Energy: Oil & Gas 2020

Last Updated August 10, 2020

Norway

Law and Practice

Authors



Advokatfirmaet Simonsen Vogt Wiig (SVW) is one of Norway's largest full-service firms, with 180-plus fee earners and offices in Oslo, Stavanger and all major Norwegian cities, as well as a foreign office in Singapore. SVW has one of Norway's most powerful oil and gas teams, consisting of ten dedicated upstream lawyers and a host of specialists in other fields serving the firm's oil and gas clients. The firm's practice comprises all aspects of the oil and gas industry and is global in reach. Simonsen Vogt Wiig provides full-spectrum legal services to international majors and independents active on the Norwegian continental shelf as well as international and Norwegian oil service companies. The firm's services comprise the full life cycle and all aspects of the activities of oil and gas players. Simonsen Vogt Wiig advises numerous governments on resource management, legal framework development, public international law and negotiation of legal instruments, from bilateral treaties to production-sharing contracts, as well as service and development contracts. The international practice also comprises assistance to international oil and gas and oil-service companies in relation to new ventures, transactions and international pipeline projects.

The state's ownership of offshore petroleum resources and its exclusive and sovereign rights to exploration for and exploitation of such resources were established by law in 1963. Excluding the Svalbard special regime, state ownership of onshore petroleum resources was established by law in 1973. There is no petroleum activity ongoing pursuant to the 1973 onshore resources legislation. No specific secondary legislation has been adopted for the purpose of petroleum activities governed by the 1973 legislation. All comments and descriptions included relate to offshore petroleum resources and related petroleum activities only.

For commercial entities to conduct upstream operations, government authorisation is required. An exploration licence (concession) is required to conduct non-exclusive collection of geoscience data for upstream operation purposes. An exploration licence only grants the right to collect data and does not confer any other rights or preferences to petroleum, or a production licence. The exploration licence does not include the right to drill any well that is intended to penetrate petroleum-bearing strata. It only grants a licensee the right to drill a shallow well for calibration purposes.

A production licence (concession) is required for entities wishing to hold exclusive exploration (including drilling of wells) and production rights. Production licensees become owners of petroleum at the extraction point, but may only take their proportionate entitlement to petroleum at the production point, which is the point where petroleum may be transported in bulk as a commodity. An exclusive facilities licence (concession) is required to operate upstream facilities not included in an approved project development plan for production.

Facilities may not be operated or used without a petroleum licence. An entity may own facilities used for petroleum activities, however, without itself holding a petroleum licence, provided the operator of the facility holds the required petroleum licence (concession). A specific facilities licence (separate from a production licence) does not grant a licensee rights to petroleum exploration or production, only to construct and operate facilities.

Direct state participation is exercised through the State Direct Financial Interest (SDFI), as determined by the government on a discretionary basis. The SDFI participation in a petroleum licence is considered and subject to the petroleum regulatory and concessionary regime as a licensee, save for that pursuant to law, the SDFI is prevented from obtaining information relevant to selection of suppliers of goods and services and partaking in related procurement decisions. SDFI is not a legal entity separate from the state, but the SDFI petroleum licence interest and associated petroleum activities is not managed by an organ of the state, but managed by Petoro AS on behalf of the state (see 1.3 National Oil or Gas Company).

All regulatory functions are fulfilled by state institutions. No regional or local authorities have any specific regulatory authority over petroleum resources or upstream operations. Pursuant to applicable law and delegated powers, regional and municipal authorities have regulatory functions of a general nature that may also affect commercial petroleum activities, ie, where a development includes onshore facilities they may require authorisations for planned use and management of land (including internal waters and harbours).

Stortinget (the national assembly) has ultimate legislative and budgetary authority pursuant to the 1814 Constitution. Stortinget passes laws as well as the state budget, and grants Government authority to ratify all major international legal instruments. Any expense incurred in relation to petroleum resources, facilities or upstream activities not covered by applicable law or budgetary approvals must be submitted to Stortinget for approval.

The Government forms a cabinet comprising 20 ministers. The cabinet makes formal regulatory and budgetary decisions in meetings ceremonially headed by the King. The King in Council also adopts secondary legislation referred to as Royal Decrees.

Ministries are headed by cabinet ministers. One ministry may have more than one cabinet minister and may be in charge of more than one sector or activity. Each minister is in charge of the day-to-day activities within his or her area of responsibility. A ministry may, as in the case with the upstream petroleum sector, make administrative decisions applicable to individual cases and pass secondary legislation generally applicable to the sector in the form of ministerial regulations subject to applicable laws.

The Ministry of Petroleum and Energy (MPE) is the core upstream operations ministry in charge of petroleum resource management, upstream facilities and operations subject to Norwegian law and jurisdiction. This includes resources, facilities and operations on the Norwegian Continental Shelf (NCS) and the Norwegian mainland. It also includes activities outside the NCS when consistent with public international law, such as in relation to the gas and liquids trunk export pipelines to the UK and the European continent. The MPE is also in charge of activities conducted on trans-boundary fields subject to bilateral treaties. It manages the state's participation in SDFI, the SDFI upstream interest management company Petoro AS, the gas pipeline-system operator Gassco AS and the state's interest as shareholder in Equinor ASA. The MPE is also the appeal body for appeals against decisions taken by the Norm Price Board.

The Norwegian Petroleum Directorate (NPD) reports to the MPE. Its primary task is to contribute to optimal, efficient and responsible resource management. The NPD is the technical adviser to the MPE and conducts NCS-relevant petroleum sector analysis and data management. In co-operation with other authorities, the NPD ensures comprehensive follow-up of petroleum operations and, subject to delegated power, develops secondary regulatory instruments and non-binding guidelines for upstream operations. The NPD is the registrar of the Petroleum Registry, in which exclusive petroleum rights (licences) must be registered, as well as any MPE-approved mortgage or other security on facilities used in petroleum operations, subject to Norwegian law.

The Ministry of Finance is in charge of personal, corporate and petroleum special taxation, VAT and other indirect taxes, customs and excise. A special tax authority, the Oil Taxation Office, deals with corporate and petroleum special tax matters relevant to those companies that hold exclusive petroleum rights and participate in Norwegian upstream operations.

The Ministry of Labour and Social Affairs (ASD) is in charge of working environment and petroleum operations safety. The ASD's regulatory role comprises safety supervision, emergency preparedness (on facilities) and the working environment in both off- and onshore Norwegian upstream operations.

The Petroleum Safety Authority (PSA) is a directorate reporting to the ASD. The PSA has been delegated authority to monitor the core health, safety and working environment aspects of the upstream sector. Pursuant to law and delegation by the ASD, it is authorised to issue regulations covering safety and working environment for the upstream industry. It may take administrative decisions in the form of consents, make orders (prohibitions and exemptions) and issue fines. The PSA may temporarily suspend or shut down upstream operations. Its supervisory responsibility comprises oil and gas activities on the NCS pipeline systems.

The Ministry of Transport (MT) is in charge of the government's preparations for emergencies involving acute pollution from petroleum operations and shipping. Its advisory and executive body is the National Coastal Administration (NCA). The NCA is organised into five coastal regions. Its Department of Emergency Response is the specific department responsible for governmental preparedness against acute pollution.

