollution and other impacts of nature and the environment in the Greenlandic economic zone from activities that (i) bring human health into danger, (ii) harm nature or cultural assets at sea, (iii) are of nuisance for the rightful utilisation of the sea or (iv) prevent recreational values or activities. The Marine Environment Protection Act applies to ships and aircraft in the economic zone.

While the ownership of petroleum in Greenland belongs to the Self-Government, private investors may obtain rights to explore for, develop and produce petroleum by a licence issued by the Self-Government through the Mineral Resources Authority (the Mineral Licence and Safety Authority). An exploration licence is granted under the Mineral Resources Act and gives the licensee an exclusive right to carry out petroleum exploration in a specific, delineated area for a limited period.

Exploitation licences are also granted under the Mineral Resources Act as an extension of the exploration licence, entitling the licensee to carry out production activities in a specific (smaller), delineated area, also for a limited period of time and on an exclusive basis. While a licence generally gives the licensee certain rights, separate approvals or operational permits for specific activities, plans, etc by the Mineral Resources Authority are required in all phases of a project. Permits pursuant to other legislation may also be required.

Each licence is adapted to the specific circumstances. However, the Mineral Resources Authority publishes model licences (and other model documents) on its website for each licensing round. The terms of the licences may therefore vary from licensing round to licensing round. Licensing rounds and the general process for obtaining a licence are further described in 2.2 Issuing Upstream Licences/Obtaining Petroleum Rights.

The licensees must enter into a joint operating agreement (JOA). The model JOA published by the Mineral Resources Authority must be used with only minor amendments. The JOA regulates the rights and obligations between the licensees and contains provisions on interest shares, operator and co-operator, responsibilities, disposal and abandonment, etc.

There are generally three types of licences for upstream petroleum activities: prospecting licences (non-exclusive), exploration licences (exclusive) and exploitation licences (exclusive).

Prospecting Licences

A prospecting licence is granted by a separate procedure and entitles the licensee to carry out prospecting activities within a certain area for a limited period. The process for obtaining a prospecting licence is simple and only a three-page application form drafted by the Mineral Resources Authority is to be used when applying for a prospecting licence. In its activities under the licence, once granted, the licensee must generally comply with the Mineral Resources Authority’s "Standard terms for prospecting licences – Hydrocarbons". Activities are generally subject to the Mineral Resources Authority’s separate approval, except for activities related to geological and geochemical investigations and drilling where only handheld equipment is used. A granting fee and a transfer fee apply to prospecting licences. Prospecting licences will not be addressed further in this chapter, as the focus will instead be on the exclusive licences for exploration and exploitation of petroleum.

Exploration and Exploitation Licences

Exploration and exploitation licences are usually granted as a combined licence, where proceeding to the exploitation phase is a right for the licensee that, however, requires approval from the Mineral Resources Authority and certain criteria being met. See also 2.7 Requirements for a Licence/Lease-Holder to Proceed to Development and Production.

A private investor may currently obtain an exclusive petroleum licence for exploration and possibly exploitation in one of two ways: through a licensing round or the open-door procedure.

Licensing rounds have been conducted at regular intervals in Greenland since 2002. Each licensing round concerns a specific area and has a fixed deadline for submission of applications.

The open-door procedure also concerns specific areas that have been selected to be opened for licensing. Open-door areas are generally areas that have previously been subject to licensing rounds or have been abandoned by a licensee, as well as areas where the exploration risk is considered high. There is no fixed deadline for when applications must be submitted for the open-door areas.

In the Oil Strategy for 2020-2024 the following areas are designated as areas subject to licensing rounds or the open-door procedure in the period covered by the strategy:

  • Northeast Greenland;
  • Central East Greenland;
  • Baffin Bay;
  • Davis Strait, west of Nuuk;
  • Nuussuaq Peninsula and Disko Island; and
  • Disko West.

One open-door area, Disko Nuussuaq, was opened for applications on 1 February 2020, immediately following the strategy. Three more open-door areas, Davis Strait, Baffin Bay and Disko West, will be opened for applications on 1 September 2020. The letters of invitation and the other materials relating to the procedures can be found on Business In Greenland’s website.

The Self-Government is also planning two licensing rounds for the offshore areas of Northeastern and Central Eastern Greenland, which will be open for submissions of applications on 1 July 2021 and 1 January 2022, respectively.

The general selection criteria for granting exploration and exploitation licences are the applicant company’s technical capability and experience, financial capability, and the manner in which the applicant intends to carry out the exploration and exploitation activities, including the systems and procedures used in relation to HSE (health, safety and environment) and the applicant’s willingness and ability to explore the area thoroughly and efficiently for hydrocarbons. The requirements in the specific case will depend on scope, complexity, risk, etc of the activities, in a proportional manner.

If two or more applicants are regarded as equally eligible based on the general criteria, the Mineral Resources Authority will attach importance to a secondary criterion: the applicant’s willingness and ability to contribute to the government of Greenland’s continued development of hydrocarbon-related strategic assessments within the areas of social sustainability and sustainable development, geology, environment, ice, oil spill and emergency preparedness.