The Norwegian Maritime Authority (NMA) is the administrative and supervisory authority in matters related to health and safety, material security and the environment on vessels flying the Norwegian flag and foreign ships in Norwegian waters. The NMA is also responsible for ensuring the legal protection of Norwegian-registered ships and registered rights in those ships. The NMA is subordinate to the Ministry of Trade, Industry and Fisheries and the Ministry of Climate and Environment. The NMA's activities are governed by national and international legislation, agreements and political decisions.

Petoro AS

Petoro AS (Petoro) is a wholly state-owned company, which manages the State Direct Financial Interest (SDFI) in petroleum licences. Petoro itself does not apply for petroleum licences, as direct state participation in production licences is decided by government on a discretionary basis. The SDFI is considered a licensee, but the SDFI licence interest is managed by Petoro on behalf of the state. Petoro is not in charge of selling SDFI petroleum production entitlements, which is done by Equinor ASA (previously named Statoil) on behalf of the state, and only supervised by Petoro.

Petoro AS was established pursuant to Chapter 11 of the Petroleum Act and legislation applicable to limited liability companies. Petoro's corporate governance, documents and decisions are subject to the 1997 Limited Liability Companies Act. Beyond what follows from ordinary limited liability company corporate law requirements, Petoro has to submit certain long-term and other qualified plans for the general assembly's approval. Petoro votes in the unincorporated joint venture established pursuant to the petroleum licence with, in principle, the same powers as any other licensee, but it does hold certain veto rights in the joint venture for the protection of the state's resource management interests. Petoro is, however, excluded from participating in public procurement decisions, consistent with applicable law based on EEA public procurement obligations.

Gassco AS

Gassco AS (Gassco) is a wholly state-owned joint-stock company dedicated to functioning as the system operator of Gassled - the submarine gathering, transportation and landing pipeline system for natural gas extracted from NCS resources. Gassco cannot own any pipelines, terminals or gas extracted or produced. Gassled IS (Gassled) is the owner of Gassled and holds a facilities licence. Gassled is organised as an unincorporated joint venture in the same fashion as the NCS production licence. Gassled jointly owns almost all upstream gas transportation pipelines and their related onshore terminals. Gassco now manages capacity bookings and capacity allocation, and the MPE has issued regulations stipulating conditions for access and tariffs to be paid to Gassled. All shippers with a duly substantiated need for capacity shall have access to Gassled on a non-discriminatory, objective and transparent basis. Tariffs are based on booked capacity, not throughput.

Equinor ASA (previously Statoil ASA)

Statoil ASA (Statoil) changed its name to Equinor ASA (Equinor) in 2018. No corporate changes were made and the company remains a publicly listed joint-stock company in which the state holds 67% of the shares. Previously, when the company, then named Statoil, was wholly owned by the state, the company was allocated participation interests without application, according to government decisions. Currently, however, it is awarded rights like any other applicant and is subject to the same regulatory requirements as other licensees. Equinor still sells the SDFI oil and gas production entitlements on behalf of the state. Previously, it also sold royalty volumes on the state's behalf, but this has been discontinued as royalty on all petroleum production has been terminated.

The Norwegian upstream petroleum regime may be divided into three segments, based on the location of the resource in question. 

All current exploration and production of petroleum from offshore resources is subject to the Act of 29 November 1996, No 72 (the Petroleum Act or PA), together with sundry secondary legislation passed by the King in Council, the Ministry of Petroleum and several directorates. The PA is supplemented by a number of regulations, predominantly adopted as Royal Decrees, Ministerial or Directorate Regulations. The most notable is the Petroleum Activities Regulations (of 27 June 1997, No 653) (PR).

The King in Council, the MPE and the NPD also make individual decisions of a regulatory nature, based on delegated power under public administrative law. Non-binding guidelines are also published.

The title to all petroleum resources in the ground, whether on the NCS or mainland territory, is vested in the state. The PA regulates resources located in the seabed of the NCS, facilities and petroleum operations (exploration and production, including transportation) and related activities associated with these resources when subject to Norwegian jurisdiction. Petroleum rights licences granted to licensees are awarded as public administrative law concessions, not negotiated as private law contracts. The PA also covers exploitation of these resources when exploitation takes place outside of Norwegian law jurisdiction or in association with production (as defined by the PA).

Upstream facilities, petroleum (operations) activities conducted onshore in Norway and outside the NCS may be governed by the PA when Norway exercises jurisdiction consistent with its international law obligations. 

In accordance with Sections 1-5 of the PA, other Norwegian laws also apply to petroleum operations and facilities subject to the PA. It is worth noting that the PA operates within a wider scope of activities, referred to as "petroleum activities", which are more extensive than the common industry understanding of "petroleum operations". This is particularly relevant when planning, preparation and management of NCS operations is undertaken by staff located outside of Norway.

Other important Acts with substantial impact on petroleum activities are:

  • the Act of 13 March 1981, No 6 relating to protection against pollution and waste;
  • the Act of 17 June 2005, No 62 relating to working environment, working hours and employment protection, etc (Working Environment Act). This Act has resulted in several regulations partly applicable to the upstream petroleum sector (see 1.2 Regulatory Bodies on PSA-enforced regulations);
  • the Act of 4 June 2015 on wage agreement terms. This Act has resulted in several regulations partly applicable to the upstream petroleum sector (see 1.2 Regulatory Bodies on PSA-enforced regulations);
  • the Act of 14 June 2002, No 20 relating to the prevention of fire and explosions caused by hazardous substances, and emergency response by fire protection agencies. This Act has resulted in several regulations partly applicable to the upstream petroleum sector (see 1.2 Regulatory Bodies on PSA-enforced regulations);
  • the Act of 24 May 1929, No 4 pertaining to the supervision of electrical installations and equipment. This Act has resulted in several regulations partly applicable to the upstream petroleum sector (see 1.2 Regulatory Bodies on PSA-enforced regulations);
  • the Act of 21 June 1963, No 12 relating to scientific research and exploration for and exploitation of sub-sea natural resources other than petroleum resources; 
  • the Act of 21 December 1990, No 72 relating to tax on the discharge of CO2 in the petroleum activities on the continental shelf; and
  • the Act of 13 June 1975, No 35 relating to the taxation of sub-sea petroleum deposits (petroleum taxation act).

The core purpose of the Norwegian petroleum regime applicable to offshore resources is expressed in sections 1-2 of the PA, in particular the second paragraph stating that: "Resource management of petroleum resources shall be carried out in a long-term perspective for the benefit of the Norwegian society as a whole. In this regard the resource management shall provide revenues to the country and shall contribute to ensuring welfare, employment and an improved environment, as well as to the strengthening of Norwegian trade and industry and industrial development, and at the same time take due regard to regional and local policy considerations and other activities."

The PA has remained in place, with moderate amendments, since it entered into force on 1 July 1997. The most significant amendments that have been made to it came in 2003 following the part privatisation of Statoil (now Equinor ASA) and the formation of Petoro AS and Gassco AS, including the establishment of rules applicable to third-party access to the upstream gas pipeline system operated by Gassco (the "tariff regulations") (see 1.3 National Oil or Gas Company).

The PA and the PR form the legal basis for the licensing regime organising licensing rounds for frontier acreage and annually for previously licensed acreage. 

In 2005, a separate regulation for third-party access and use of facilities for extraction, production and transportation was passed (Ministerial Regulation of 20 December 2005, No 1625), regulating the procedures and requirements for access to and use of facilities other than those regulated by the tariff regulations related to the Gassled facilities.

There are several additional regulations that have been adopted by the MPE, NPD and the PSA on resource management, operations, facilities, HSE and fiscal metering governing upstream petroleum activities pursuant to a petroleum licence (concession). The main regulations enforced by the NPD and the PSA are adopted by Royal Decree, Ministerial or Directorate Regulations pursuant to the Petroleum Act, the Working Environment Act, the Fire Protection Act, the Product Control Act and the Electric Installations Act and several Acts pertaining to healthcare and healthcare personnel. In addition to the Petroleum Regulations, the main regulations are to be found at www.npd.no and www.ptil.no.

There are also a number of labour law regulations adopted by the ASD and Labour Inspection Authority relating to the workplace, including acceptable threshold values and limits for exposure in the working environment, performance of work, organisation, management and employee participation, labour hire undertakings, and worker identification requirements, etc. In addition to www.ptil.no, www.arbeidstilsynet.no may also be consulted.

The Act of 4 May 1973, No 21 (the Land Petroleum Act or LPA) governs upstream petroleum operations and facilities for the purpose of exploration for and production of petroleum resources in the subsoil of Norwegian land territory, as well as the narrow band of seabed close to shore that may be subject to private property rights. No detailed regulations have been adopted to implement the LPA to date. No exclusive upstream rights or petroleum (operations) activities based on onshore resources have yet been conducted due to the geological structure (mostly base rock) on most of mainland Norway.

The PA and LPA do not apply to Svalbard. Svalbard's territory is subject to Norwegian sovereignty pursuant to the Svalbard treaty. The Svalbard regime follows a separate Mining Code applicable only to activities in the Svalbard territory.

Exclusive exploration and production rights, as well as rights to construct and operate facilities related to offshore petroleum deposits, are only available subject to a public administrative law-based concession. These take the form of either a production licence (concession) or a facilities licence. The exclusive exploration and production licence has been in place since the first licensing round awards in 1965. No onshore licences have yet been awarded, but if rights were to be awarded then they would also be public administrative law-based concessions.

All exclusive petroleum licences are normally required to have more than one participant. In the case of a production licence, the participants will be compelled, as a condition of the award, to enter into an unincorporated joint venture and be subject to a model petroleum agreement containing two mandatory exhibits: the joint-operating agreement (JOA) and the accounting agreement (ACC).

From 1965 until 2007, the format of the petroleum agreement changed stepwise. After this date, the system was harmonised to be identical to all operative production licences. For facilities licences, the type of joint venture that must be established may have different formats. However, since the formation of Gassled, most of the joint ventures related to gas pipelines that operated under a facilities licence are now established as unincorporated joint ventures under a standard agreement approved by the MPE.

Consistent with EU internal market rules, as stipulated by the so-called Licensing Directive and implemented in Norwegian petroleum law, legal and physical persons from EEA member states may apply for an exclusive production licence or the transfer of a production licence's participation interest. In practice, the MPE has not distinguished between EEA entities and non-EEA entities, due to the ease of establishing an EEA entity and thereby effectively bypassing potential discrimination between EEA and non-EEA entities by simply incorporating an EEA entity. However, it is difficult to envisage that a single physical person may fulfil the technical, capacity, organisational and financial requirements of the law to obtain a Norwegian offshore production licence participating interest.

Persons or entities subject to international embargo by the UN or the EU will not be permitted to obtain participation interest in a production licence or take over an entity holding such exclusive rights. Investors may be privately or publicly owned or controlled.

The relationship between the state and commercial entities that have been awarded upstream petroleum rights is governed entirely by Norwegian public administrative law. The rights of such entities are public administrative law-based concessions, not private law-based licences. They are not founded on the basis of the state having title to petroleum resources, but on the basis that the state, consistent with public international law, exercises exclusive sovereignty over its territory and sovereign right over the NCS and any exploration for or exploitation of its natural resources.

The PA and PR alone establish the domestic law basis for awarding non-exclusive and exclusive upstream petroleum licences. Some of the obligatory documents executed pursuant to a production or facilities licence (the JOA and the ACC) may have dual functionality in as much as they are conditions of the granting of an award, but at the same time form an agreement between licensees (see below).

Before any petroleum activities by commercial entities are permitted, the area must be opened for petroleum activities.

Only the Norwegian government may conduct petroleum activities without being issued a concession, licence or permit, but such activities must be conducted in accordance with the applicable procedural and material rules of the upstream petroleum regime.

To open new areas for petroleum activities the government prepares a comprehensive (strategic) environmental impact assessment (SEA). The SEA, as well as other important information (the petroleum potential of the area, the impact on the petroleum industry, related businesses, the non-oil economy, infrastructure and local communities, etc), are collected, analysed and submitted in a report to Stortinget in a "Stortingsmelding" ("St meld" or White Paper) including a recommendation with regard to opening new area(s) for petroleum activities. The report is then subject to parliamentary debate.

A "Stortingsmelding" is a report to Stortinget by the government on the policies it intends to implement, but is not formally adopted. Under the Norwegian constitutional parliamentary system, however, the government is compelled to take notice of the parliamentary majority. It may also have to return to Stortinget to implement its policies because they require legislative or budgetary decisions.

Following an affirmative vote, the MPE allows the NPD to award non-exclusive exploration licences and the MPE prepares, announces and obtains cabinet approval for the awarding of exclusive production licences. All applications for licences require the payment of a nominal administration fee.

Prior to announcing the licensing rounds, pre-qualified industry players are invited on a voluntary and confidential basis, to nominate acreage they would wish to see included in the forthcoming bid round. Only prequalified entities may submit an application for a production licence. Prequalification follows a defined process in which the regulatory authorities look into the applicant's operational and financial capacity, capability, experience and previous conduct.

Generally, a production licence is awarded to a group of applicants compelled to form an unincorporated joint venture. Individual and group applications are permitted. However, the MPE is not bound to award the licence according to such group applications and may exclude any group applicant or include other applicants in the licence award. Awards are based on open and non-discriminatory terms and conditions consistent with EU internal market rules implemented in Norway as part of the European Economic Area (EEA) obligations.

No production licences are negotiated individually, but are awarded pursuant to public bidding rounds. Awards are made based principally on an applicant's geo-scientific understanding of the area applied for, its operational and financial capacity, experience and plans for the area. Each licence is awarded on a standard formula production licence document to which is annexed a Petroleum Agreement establishing the obligatory unincorporated joint venture under which licensees are jointly and severally liable. Annexed to the Petroleum Agreement are exhibit A, a standard joint-operating agreement, and exhibit B, a standard accounting agreement. Exhibits A and B are non-negotiable. The licensees must enter into the Petroleum Agreement as a condition of the award of a production licence, and for the licence to remain in force.

Variations between production licences are normally limited to the licence acreage, the licensees and their respective participation interests in the licence, the voting rules, the appointed operator (which is one of the licensees), the obligatory work programme and any individual limitations on activities of a geographical or seasonal character.

Non-exclusive exploration licences are awarded according to an "open door" policy. The NPD awards exploration licences pursuant to delegated authority and stipulated procedures under the PA and PR. The licence is time-limited to three years and enables independent seismic companies as well as other interested parties to collect seismic data and other exploration-related activities, including drilling a shallow well for calibration purposes if required.

A single entity may be awarded an exploration licence. Additional regulatory and reporting requirements must be fulfilled before and during seismic acquisition or offshore activities. Having been awarded a non-exclusive exploration licence does not give the licensee any privilege, preference or right of any nature to obtain an exclusive production licence.