The Mineral Resources Authority is entitled to attach importance to the applicant’s lack of performance or efficiency in fulfilling obligations under (other) licences in Greenland. How the applicant has previously met its obligations may therefore form part of the evaluation of an application, including a technical assessment of previous projects as well as difficulties in payment of fees, etc.

A licensee under an exploitation licence must, as a rule, be a public limited company domiciled in Greenland that only carries out activities under licences granted pursuant to the Mineral Resources Act. Further, the company must not be taxed jointly with other companies, unless joint taxation is compulsory, and it must not be more thinly capitalised than the group of which the company forms part. Finally, the company must trade at arm’s length with other group companies. It is common practice of the Greenland Mineral Resources Authority to require a parent company guarantee from licensees. Please see 2.8 Other Key Terms of Each Type of Upstream Licence.

Letters of invitation, model documents and other terms for the potential licences for both licensing rounds and the open-door procedure are available on Business In Greenland’s website.

The following sections concerning the contents of licences are based on the hydrocarbon model licence drafted by the Mineral Resources Authority for the licensing rounds and open-door areas from 2020 and onward.

Under the hydrocarbon model licence, the licensee must pay a fee (currently approximately DKK200,000) to the Self-Government when the exploration licence is granted. Upon each extension of the licence, a new fee in the same amount is further payable. For exploitation licences, a yearly rental fee (currently approximately DKK1 million) is payable to the Self-Government. Fees are adjusted each year pursuant to the Greenland consumer price index.

The Self-Government may also, under the Mineral Resources Act, lay down provisions on payment of an application fee. In the current open-door procedure, Disko Nuussuaq, the Self-Government has set out an application fee of DKK50,000 to be paid upon submission of application.

The Mineral Resources Authority is further entitled to require the licensee to reimburse the Mineral Resources Authority its costs relating to case processing, supervision and other administrative work in connection with the licence and activities under the hydrocarbon model licence Article 15 and the rules set out in Executive Order No 24 of 30 December 2003 (the Reimbursement Order).

From 2014, a royalty model was introduced in the model licences pursuant to the Self-Government’s Oil and Mineral Strategy for 2014–18. Two types of royalty concerning production of petroleum were payable to the Self-Government pursuant to the hydrocarbon model licence: (i) a sales royalty and (ii) a surplus royalty. The sales royalty was based on the petroleum that was exploited and sold. In the previous hydrocarbon model licence, the royalty amounted to 2.5% and was calculated and paid annually. The surplus royalty, on the other hand, was a payment to the Self-Government of an amount equal to a specific share of the licensee’s profit from the activities under the licence. The specific rate was set according to the calculated profit in three tiers. In the previous hydrocarbon model licence the rates were 7.5%, 17.5% and 30%, when the accumulated revenues exceed accumulated expenses by 35%, 45% and 55%, respectively.

In the new oil strategy for 2020-24 the focus of the Self-Government is to attract small and medium-sized enterprises to apply for licences. Therefore, there have been some adjustments to the previous royalty regime in order to decrease the total government take from 51.3% to 40.2%, thus making it more attractive for oil companies to apply for a licence.  As part of the adjustment the sales royalty has been completely removed for the upcoming open-door procedures and licensing rounds, and the surplus royalty has been decreased to 3.75%, 8.75% and 15%.

As part of the Impact Benefit Agreements (see 5.2 Environmental Obligations for a Major Petroleum Project), licensees may further commit to fund social programmes, etc. For instance, in 2011, Cairn Energy donated USD500,000 to an education fund that promotes education among Greenlanders to help them participate in the oil and gas industry.

There is no specific petroleum tax regime in Greenland. Fees and other taxes are payable to the Self-Government in accordance with other legislation. Concerning applicable fees, royalties, etc, please see 2.3 Typical Fiscal Terms Under Upstream Licences/Leases.

The Greenland Tax Act governs personal and corporate taxation. The general corporate income tax rate is 25%. In addition to the flat corporate tax, there is a surcharge of 6% of the corporate tax payable, making the effective corporate tax 26.4%.

The Greenland Tax Authority is responsible for collecting taxes and fees, except those governed by the Mineral Resources Act. No tax stabilisation measures apply to licensees under the Mineral Resources Act and licensees are generally not protected against future increases in the Greenland corporate tax rate.

In a recent amendment to the Mineral Resources Act, it was set out that the Self-Government may require licensees and enterprises working on behalf of the licensees to forward information and documents to ensure that the companies pay taxes in accordance with the applicable legislation.

Pursuant to the Mineral Resources Act, a licensee may be exempted from taxation on an individual basis by the Self-Government subject to certain conditions, if the activities are subject to fees at least as onerous as the taxation would have been. Exemption takes place by amending the individual licence. Concerning fees, see 2.3 Typical Fiscal Terms Under Upstream Licences/Leases.

In the previously granted licences, the national petroleum company Nunaoil A/S, owned by the Self-Government, was a mandatory participant in all petroleum licences in Greenland. The participating interest of Nunaoil A/S was carried during the exploration period. Thus, Nunaoil A/S’s share of costs, expenses, obligations and liabilities under the licence was borne by the other participants of the licence. However, if an exploration licence was extended with the purpose of production, Nunaoil A/S’s interest was no longer carried. However, in order to make it more attractive for small and medium-sized enterprises to apply for licences, the Self-Government decided that Nunaoil will no longer be required to be a mandatory participant in future licences as part of the new Oil Strategy for 2020-2024.

Under the Mineral Resources Act, the licences must regulate to what extent Greenland labour, enterprises for contracts, supplies and services must be used for the activities under the licence. However, the Mineral Resources Act does not set out any minimum requirements.

According to the hydrocarbon model licence, the licensee shall first and foremost use Greenland workers. Only if Greenland workers with the necessary qualifications are not available is the licensee allowed to use foreign labour. The same applies to enterprises, including contractors, subcontractors, suppliers and service providers. Only if Greenland enterprises are not technically or commercially competitive may foreign enterprises be used by the licensee. Greenland enterprises are defined as enterprises domiciled in Greenland whose commercial activity gives them genuine ties to Greenland. The use of Greenland labour, enterprises, supplies and services are usually, in practice, further regulated in the Impact Benefit Agreements. See 5.2 Environmental Obligations for a Major Petroleum Project.

The Self-Government acknowledges in the Oil Strategy for 2020–2024 that the part of the Greenlandic labour force holding the skills required in connection with large petroleum projects (including the infrastructure constructions or renovations needed) is currently not sufficiently large. There may thus be a legitimate need for importing foreign labour to fill the jobs if one or more projects are initiated. The terms concerning a licensee’s education and training of the Greenland labour force and creation of apprenticeships that may, for instance, be part of a social impact assessment and/or an IBA (see 5.2 Environmental Obligations for a Major Petroleum Project) should be seen in this context.

Foreign employees must obtain a work permit in order to work in Greenland and the employer must have a permit from local authorities to hire foreign labour. Only citizens of Denmark, Finland, Iceland, Norway and Sweden are not required to obtain a work permit.

The Large-Scale Projects Act further lays down minimum requirements with respect to foreign labour used in projects comprised by the Act (see 1.4 Principal Petroleum Law(s) and Regulations). The requirements concern minimum wage, working hours and collective agreements. Employers can deduct the cost of room and board as well as travelling expenses from the foreign workers’ wages.

The licensee must each year submit a plan to the Ministry of Industry, Energy and Research for the implementation of measures and procedures ensuring the greatest possible use and employment of Greenland workers and enterprises. The plans are subject to The Ministry of Industry, Energy and Research’s approval. As mentioned, measures concerning employment and training of Greenland workers will also often form part of an IBA.

Finally, the licensee shall reimburse the Mineral Resources Authority up to DKK500,000 per year for expenses concerning further training of its employees. The training includes both formal courses and on-the-job training with the licensee. The requirement also applies in the exploration phase and unutilised funds are transferred to the following year(s).

Pursuant to the Mineral Resources Act, a licensee is generally entitled to an extension of the licence with a view to exploitation, if certain requirements are met. The details are set out in the individual licence.

Under the hydrocarbon model licence, there are three cumulative conditions that must be met:

  • a commercially exploitable deposit has been discovered and delineated;
  • the terms of the exploration licence have been complied with; and
  • the licence includes a licensee company that shall be the operator under the exploitation licence, and that has been approved by the Mineral Resources Authority.

The request for extension of the licence must be based on one or more appraisal programmes and must be accompanied by relevant documentation, including a feasibility study. Based on the feasibility study, the Mineral Resources Authority will – when granting the exploitation licence – set a deadline for the licensee to submit an exploitation plan. The exploitation plan consists of three parts:

  • a development plan describing all necessary activities, including development, production, storage and transportation activities as well as a time schedule;
  • an EIA and a SIA, prepared in co-operation with the authorities, relating to the development plan; and
  • an abandonment (or closure) plan.

For more information on the EIA and the SIA, see 5.2 Environmental Obligations for a Major Petroleum Project and concerning abandonment/decommissioning, see 5.4 Requirements for Decommissioning.

The development plan and abandonment plan must be approved by the Mineral Licence and Safety Authority, the EIA approved by the Environmental Agency for Mineral Resource Activities and the SIA approved by the Ministry of Industry, Energy and Research before production can be initiated. The extension only concerns the parts of the area that contain the commercially exploitable deposit that the licensee intends to exploit.

The licence periods for exploitation licences are generally 30 years but may be extended up to 50 years if justified by special circumstances. Special circumstances may, for example, be where extraction has been postponed due to climatic or other natural conditions resulting in exploitation not being possible within the original period.