Frontier acreage licensing rounds currently occur on a bi- or tri-annual basis. The annual licensing rounds referred to as "Awards in Predefined Areas" (APA) consist of acreage previously licensed and relinquished or in proximity to existing upstream production facilities. The difference between the two types of production licences is principally the duration of the initial exploration period and the content of the obligatory work commitment or programme.

In ordinary licensing rounds, it is not common to include more than a data collection and analysis, as well as one or more obligatory or contingent exploration wells, as obligatory work commitments. In APA licences, it is quite common that the licensees' plan, at the time of the production licence award, will have to commit to all relevant activities required to submit a development plan. A system of "execute or drop" is usually included in the work programme, obliging the licensees at certain decision gates to decide whether to enter into a new activity phase (and extended licence period) or to surrender the licence.

Facilities licences are not awarded based on bid rounds like production licences, but rather awarded as a result of the government approval of an application to construct and operate facilities. Licensees to a facilities licence normally form an unincorporated joint venture. These facility licences typically comprise installations or pipelines serving several production projects under different production licences. Previously, such dedicated facilities licences were obtained almost exclusively by entities that at the same time have a direct interest in the use of the facilities in question, for use in connection with one of more production projects in which these licensees have a participating interest. This pattern has over the years somewhat changed, in particular in relation to petroleum licences held in submarine pipelines absorbed into the Gassled natural gas gathering and landing submarine network.

State participation is no longer mandatory, but discretionary. Lately, it has only been imposed on a limited number of production licences. When state participation is imposed, the participating interest is held by SDFI and managed by Petoro.

All entities engaged in petroleum activities related to NCS resources are subject to Norwegian personal and corporate income and capital gains tax. Entities holding an exclusive petroleum production licence are also subject to the special petroleum tax. Entities with their principal place of business outside of Norwegian tax jurisdiction may be entitled to tax relief, exemption or credit in their home jurisdiction.

For fiscal purposes, a norm price system is stipulated on crude oil-related transactions that are not conducted in an open, arms-length and transparent market.

No economic terms are negotiated in Norwegian petroleum licences. State participation may be proposed in an application, but whether or not the state actually participates remains a decision at the government's discretion at the time of the licence award. There are no local content quotas related to material, goods, services or employment of personnel. No production bonuses are currently imposed, no production or profit splits are authorised and there are no longer any royalty obligations.

Production bonuses may be imposed pursuant to law, but this provision has never been used. For production projects with a development plan approved before 1 January 1986, royalty was imposed separately on crude oil (liquids at atmospheric conditions) and natural gas (gaseous components as atmospheric conditions), but such obligations have been discontinued.

There are no longer societal obligations in kind or in cash. Previous systems of this nature were discontinued many years ago. Licensees have to offer the government the possibility to allow civil servants and petroleum sector teachers to participate in licensee training programmes. Participation in these programmes is diminishing in terms of both number of participants and frequency.

An administrative fee for services rendered has to be paid for all licence applications. These fees are only intended to reimburse the public administration's costs associated with assessing applications and awarding the licence. There are also fees to be paid in relation to regulatory authorities' monitoring and control of petroleum (operations) activities. These fees are also service fees and have no fiscal nature or effect.

For production licences, an annual progressive acreage fee applies for all acreage held beyond the period initially allocated to perform the obligatory work commitment. This does not apply to acreage covered by an approved development plan.

In special circumstances, the PA allows the state to impose a fee for approval of transfer of licence rights or rights associated with upstream facilities. This fee may entail payment beyond for costs associated with services provided. No such fee has been imposed to date.

Under the General Tax Act (GTA), a company that is resident in Norway for tax purposes is subject to income tax on its worldwide income, including income derived from upstream petroleum (operations) activities subject to Norwegian jurisdiction. However, non-resident companies are not subject to tax pursuant to the GTA for petroleum (operations) activities on the NCS. The Petroleum Tax Act (PTA) extends the geographical scope of the GTA to include income generated by these companies when related to petroleum activities on the NCS. The GTA corporate income tax rate is 22%.

The PTA contains special rules relating to taxation of petroleum activities with regard to cost allocations, deductions, depreciations, etc. The PTA also introduces the statutory basis for taxation of the resource rent associated with the production of petroleum (petroleum special tax). The petroleum special tax rate is 56% in addition to the 22% ordinary income tax rate under the GTA. The marginal tax rate on entities holding exclusive petroleum rights is 78%.

The PTA applies to extraction, processing and pipeline transportation and, additionally, to certain ancillary activities. Only extraction, processing and pipeline transportation give rise to the petroleum special tax, except in cases where the tax authorities, pursuant to delegated powers, may determine that an onshore plant connected to production of petroleum shall be included, such as in the case of the Snøhvit, Melkøya plant. The ancillary activities are thus only subject to ordinary corporate income tax at a rate of 22%. The assessment of whether a particular activity triggers the special petroleum tax (typically an activity in support of, or ancillary to, production or transportation) may be difficult.

Petroleum operations costs, including exploration costs, are tax-deductible when incurred. A system was implemented in 2005 whereby a licensee may claim a cash refund from the state of the tax value of direct and indirect NCS-related explorations costs (financial costs excluded). This cash refund may only be claimed to the extent that the amount in question does not exceed the annual loss in ordinary income and in the basis for special tax, respectively.

See description of interim amendments in the petroleum tax act, in 6.4 Material Changes in Oil and Gas Law and Regulation.

At its sole discretion, the state may take a direct participatory interest in an exclusive petroleum licence by reserving a participation interest for the State Direct Financial Interest (SDFI). The state participation interest is held by SDFI and managed (almost without exception) by Petoro AS. SDFI participation is no longer "carried" during the exploration phase. The previous "carried state interest" (Statoil- and SDFI held a licence participating interest) required the commercial participants in a production licence to pay initially, but subsequently after approval of a development plan, to have refunded the costs associated with exploration. SDFI contributes subject to cash-call issued by the Operator, its proportionate share of costs associated with petroleum activities in the respective petroleum licence from the day of licence award until completion of facilities decommissioning.

State-owned or controlled entities have no special privileges or rights with regard to the awarding of exclusive upstream licences. Neither Equinor ASA nor any of its subsidiaries any longer have privileges or preferences with regard to participation in exclusive upstream petroleum licences. Equinor competes with other applicants for any participation interest and for appointment as operator.

Norway is a member of the European Economic Area (EEA) and through this agreement is part of the EU internal market. As a result, non-discriminatory rules, including the so-called four freedoms, apply to Norwegian upstream and downstream petroleum activities and entities applying to hold petroleum exclusive or other rights or conduct petroleum activities, including in particular downstream natural gas transmission, storage and distribution. The non-discriminatory obligation principle only legally applies to legal or physical persons resident in EEA jurisdictions. Unless special circumstances apply, such as UN- or EU-mandated sanctions, the non-discriminatory practice applies to all entities.

Norway is a member of the European Economic Area (EEA). The EEA internal market's non-discriminatory rules, including the so-called four freedoms, apply to Norwegian upstream petroleum activities, including procurement.

Local content provisions granting preferences to Norwegian-owned or -controlled suppliers, goods, services, personnel or capital originating from Norwegian sources contrary to the four freedoms and detrimental to entities, goods, services, personnel or capital provided from the EEA are not permitted under Norwegian applicable law. The PA requirement that supply bases may have to be located in Norway for the purpose of resource management, health, safety and emergency preparedness is not considered a local content requirement. Similarly, the PA requirement of licensee organisation in Norway is not a local content requirement, but is based on an individual assessment of the need for local organisation to fulfil the licensee's obligations related to resource management, HSE requirements, etc, pursuant to law.