Decisions made by the Mineral Resources Authority – eg, denial of an extension – may be appealed to the Self-Government. Further, such decision may also be brought before the courts of Greenland within a year. Other parties than the licensee may also have a right to appeal under the Mineral Resources Act.

It should also be noted that the Mineral Resources Authority may order a licensee to submit – before a specified deadline – an exploitation plan, if a commercial deposit is discovered, and the licensee for any reason chooses to delay submitting a plan on its own initiative. Following approval of the plan, the Mineral Resources Authority may further order the licensee to initiate exploitation. In that case, the licensee must have initiated the exploitation no later than three years following the order. The aim of the provision is to avoid proven commercially exploitable deposits being left unexploited.

The main provisions of petroleum licences in the Mineral Resources Act are based on and therefore generally correspond to the provisions on such licences in the Danish Subsoil Act. Licences are initially valid for an exploration period of ten years. The exploration period is divided into three or four sub-periods that are defined in the individual licences. The exploration period may be extended by up to three years at a time. Extensions are decided solely by the Mineral Resources Authority and are not a right for the licensee.

The rather long default exploration period is prompted by the operating conditions being comparatively more difficult in Greenland and the lack of relevant seismic data and data from actual production wells. The licence may further be extended with the purpose of exploiting a commercially viable deposit (see 2.7 Requirements for a Licence/Lease-Holder to Proceed to Development and Production).

For each sub-period in the exploration period, the licensee is obliged to carry out certain exploration activities (such as seismic surveys or the drilling of exploratory wells), which are set out individually for each licensee as work programmes included as appendices. At the end of each sub-period, the licensee must either accept its obligation to carry out the work programme for the next sub-period or relinquish the licence entirely.

If a petroleum deposit is discovered during the exploration period, the Mineral Resources Authority must be notified and an appraisal programme drafted in order to assess if the deposit is commercially exploitable. If the exploration commitments are not fulfilled by the licensee, compensation is payable to the Mineral Resources Authority. Alternatively, the Mineral Resources Authority may also choose to revoke the licence if the commitments are not met. This may also take place if the licensee otherwise breaches the terms of the licence or the Mineral Resources Act, including breaches of the specified deadlines or if the licensee goes into default.

The licensee is liable for damages caused by the activities performed under the licence, regardless of whether the damage may be considered accidental (no-fault liability). The responsible party (see 5.3 EHS Requirements Applicable to Offshore Development) is further liable for the acts and omissions of contractors, suppliers, service providers, etc that carry out work on the licensee’s behalf. The licensee’s activities are to be covered by insurance. If more than one party holds shares in the licence, the parties are jointly and severally liable for the fulfilment of obligations under the licence.

In order to ensure the fulfilment of the obligations under the licence, each licensee must provide a parent company guarantee from each individual company holding a share in the licence. A model guarantee can be found at Business In Greenland’s website.

If a company holding a share in a licence is owned by other companies, the Mineral Resources Authority will require the guarantee to be issued by the ultimate parent company. There are no monetary limits to the parent company guarantee. However, where the guarantee becomes payable due to obligations for which a company is jointly and severally liable with the other co-holders of the licence, the guarantee amount payable in respect of an individual obligation cannot exceed 200% of the company’s share of the relevant obligation. There are no requirements for security deposits. However, pursuant to the Mineral Resources Act, the Mineral Resources Authority may require additional security on a case-by-case basis. See also 5.4 Requirements for Decommissioning.       

Any direct or indirect transfer of a licence or an interest in a licence requires approval from the Self-Government, pursuant to the Mineral Resources Act, the hydrocarbon model licence and the model JOA. The Mineral Resources Authority carries out the approval activity on behalf of the Self-Government.

A written application concerning the proposed transfer must be submitted to the Mineral Resources Authority, including a copy of the transfer agreement with all commercial and financial terms for the proposed transfer. The application must further include information on the new licensee’s technical expertise and financial capability for the Mineral Resources Authority to assess whether the new licensee meets the criteria required of licensees. See 2.2 Issuing Upstream Licences/Obtaining Petroleum Rights.

The approval process aims to ensure that the licensee’s ability to meet its obligations is not weakened by the transfer. It is acknowledged that transfer of licences is not an unusual transaction but rather a natural part of the development of a field, and approval of a transfer will not be unreasonably withheld.

The Self-Government has no direct pre-emptive rights in relation to a transfer. However, it should be noted that the model JOA includes an option to purchase for the other parties in the licence, before a proposed transfer to a third party may be carried out.

The hydrocarbon model licence includes a special provision specifically relating to financing and transfers of interests. If a lender sets as a condition for granting the loan that the licence or a part therein shall be transferable to the lender later (ie, in the event of default), the Mineral Resources Authority may grant its prior approval of such transfer subject to specific conditions.