The PR requirement to use principally the Norwegian language to the greatest extent possible is not a local content rule. This rule is imposed for the same reasons as the supply base provision. Furthermore, all applications for authorisations of any kind and all administrative decisions by authorities are made in Norwegian. Other languages may be used when necessary or reasonable, however, typically in contracts and communication with foreign suppliers.

Apart from the state, only holders of a production licence may develop and produce NCS sub-sea petroleum deposits. Licensees decide on whether or not to develop deposits that are discovered. Pursuant to PA Chapter 4 and PR Chapter 4, the licensees must submit a development plan for MPE approval. This plan shall consist of two parts: a technical and economic plan with detailed descriptions of production profile, offtake solutions for liquids and gas, infrastructure requirements, how facilities may be decommissioned, financing of the project, etc, as well as a progress plan. The development plan must contain a description of alternative development solutions and the licensee's preferred solution. This part of the plan will not enter the public domain.

The second part of the plan is a comprehensive area- and activity-specific environmental impact assessment, as stipulated by statutory provisions. The assessment is based on a previously approved programme for data collection and assessment. The specific environmental impact assessment is publicly consulted with concerned stakeholders and the resultant report is a public domain document.

Staged or phased developments are permitted, provided all phases or stages are addressed in the development plan. Development and production from other deposits than those that are addressed by the plan will regularly require a new or amended plan, and any plan, when approved, applies only to the deposits included within it. The obligation to submit a development plan may be waived by the MPE under certain terms. This normally only applies to minor additions or amendments to an existing plan.

Unless MPE pre-approval is obtained, licensees may not commit to substantial contractual undertakings before the development plan has been approved. Licensees may apply to the MPE to waive this obligation, ie, for long-lead items, which is done subject to conditions including that the pre-approval may not be invoked as an argument for approval of licensees' preferred development solution.

Under special circumstances, a summary of the development plan and a request for the consent of Stortinget may be required. This is typically the case when the SDFI investment is above a threshold previously stipulated in the annual state budget, or for particularly important development policy or state revenue issues.

The MPE is not compelled to approve licensees' preferred development solution, but if the authorities are not happy with the proposed solution then the result is often consultation with licensees to amend the plan before it is submitted rather than outright rejection of it. A decision to approve or reject a development plan is an administrative law-based decision subject to appeal.

Any significant deviation from facts or alterations of terms and conditions on which a submitted or approved development plan is founded must immediately be communicated to the MPE.

The outer time limits of both the exploration period and the development and production period of a production licence are stipulated by law. The exploration period, which is calculated from the award date, cannot exceed ten years. The most commonly used initial exploration period is eight years for frontier areas and may be reduced for awards in predefined areas (APA).

In any production licence, the exploration period may be subdivided and always contains a number of obligatory work commitments that depend on the maturity of the acreage and the available data. There are also statutory mandatory acreage relinquishment obligations that require such obligations to be stipulated in the production licence. In APA licences, all acreage regularly reverts to the state if the acreage does not cover a deposit included in a submitted development plan. In production licences, environmental or safety restrictions are often imposed, normally in relation to the marine environment or particularly severe weather conditions.

The development and production period is calculated from the end of the initial (exploration) period of 30 years, in exceptional cases up to 50 years, comprising development, including construction and commissioning of facilities, and production of the deposit(s) included within a development plan.

Pursuant to PA Section 10-12 (cf. PR section 72), no direct or indirect transfer of all or part of a participating interest or change of control over a licensee may take place without approval of the MPE. In addition, all such transfers must also be approved for tax purposes (explicit consent or through procedure for notification of compliance) by the Ministry of Finance (MFIN). Any such transfer will only be approved if the transferee is a legal or physical person qualified as a licensee.

Transfer of a participating interest in a licence is also regulated by the petroleum agreement regulating the unincorporated joint venture formed by the licensees.

Petoro, on behalf of the state, has a limited pre-emption right in exclusive petroleum licences. No transfer of production licence rights prior to completion of the mandatory work obligations is permitted without the consent of the other parties to the petroleum agreement. However, the transfer of control over a licensee (corporate transaction) holding a participating interest in a petroleum licence is not subject to the other participants' approval. The protection of the other licensees in a production licence is thus safeguarded by the MPE assessment of such a transfer pursuant to the PA Sections 10-12.

A transfer of a production licence participating interest will only be permitted to a pre-qualified entity. The MPE assessment prior to approval is focused on the transferee's potential contribution to the licence in question and whether the transferee has the required organisational capacity, technical capabilities and financial strength sufficient to participate actively in petroleum (operations) activities going forward. Requirements for approval of a transfer will be dynamic and hence different for an early-phase exploration project compared to a complex development or production project. The NPD and PSA are consulted prior to approval of any transfer of interest or control. Participating interest and change of control transfer approvals may be conditional with regard to transfer of operatorship.

An application for transfer of operatorship may not form part of a transaction between licensees for participating interest or assets, but, if a licence asset transaction or a corporate transaction is undertaken and involves the licensee as appointed operator, then that change is subject to separate MPE approval, as previously described. No tax assessment is required for operator transfers as the operator conducts day-to-day business on behalf of fellow licensees on a no-gain no-loss principle established by the petroleum agreement.

The MFIN assesses tax effects of the proposed licence or corporate transfer. An automatic consent procedure for four standardised transaction models where the resultant tax effect is neutral through continuity has been established by regulation. Consent is obtained provided the parties confirm to the MFIN in writing that the transaction meets certain regulatory requirements. Without such a declaration, a formal Petroleum Special Tax Act Section 10 assessment will be undertaken. MFIN approvals may be conditional. Under the Act, the MFIN is delegated powers to deviate from ordinarily applicable tax laws if necessary in order to ensure tax neutrality.

Any change of participation interest in an exclusive petroleum licence or facility must be registered in the Petroleum Registry. Establishment or change in a mortgage, encumbrance or security in an exclusive petroleum licence or upstream facility must be approved by the MPE. In the case of default, providers of security will only be afforded limited step-in rights.

Transfers of non-exclusive exploration licences are normally not executed, as they are very time-limited and contain no obligatory work commitment or continuous activity beyond the activity specifically authorised.

Petroleum production may only be conducted in accordance with an approved development plan and a production permit. The production premium is issued primarily subsequent to regulatory authorities having satisfied themselves that the concessionaires are conducting their activities consistent with regulatory requirement, in line with previously submitted production-profile and supporting information and in such a manner that petroleum or reservoir pressure is not wasted. The production permit system is primarily in place to ensure systematic pursuance of optimal resource depletion, as the concessionaire communicates to the authorities the reasons, supported by documentation, why any deviation from the development plan and the associated forecast production profile is necessary or recommended. Over the 50 years of Norwegian petroleum production, the production permit has been used to regulate the production level at individual production projects in a few isolated incidents of limited duration. That has in each case been justified for state economic reasons and implemented in such a fashion that individual licences among themselves, and in relation to the state, carried the economic impact proportionally.

Although the Government approves regularly production volumes, these are stipulated based on optimal recovery of producing assets and are not set for the purpose of regulating production levels from a supply-and-demand perspective. Norway is not an OPEC member and does not have any formalised co-operation with OPEC. However, the Norwegian government has a major economic stake as resource owner, tax collector and with a substantial interest in commercial operations on the NCS through the State Direct Financial Interest. Thus, from time to time, the Norwegian government has been forced to cut oil production due to extreme price developments.

On May 7th, the King in Council decided to cut production by 250,000 b/d in June 2020 and by 132,000 b/d for the second half of 2020. Additionally, production commencement on several fields would be delayed to 2021. It is estimated that total daily production in December 2020 will be reduced by 300,000 b/d. It was emphasised in the government press release that the decision was based independently on a need to secure Norwegian interests.

Gas and condensate fields, trans-boundary fields as well as certain fields where reservoir management issues make production cuts problematic (eg, tail-end production) are exempted from the cut obligation. Thus, gas export to the UK and continental Europe will not be affected.

The Norwegian upstream petroleum regime based on the 1996 Petroleum Act regulates all petroleum activities and facilities upstream of the defined delivery point for petroleum transported in bulk as a commodity.

Any petroleum activities or facilities located downstream of the delivery point and, provided such activities or facilities are subject to Norwegian law and jurisdiction, save for the downstream natural gas sector, are regulated by a variety of laws generally applicable to industrial sectors.

Investment in downstream activities or infrastructure, except for natural gas transmission and distribution pipelines and natural gas storage, is guided by the same regulatory regime as any ordinary industrial activity that involves the construction, operation of use of infrastructure.

Investment in construction, operation and use of downstream natural gas transmission and distribution pipelines and storage facilities is subject to both the Act of 28 June 2002, No 61 on common rules for the internal market in natural gas (Natural Gas Act/NGA), and the subsequent MPE regulations of 14 November 2003 (Natural Gas Regulations/NGR). These rules are consistent with the EU third internal market natural gas regulatory package, implemented in Norwegian law as part of Norway's EEA obligation.

NGA and NGR rules do not regulate the rights of either landowners or property right-holders. If access to property cannot be gained based on agreements with the landowner(s) or property right-holder(s), and for this reason has to be enforced, that enforcement must be executed through the ordinary statutory material and procedural rules applicable to expropriation. Any such expropriation is subject to compensation. Both expropriation and compensation may be contested in front of the ordinary courts.

There are no state or private monopolies with regard to investment in upstream or downstream pipelines, landing terminals, plants or refineries.

EU internal market third-party access rules based on negotiated access as implemented in the NGA and the NGR apply (see 3.1 Forms of Allowed Private Investment in Midstream/Downstream Operations).

There are no state or private monopolies with regard to investment in transmission or distribution pipelines or storage facilities. Access to natural gas networks is subject to negotiation with the system owner and operator. Access is subject to applicable law and is granted on non-discriminatory terms and conditions consistent with EU internal market requirements.

Pursuant to the Natural Gas Act (NGA), the Natural Gas Regulations (NGR) and by delegation from the MPE, a concession for the establishment of a natural gas pipeline network must be obtained from the Norwegian Water Resources and Energy Directorate. Land rights must be obtained from landowner(s) or property right(s)-holder(s), while construction permits and environmental permits must be obtained from other competent authorities, in some cases from regional or local authorities.

The delineation between Upstream and Downstream is outlined in 3.1 Forms of Allowed Private Investment in Midstream/Downstream Operations). The Norwegian petroleum regime in principle follows the same legal and regulatory delineation. Downstream licences related to natural gas as well as downstream activities related to any other activities downstream of the commodities delivery point (see 3.2 Rights and Terms of Access to Any Downstream Operation Run by a National Monopoly) are subject to the ordinary Norwegian tax and fiscal regime. The upstream petroleum special tax regime does not apply. Tariffs are based on the norms implemented in Norwegian law consistent with the EU internal market rules applicable to downstream natural gas activities.

Downstream licences are subject to the ordinary Norwegian tax and fiscal regime. The General Tax Act (GTA) with a corporate income tax rate of 22% applies. The upstream petroleum special tax regime does not apply.

No such company or special rights exist in relation to downstream petroleum licences.

No local content requirements are applicable to downstream operations by private investors. See comments on jurisdictional delineation between upstream, midstream and downstream in 3.1 Forms of Allowed Private Investment in Midstream/Downstream Operations.

The terms of downstream licences are determined by the NGA, the NGR and the MPE's subsequent delegation of power to the Directorate for Water Resources and Energy. Only one such concession has been granted to date.

Legislation contains mandatory obligations relating to the use and operation of natural gas pipeline systems with regard to third-party use, tariffs and information to the authorities, users, consumers and the public. Dispensations or exemptions may be granted pursuant to the law. The concession may otherwise contain specific individual conditions necessary for the protection of public or private interests within the limits of public administrative discretionary power. These administrative powers are limited by public administrative law and principles for discretionary administrative authorities as outlined in the Public Administration Act and related regulations.

Concessions are granted to physical or legal persons subject to application consistent with regulatory terms, conditions and procedures. Concessions are granted for 30 years, but may be extended. Individual conditions may be stipulated with regard to system operational safety, gas supply quality, price and regularity, including security of supply, energy efficiency and for reasons associated with climate change.

There is no standardised concession or licence. Conditions to be implemented must be objective, transparent and non-discriminatory. Legislation is based on and consistent with Norwegian EEA obligations for the energy sector as formulated for the EU internal market in natural gas. Specific terms for application and award of a concession are outlined in Chapter 2 of the NGR.

See 3.1 Forms of Allowed Private Investment in Midstream/Downstream Operations.

EU third-party access rules based on negotiated access as implemented in the NGA and the NGR apply. See 3.1 Forms of Allowed Private Investment in Midstream/Downstream Operations, and 3.8 Other Key Terms of Each Type of Downstream Licence, as applicable.

No such restrictions apply except for in the case of a declaration of a national emergency, in which emergency legislation enters into force.

EU internal market rules, including the four freedoms, the prohibition of quantitative (import and) export restrictions and competition law apply to petroleum marketing and sales.

Beyond limitations following from international sanctions binding on Norway or domestic delivery obligations pursuant to law (under extraordinary circumstances), licensees are in principle free to export all petroleum produced. The majority of the liquid volumes are loaded onto tankers offshore. Some volumes are landed onshore by submarine pipelines before being shipped. All natural gas that is not consumed for production purposes or reinjected is transported through large submarine trunk pipelines and sold almost entirely to the UK and the central European market. The exception is the Barents Sea Snøhvit gas production project, where the natural gas is shipped and delivered to the market as LNG.

Currently, no liquids are reserved for the domestic market. Domestic supply obligations are unlikely to be imposed due to the Norwegian production and consumption level, combined with SDFI volumes available to the Government. The supply of petroleum to cover national requirements regulated by the PA, however, is non-discriminatory. Deliveries compelled under these rules shall be paid for at rates consistent with market prices. Only crude oil and other liquids may theoretically be required, as Norway consumes practically no natural gas at all, and is not in need of natural gas for electricity or other energy supply purposes. All energy supply for purposes other than transportation is covered by hydroelectric power generation.

The emergency rules for supply in cases of national emergencies or war are included in the PA and are non-discriminatory. The rules are established in line with applicable exceptions to EEA internal market rules. None of these rules has been invoked to date. Given the Norwegian energy mix, it is unlikely that the state will have to rely on these provisions to secure domestic supply as long as there is substantial production on the NCS and the state holds a substantial participating interest in several production projects.