According to the Mineral Resources Act, any payment to the Self-Government is regulated in the individual licences. Whether a fee for the transfer of a licence or an interest therein applies is therefore subject to the provisions of the licence. Based on the hydrocarbon model licence, no transfer fee payable to the Self-Government currently applies. The parent company guarantee mentioned in 2.8 Other Key Terms of Each Type of Upstream Licence is not limited in time. Further, according to its contents, it is not automatically released if the co-licensee’s interest is transferred to a third party. It is therefore up to the Self-Government to decide if the guarantee can be released in connection with the transfer of an interest share. It is assumed that the guarantee will only be released if the new licensee provides a satisfactory guarantee or security of its own.

Under the model JOA, a licensee that withdraws from the licence and JOA – eg, by a transfer – is not released from liability concerning decommissioning obligations. Thus, the transferring licensee remains liable and obligated for its share of all net costs and obligations related to the abandonment of activities in which it has participated. Prior to withdrawal, the transferring licensee must therefore provide the other parties with security for its liability and obligations, which the other parties find acceptable.

A change in operator is also subject to the approval of the Mineral Resources Authority. Pursuant to the hydrocarbon model licence, the operator must always be qualified (and meet the Mineral Resources Authority’s conditions, terms and requirements) to be the operator for the activities to be performed under the licence in question and, accordingly, in relation to the activities, also have sufficient technical capability, sufficient financial capability and sufficient systems, procedures, competences and experience in relation to health, safety, and environmental and social sustainability.

There are no legal or regulatory restrictions on production rates under the Mineral Resources Act or the current hydrocarbon model licence.       

Greenland has no petroleum infrastructure or installations, including storage facilities and pipelines. In any case, such activities are generally subject to the Mineral Resources Act and the same regulation as described in this chapter concerning upstream interests.

As mentioned in 3.1 Forms of Allowed Private Investment in Midstream/Downstream Operations, there are currently no petroleum transportation systems or storage facilities in Greenland. There is consequently no well-established scheme for third-party access to such infrastructure.

However, according to Section 28 of the Mineral Resources Act, the Self-Government may order a licensee to make processing and transport facilities available to third parties, against payment. If the parties are unable to agree on the payment, the Self-Government ultimately determines the amount. The provision generally relates to a situation where, based on resource, economic or social considerations, it is deemed expedient to exploit two or more petroleum deposits together.

When approving an exploitation plan (see 2.7 Requirements for a Licence/Lease-Holder to Proceed to Development and Production), the Mineral Resources Authority may also grant a licence to establish and operate related pipeline facilities for transport of petroleum. In a pipeline licence, terms will concern the rights of others to use the infrastructure and payment for such use.

Greenland has no petroleum infrastructure or installations, including storage facilities and pipelines.

Greenland has no petroleum infrastructure or installations, including storage facilities and pipelines.

Greenland has no petroleum infrastructure or installations, including storage facilities and pipelines.

Greenland has no petroleum infrastructure or installations, including storage facilities and pipelines.

Greenland has no petroleum infrastructure or installations, including storage facilities and pipelines.

Greenland has no petroleum infrastructure or installations, including storage facilities and pipelines.       

It follows from the Mineral Resources Act that the Self-Government may take steps to make compulsory acquisition of real property for the purpose of establishing petroleum activities, to the necessary extent. The terms and conditions of such expropriation are governed by the Greenland Act on Expropriation. Payment of compensation to the owner of the property is thus also set out by this Act.

It should finally be noted that while a licensee is generally not exempted from obtaining the necessary permits for its activities under other legislation than the Mineral Resources Act, a licence includes land allotment approval for the licensee’s buildings and facilities as well as for the planned activities.

Greenland has no petroleum infrastructure or installations, including storage facilities and pipelines.

There is no statutory price-setting regime for crude oil or crude oil products in Greenland.

However, price-setting agreements must not be in violation of the general competition regulation in Greenland.

When approving an exploitation plan, the Self-Government may, on specified terms, grant a licence to establish and operate related pipeline facilities that may be used for transport of liquid or gaseous substances to or from the mining facility, the offshore facility or a related power facility and other related facilities.

There are no specific laws or regulations governing the export of crude oil, natural gas and petroleum products in Greenland. Export of crude oil, natural gas and petroleum products is generally subject to the terms of the export agreement between the parties and Greenland general contract law.

Greenland has no petroleum infrastructure or installations, including storage facilities and pipelines.

There are generally no special requirements or limitations on the acquisition of oil-related interests by foreign companies or individuals. However, according to Section 16 of the Mineral Resources Act, a licensee under an exploitation licence must, as a general rule, be a public limited company with a registered office in Greenland and only carry out activities under licences granted pursuant to the Mineral Resources Act. See 2.2 Issuing Upstream Licences/Obtaining Petroleum Rights.

The area of environmental protection is regulated in the Mineral Resources Act in separate chapters.

The provisions found in this part of the Act concern EIA requirement, preventing and limiting pollution, scope for including environmental protection provisions in the individual licences as well as provisions on environmental liability and responsibility.

The Environmental Agency for Mineral Resource Activities is the relevant agency under the Self-Government for all environmental matters related to petroleum activities under the Mineral Resources Act. Until 2013, the area of environmental protection in relation to petroleum activities rested with the Mineral Licence and Safety Authority. It should be reiterated that the Mineral Licence and Safety Authority is still, however, a one-stop shop. Applicants and licensees will therefore continue to only have contact with the Mineral Licence and Safety Authority, which co-ordinates with the Environmental Agency for Mineral Resource Activities on environmental matters and approvals/permits.

In June 2019, the Environmental Agency for Mineral Resource Activities published a draft strategy on environmental regulation of mineral resource activities for the period 2019-23 (see 1.4 Principal Petroleum Law(s) and Regulations). The draft strategy was in public consultation until 19 August 2019, but there has been no news of the results of the hearing. According to the public consultation documentation, the draft strategy is an independent environmental contribution to the general strategies for mineral resource activities, including a new mineral resource strategy and a new plan on sectoral level in the area of oil and gas. The draft strategy is based on the general purpose of the Mineral Resources Act: that all activities must be conducted in a sound manner with regard to the environment and in accordance with, under similar conditions, good international practice. The development of separate environmental regulation for oil and gas, and minerals, respectively, is one of the objectives in the draft strategy.

More information is found at the website of the Environmental Agency for Mineral Resource Activities.

When an EIA Is Required

Pursuant to the Mineral Resources Act, an EIA is required for all activities that must be assumed to have a significant impact on the environment. The EIA report must be approved by the Mineral Resources Authority (Environmental Agency for Mineral Resource Activities) before the comprised activities can commence or a licence can be granted.

An EIA will always be required for exploitation of a deposit and establishment of large facilities, including offshore units, as well as for decommissioning of such.

In other cases, the Environmental Agency for Mineral Resource Activities, on behalf of the Self-Government, decides when an EIA is required. The Environmental Agency for Mineral Resource Activities will assess the proposed activity’s overall environmental impact in relation to the environmental sustainability of the area, particularly taking the area’s vulnerability into consideration. It is assumed that more comprehensive activities, such as exploration drillings, are subject to an EIA and approval by the Environmental Agency for Mineral Resource Activities.

EIAs may therefore be required multiple times throughout a project’s life cycle, as the assessment is made for specific (major) activities.

Preparation of EIAs

EIAs should generally be prepared using information from the regional Strategic Environmental Impact Assessments (SEIAs) that are drafted by Danish and Greenlandic authorities (available at the Mineral Resources Authority’s website).

In 2015, the Self-Government issued guidelines for preparing an EIA. The guidelines include a suggested structure for an EIA report. Under the guidelines, an EIA report must particularly include a non-technical summary (in Greenlandic, Danish and English) as well as descriptions of, inter alia, the following:

  • the overall project and activities;
  • alternative project development options;
  • use of chemicals;
  • an impact analysis, including risks and effects on the environment and animal life; and
  • impacts on fishing and hunting.

The EIA report must further include separate plans, including an "Environmental Management Plan", a "Waste Handling Plan", a plan for monitoring and reporting emissions, a decommissioning plan and an environmental study plan.

When an SIA Is Required

In the same context as the EIA, activities comprised by the Mineral Resources Act may be subject to an SIA, if the activity is assumed to have significant impact on social conditions in Greenland. If that is the case, the activities cannot commence before a SIA report has been approved by the Ministry of Industry, Energy and Research on behalf of the Self-Government, ensuring that the project is socially sustainable for Greenlandic society.

The main objectives of the SIA are, inter alia, to inform and involve relevant and affected individuals, stakeholders and communities in the project process; to identify both positive and negative social impacts at local and national levels; to optimise the positive impacts and mitigate the negative impacts; and to develop a "Benefit and Impact Plan".

The SIA report’s description of positive and negative impacts of the proposed activities must include descriptions of employment opportunities, social balance and cultural values. The report should also include details on the measures that are planned to mitigate any negative impact.

Preparation of SIAs

Pursuant to guidelines on the process and preparation of a SIA report for mineral projects published by the Mineral Licence and Safety Authority in 2016, the following should, inter alia, further be included in a SIA:

  • a non-technical summary;
  • a project description, including relevant key figures;
  • positive and negative impacts;
  • a benefit and impact plan;
  • stakeholder involvement;
  • an analysis of alternative project proposals (including status quo/zero alternative);
  • cumulative effects; and
  • a baseline data summary.

Even though the guidelines specifically apply to mineral (mining) projects, the guidelines are also assumed to be indicative of the process in petroleum projects, as the same regulation applies.

The SIA report is generally to be prepared in accordance with best international practice, including recognised standards from the International Association for Impact Assessment. SIAs have been prepared for several mining projects. The reports are available at the Mineral Resources Authority’s website, where all SIA reports are made available to the public.

Other Requirements

In projects where it is a requirement to prepare an EIA and/or a SIA report, the applicant/licensee must further prepare a project description that is submitted to the Mineral Resources Authority (Mineral Licence and Safety Authority) before the reports are drafted. The project description will be subject to a public pre-consultation for at least 35 days. The contents of the draft EIA and/or draft SIA are to be based on the results of the pre-consultation.