To establish or operate a downstream natural gas transmission, distribution or natural gas storage or regasification facility, a licence (concession) is required. Only qualified entities may hold a licence. Each licence may contain conditions. EU internal energy market principles requiring vertical unbundling apply. The same applies to LNG production facilities, to the extent such facilities are not comprised by an upstream production project (see 2.8 Other Key Terms of Each Type of Upstream Licence and 6.2 Liquefied Natural Gas (LNG) Projects). Other downstream petroleum facilities than those used for downstream natural gas purposes are not regulated by Norwegian petroleum-dedicated legislation, but are subject to a host of Norwegian laws applicable to large industrial facilities handling hazardous products or processes.

Because of its EEA obligations, Norway has implemented the EU four freedoms of movement of goods, services, capital and persons. Competition law applies, consistent with these obligations, including the right of establishment.

See comments under 1.1 System of Petroleum Ownership, and in particular 1.4 Principal Petroleum Laws and Regulations.

The relevant ministries and directorates are listed under 1.1 System of Petroleum Ownership. All relevant websites related to the upstream and downstream sectors of ministries and directorates may be accessed at www.regjeringen.no

In addition to the authorities described under 1.1 System of Petroleum Ownership, the competent directorate with regard to downstream natural gas transmission, distribution and storage regulations is the Norwegian Water Resources and Energy Directorate. Its website is: www.nve.no

The licensee, owner or users (as the case may be) must fulfil certain requirements in order to obtain permits pursuant to the provisions of the Pollution Control Act applicable to certain discharges and emissions.

For further information, see 2.2 Issuing Upstream Licences/Obtaining Petroleum Rights, relating to the conduct of area (SEA) and activity-specific environmental impact assessment, as well as 2.2 Issuing Upstream Licences/Obtaining Petroleum Rights and 2.7 Requirements for a Licence/Lease-Holder to Proceed to Development and Production on applicable pollution control legislation.

Pursuant to provisions of the Petroleum Act (PA) Chapter 2 and the Petroleum Regulations (PR) Chapter 2a, the state conducts a comprehensive environmental impact assessments (EIA) prior to opening of acreage for petroleum activities (see 2.2 Issuing Upstream Licences/Obtaining Petroleum Rights, 2.7 Requirements for a Licence/Lease-Holder to Proceed to Development and Production and 5.2 Environmental Obligations for a Major Petroleum Project).

The EIAs cover the impact on the natural environment, industry-, infrastructure- and societal impacts, including employment. The resultant report is submitted to Stortinget for consideration and support of a recommendation on whether or not to open new areas for offshore petroleum activities.

The applicant for a facilities licence must, before any development and production or facility licence is awarded, conduct an area- and activity-specific EIA (again, see 2.2 Issuing Upstream Licences/Obtaining Petroleum Rights, 2.7 Requirements for a Licence/Lease-Holder to Proceed to Development and Production and 5.2 Environmental Obligations for a Major Petroleum Project). The EIA is conducted in a fashion comparable to the initial or a subsequent specific EIA. It must be based on updated information and additional investigation as specified in an approved EIA programme.

The Petroleum Act (PA) and Petroleum Regulations (PR) regulating petroleum activities and facilities related to offshore petroleum resources contain a suite of special rules. The PA Chapter 7 contains specific rules on liability for pollution damage. The Petroleum Act Chapter 8 contains specific rules relating to compensation to Norwegian fishermen. The Petroleum Act Chapter 9 contains specific rules on safety.

Cessation of activities, decommissioning and potentially disposal of facilities are regulated by the provisions in the Petroleum Act (PA) Chapter 5 and those of the Petroleum Regulations (PR) Chapter 6. Wells are not considered facilities, so the plugging and abandonment of them are not included in a decommissioning plan before final decommissioning of production or use of related facilities. Norwegian decommissioning legislation is consistent with requirements that follow from ratified public international treaty obligations such as UNCLOS, the London Anti-dumping Convention and the OSPAR Convention.

A development plan pursuant to a production licence or a facilities licence must contain information of a general nature with regard to the decommissioning or potential removal of an installation.

There is a general requirement of removal of installations, but it is expected that certain gravity base concrete structures will be left in place because of the potential safety risk and negative environmental effects associated with removal. However, concrete foundations to steel structures have previously been removed and dumped inside Norwegian internal waters.

To date, submarine pipelines do not have to be removed. Flowlines and umbilicals connecting offshore installations within the same development area are normally considered part of installations and are required to be removed. Flowlines and umbilicals between installations located in different development areas or connected to onshore facilities are also normally removed.

A description of plans for future decommissioning is required already in field development plans (PDO) or applications for a licence to install and operate facilities. The licensee holding a participating interest in an exclusive petroleum licence or the owner of a facility is obliged to submit a decommissioning plan no earlier than five years and no later than two years prior to planned cessation of petroleum (operations) activities or use of a facility. A plan may comprise one of more facilities in one or more areas.

If licensees or owner(s) fail to submit a decommissioning plan or implement an approved decommissioning plan, the authorities may cause a third party to undertake the preparation of the plan or implement an approved plan at the risk, liability and cost of the licensee or owner.

Rules apply with regard to emissions to air and discharge to land or sea under the Pollution Control Act, including fiscal disincentives in the form of, eg, the CO2 tax. The CO2 tax rate applied to offshore petroleum (operations) activities is higher than for non-offshore activities. There is also limitation of emissions to air of NOx and volatile components.

Regional and local government has no power with regard to oil or gas production volumes. (See 2.10 Legal or Regulatory Restrictions on Production Rates.)

Norway has not opened for exploration or production of shale or other unconventional petroleum resources. In any case, these are expected to be very limited, as most of the Norwegian land territory is base rock.

There is only one LNG production project in Norway. The project is governed by the ordinary upstream petroleum regulatory regime (PA and PR) and tax regime (GTA and PTA). A special project-specific solution granting the licensees an augmented uplift for tax purposes was established for this particular project.

Due to the structure of the regulatory regime, governance is heavily resource management-oriented, standardised and with substantial direct non-carried state participation. The regime is considered, transparent, predicable and accountable. In contrast to most regimes, disputes between investors and regulatory authorities are subject to the ordinary courts. In disputes among themselves, investors may resort to arbitration or other conflict-resolution mechanisms.

The standardised production licence and its annex, the petroleum agreement, are subject to Norwegian law. According to mandatory licence terms, all contracts relating to or arising out of petroleum activities pursuant to an exclusive petroleum licence shall be governed by Norwegian law and be in accordance with Norwegian contract traditions.

Apart from the one interim change described below, there are no material changes to laws that significantly affect the oil and gas industry. However, due to coronavirus pandemic (COVID-19) effects and the rapid drop in oil prices in the first quarter of 2020, Stortinget (Parliament) requested the minority Government to propose measures that could stimulate further investments in the Norwegian upstream sector.

On June 15th, interim amendments to the petroleum tax law were enacted by Parliament, intended to increase liquidity and thereby maintaining investments in the industry. The two main amendments made to the petroleum special tax regime (included in a new section 11) were:

  • to allow the full costs of pipelines or production facilities, including a 24% uplift, charge as an expense the year's costs that are incurred. The arrangement covers all such costs incurred after 12 May 2020 through to 2021, as well as any such future costs that follow from PDOs or PIOs submitted before 2023 and approved prior to 2024;
  • to let licensees subject to petroleum special tax claim direct pay out of the tax value of deficits and non-utilised uplift for 2020 and 2021. The expected tax value for the year in question will be paid out in advance, through bi-monthly instalments.