When the reports have been drafted following the pre-consultation, they must be submitted to an actual public consultation, with a duration of at least eight weeks, before it can be approved by the authorities. The licensee must include any comments received during the process in its final reports, before the reports are submitted for approval. Further, the comments and questions received under the pre-consultation and public consultation phases must be addressed in a separate white paper.

In extension of the SIA report, the licensee must enter into an IBA with the relevant municipality or municipalities and the Self-Government. The IBA is meant as a tool for converting the initiatives described in the SIA report into more specific and measurable initiatives.

The contents of the IBA are subject to negotiation. However, certain topics should be expected to generally be included, such as terms for recruiting Greenlandic labour, creating apprenticeships and providing training and education opportunities, and engaging Greenland enterprises and local suppliers. The IBA should thus be seen in the same context as the local content requirements described in 2.6 Local Content Requirements Applicable to Upstream Operations.

The IBA must, as a rule, be signed by all parties before other plans relevant for the projects are approved. IBAs are made publicly available by the Mineral Resources Authority on its website.

The licensee must ensure that health and safety risks in relation to offshore facilities used for activities under the licence are identified, assessed and reduced as much as practically possible (the ALARP principle) as well as ensure that supervision of the operations is performed. If the licensee uses one or more enterprises as service providers for the activities, the licensee must also ensure that the enterprises in question meet the applicable health and safety requirements.

Thus, the Mineral Resources Act does not include specific health and safety requirements for offshore development, but rather imposes on the licensee the obligation to continually live up to the highest standards in the area. However, under the Mineral Resources Act, the Self-Government is entitled to lay down specific provisions on health and safety in relation to offshore facilities. The Self-Government has not issued any executive orders or similar to this effect. Instead, more specific provisions may be included in the individual licences.

In the hydrocarbon model licence, it is set out that the licensee must submit health, safety, contingency and environmental plans to the Mineral Resources Authority (Mineral Licence and Safety Authority) for approval. The contingency plans must include both oil spills and pollution. In this regard, the licensee is also required to enter into an agreement with the Self-Government-owned company Greenland Oil Spill Response A/S concerning delivery and performance of services relating to oil spill preparedness and clean-up. Non-compliance with health, safety or environmental protection rules or provisions is generally sanctioned by fine under the Greenland Criminal Act.

The licensee may become subject to environmental liability. Under the Mineral Resources Act, the party responsible for pollution or other environmental damage in connection with an activity under the Act must compensate damage and loss caused by the pollution or environmental damage, even if the damage is accidental (no-fault liability). The requirement for compensation applies to personal injury, property loss, financial loss and reasonable costs of measures to prevent and abate damage or injury, restoration of the environment as well as mitigation and neutralisation of pollution, and any other negative impact.

The responsible party means the party performing, being in charge of or supervising the performance of an activity subject to the Mineral Resources Act. In practice, this may, for instance, be the operator.

If the party responsible for the environmental damage, etc in relation to activities under a licence is a party other than the licensee, the licensee is also responsible. In that case, the two parties are jointly and severally liable.

Further, the party responsible for an imminent danger of environmental damage must immediately initiate necessary preventative measures that can avert the imminent danger of environmental damage and notify the Self-Government of the danger and the measures taken according to the Mineral Resources Act. The party responsible for environmental damage must immediately initiate any practically feasible measures that can limit the scope of the damage, prevent any further damage and notify the government of the damage and the measures taken. The government supervises the performance of these obligations and may issue enforcement notices concerning the performance of the obligations and the adoption of measures in relation thereto.

The hydrocarbon model licence provides that the licensee’s liability and responsibility for activities under the licence must be covered by insurance, including third-party insurance, with sufficient and adequate cover.

When the activities of a licence are terminated, the licensee is, as a rule, obligated to remove all building, production facilities, installations, pipelines, storage and transportation facilities, etc, in and outside the licence area, that have been established for the activities, and carry out a final clean-up and restoration of affected areas. The Mineral Resources Authority (Mineral Licence and Safety Authority) may also approve that the buildings, installations, etc are left in place, on a specific assessment. The licensee must submit an abandonment plan (or closure plan) to the Mineral Resources Authority immediately following the granting of an exploitation licence. The plan must be approved before the exploitation may commence. The abandonment plan is further to be updated regularly in relation to the specific activities carried out and the licensee shall each year submit a statement to the Mineral Resources Authority showing the provisions made in relation to the abandonment plan, which is also subject to the Mineral Resources Authority’s approval.

The abandonment plan must include a plan for the financing of the abandonment activities. In connection with the approval of the abandonment plan, the Mineral Resources Authority may also require the licensee to provide and maintain security for fulfilment of the licensee’s decommissioning obligations. The Mineral Resources Authority is further entitled under the Mineral Resources Act to require additional security on a case-by-case basis, if the circumstances call for it.

The provision of security may be in the form of security deposited with a bank, a bank guarantee, a parent company guarantee or other similar security. The security must be in a form that makes allowance for the specific exploration or exploitation activities and the scope and nature of the anticipated measures to be taken upon termination of the activities. The form of security is determined after discussions between the Mineral Resources Authority and the licensee.

The Mineral Resources Authority may, in connection with approving the abandonment plan, lay down terms on protection of the environment and health and safety measures after the termination of activities, including monitoring in a period after closure; ie, after the licence is formally terminated.

Exploitation activities may be suspended by the licensee subject to the approval of the Mineral Resources Authority. The requirement for approval is intended to ensure that facilities, etc are maintained and monitored while the exploitation activities are suspended as well as that the abandonment plan can still be implemented later if the activities are not resumed. In the approval, it is further to be ensured that plans for safety, health, the environment, etc are adapted to the temporary suspension. Approval may be granted for up to two years at a time.

If the temporary suspension has lasted six years, or if the terms in the approval of the suspension are not met, the Self-Government may order the licensee to implement the abandonment plan.

Climate policy in Greenland is the responsibility of the Self-Government. However, as international climate negotiations are considered a matter of foreign policy, they are handled by the Danish government, also with effect for Greenland. Denmark and Greenland have signed an agreement concerning the negotiations in relation to the United Nations Framework Convention on Climate Change (UNFCCC). Pursuant to this agreement, the Self-Government is ensured consultation and inclusion during such negotiations by the Danish government.

There are no specific climate change laws in effect in Greenland.

In 2012, the Self-Government requested the Danish government to effectuate a territorial exemption for Greenland in connection with Denmark’s ratification of the second commitment period under the Kyoto Protocol (2013–20). Greenland is thus exempted from Denmark’s commitments to reduce its carbon dioxide emissions under the Kyoto Protocol.

The reason for the exemption is that the launch of energy-intensive industry in Greenland, such as oil production, will result in a significant increase in Greenland’s current emissions compared to the reference year in the Kyoto Protocol. Greenland would, in that case, be required to pay carbon credit expenses that far exceed what the corresponding industries in other parts of the world pay, which would, in turn, weaken Greenland’s competitive standing in attracting private investments in the sector. Greenland is therefore also territorially exempted from Denmark’s ratification of the Paris Agreement.

However, it is still the official policy of the Self-Government to minimise emissions as much as possible. Under the Mineral Resources Act, the Mineral Resources Authority must therefore include considerations regarding avoiding negative impacts on the climate when making decisions under the Act.

If an activity or facility is assumed to have a significant negative impact on the climate, a licence or approval can only be granted based on an assessment of the impact of the activity on the climate. The impact assessment must be prepared under the same rules as apply to EIAs (see 5.2 Environmental Obligations for a Major Petroleum Project). It is the authorities that ultimately determine if an activity is assumed to have a significant impact on the climate.

The Self-Government is entitled to lay down specific provisions on climate protection, including provisions on the application of national or international rules, agreements or guidelines concerning climate protection. This is assumed to take place in the individual licences, where deemed appropriate.

There are generally no local government restrictions under the Mineral Resources Act that limit the development of oil and gas in Greenland.

There are no special schemes concerning unconventional upstream interests.

Pursuant to the hydrocarbon model licence, any processing of petroleum for the purpose of transportation, including the liquefaction of natural gas, is deemed to form part of the activities comprised by the licence and is thus governed by the Mineral Resources Act.

Petroleum exploration and production in Greenland is highly influenced by the Arctic climate of the region. The prevalence of sea ice affects how and in which periods petroleum exploration activities can be carried out. Further, in certain areas, drifting icebergs present an operational challenge.

However, it is generally expected that climate change will make future exploration activities easier, as shorter winters, longer field seasons and a decrease in ice extent in Greenlandic waters are seen.

In December 2019 the Self-Government of Greenland published a new Oil Strategy for 2020-2024. As part of the new strategy, the Government has also launched a number of new open-door procedures and two licensing rounds are expected in 2021 and 2022; see 2.2 Issuing Upstream Licences/Obtaining Petroleum Rights. The main changes in the new model licences for the new open-door procedures and licensing rounds are the removal of the sales royalty and the adjustment of the surplus royalty; see 2.3 Typical Fiscal Terms Under Upstream Licences/Leases, as well as the removal of the Self-Government’s mandatory participation through Nunaoil A/S in the licences, see 1.3 National Oil or Gas Company and 2.5 National Oil or Gas Companies.

Bech-Bruun

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2100 Copenhagen
Denmark

+45 72 27 00 00

+45 72 27 00 27

info@bechbruun.com www.bechbruun.com
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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 43 partners, associates and legal consultants that 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 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 the high-profile energy transactions involving Danish interests, including Total S.A.’s acquisition of Maersk Oil and Energinet’s acquisition of gas distribution networks and storage facilities from DONG (now Ørsted).

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