Another example of recent oil and gas "regulation", is the Government's implementation of production cuts under the PA section 4-4, for the first time since 2002. See more about this in 2.10 Legal or Regulatory Restrictions on Production Rates.

Advokatfirmaet Simonsen Vogt Wiig

+47 21955500

+47 21955501

post.oslo@svw.no www.svw.no
Author Business Card

Trends and Developments


Authors



Advokatfirmaet Simonsen Vogt Wiig (SVW) is one of Norway's largest full-service firms, with 180-plus fee earners and offices in Oslo, Stavanger and all major Norwegian cities, as well as a foreign office in Singapore. SVW has one of Norway's most powerful oil and gas teams, consisting of ten dedicated upstream lawyers and a host of specialists in other fields serving the firm's oil and gas clients. The firm's practice comprises all aspects of the oil and gas industry and is global in reach. Simonsen Vogt Wiig provides full-spectrum legal services to international majors and independents active on the Norwegian continental shelf as well as international and Norwegian oil service companies. The firm's services comprise the full life cycle and all aspects of the activities of oil and gas players. Simonsen Vogt Wiig advises numerous governments on resource management, legal framework development, public international law and negotiation of legal instruments, from bilateral treaties to production-sharing contracts, as well as service and development contracts. The international practice also comprises assistance to international oil and gas and oil-service companies in relation to new ventures, transactions and international pipeline projects.

General Trends and Measures taken by the Norwegian Government in Connection with the Coronavirus Pandemic and the Drop in Oil Prices

The focus of this article will primarily be on measures taken by the Government in response to the COVID-19 pandemic and the resultant oil price drop during the first part of 2020. However, we will initially make a few general comments relating to licensing and investor developments in the Norwegian upstream sector.

Norwegian Continental Shelf (NCS) attractiveness and company profiles

The trend of recent years, where the oil majors, US- and UK-based independents are exiting the NCS, seems to be continuing. Companies like ExxonMobil, Chevron, BP and Marathon have left Norway entirely or divested fundamentally during the last three years. Eni has also restructured its stake by merging Eni Norge with PE fund HitecVision-controlled companies. Additionally, most of the European downstream companies that entered the NCS prior to 2010-2011 have also left. A substantial number of new entrants have filled their space. New entrants tend to be P&E-financed, consolidated oil minnows and companies specialising in smaller discoveries or tail-end production. There are fewer dedicated exploration companies, as the substantial interest in previous explore-find-sell or explore-develop-sell scenarios has abated.

There is still significant interest in the licensing rounds concerning predefined areas (APA rounds) covering the more "mature" acreage located close to existing facilities with future potential spare capacity for processing and onward shipment. For several years, these areas have provided commercially viable discoveries on a regular basis, even in the current low-price regime. Frontier areas and the Arctic have recently been shown to be of less interest, due to the lower oil price and lack of recent significant discoveries.

Norway's decision to cut production

Norway is not an OPEC member, nor does it have any formalised co-operation with OPEC. Norway is, through the EEA, subject to EU internal market regulation and any adjustment of production levels would have to be consistent with the requirements of these rules as well as Norwegian petroleum law. The Norwegian government has a major economic stake as resource owner and tax collector and with a substantial interest in commercial operations on the NCS through the State Direct Financial Interest. The Government approves regularly production volumes, but these are stipulated based on optimal recovery of producing assets and are not set for the purpose of regulating production levels from a supply-and-demand perspective. From time to time, however, the Norwegian government has been forced to cut oil production due to extreme market developments. The last time this occurred was in 2002.

In early April 2020, the Norwegian Minister of Petroleum and Energy announced that the Government was considering regulating production from the Norwegian Continental Shelf. On April 29th, the minister announced that the Government had decided to cut production by 250,000 b/d through June 2020 and by 132,000 b/d for the second half of 2020. Additionally, production commencement on several production projects would be delayed until 2021. Total daily production in December 2020 would be reduced by 300,000 b/d, although it was forecast that about 166,000 b/d of production would have been delayed until 2021 anyway because of measures implemented to fight the coronavirus and its effect on market developments.

"Gas and condensate fields", trans-boundary fields, as well as certain fields where reservoir-management issues prevent downward production regulation are exempted from the production cut. Natural gas export to the UK and continental Europe will not be affected.

The criterion for production regulation is stipulated by the Petroleum Act Section 4-4 only allowing Government to intervene "…when important interests of society…" are at stake. In the press release from the Minister, it pointed to the IEA's mid-April estimates of reduction in oil demand in the second quarter of 2020, and the effect of recent events for Norway as a resource owner, but also pointed to reduced investments and thereby negative consequences for the supply and service sector and subsequently employment.

The Government (King in council) is authorised to order production cuts pursuant to PA (section 4-4). The law does not compel Government to consult Stortinget (the Parliament). However, the Government chose to consult prior to imposing the production cut. This is not surprising, given the nature of the Norwegian parliamentary system and the current situation where Norway (as it frequently has had over the last 60 years) has a minority Government. The Government's primary motive was to avoid subsequent policy discussion in Stortinget leading to a non-confidence motion. Unlike in the case of active support to industry, a substantial majority of MPs supported the move by the Government.

COVID-19 compensation package

The oil and gas industry (upstream) is Norway's largest industry sector by far, followed by the oil and gas service and supply industry. Both because of the effects of the coronavirus (COVID-19) on the economy and the simultaneous rapid drop in oil prices in the first quarter of 2020, the Norwegian Parliament requested that the Government assess the situation and introduce adequate measures to stimulate investments in the oil and gas industry. The measures should have the potential to maintain activities in the oil and gas supply and service sector.

The COVID-19 virus outbreak and drop in oil prices accompanied market uncertainty, leading to a substantial liquidity squeeze and desiccated financial markets. The minority Government, seeking support by the political parties forming a majority of members of parliament, believed that, without any economic initiatives to stimulate NCS activity, investments were likely to drop considerably during 2020 and the following years. The consequence foreseen would be that planned, otherwise profitable upstream projects before tax for a longer period were either postponed or not materialising at all.

The Government concluded that actions needed to be taken and interim measures implemented to increase financial liquidity. The Government proposed interim amendments to the petroleum tax act (PTA), including immediate deduction rights, with the intended effect that payable taxes would be deferred and thus short-term financial liquidity would be maintained.

NCS licensees holding production or pipeline transportation rights are subject to general corporate income and capital gains tax, imposed by the General Tax Act, currently at a tax rate of 22%, and special petroleum tax (imposed by the PTA), currently at 56%. Normally, costs related to the acquisition of pipelines or production facilities are depreciated with a flat annual 16.67% depreciation rate (ie, depreciated linearly over six years). Partly to compensate for the deferred investment deduction, licensees are additionally allowed a 5.2% "uplift" on the original cost of the facility, deductible in the petroleum special tax base for four years, commencing on the first year of depreciation (ie, a total of 20.8% uplift).

Stortinget (the Norwegian Parliament) amended the proposal made by the minority Government and changes to the PTA were adopted on 15 June 2020. The two main amendments to the PTA included in a new section 11 were:

  • to allow the full costs of pipelines or production facilities, including a 24% uplift to be charged as expenses in the year the costs are incurred. The arrangement covers these costs incurred in 2020 and 2021, in addition to any such future costs, which are covered by a development plan (Plan for Development and Operations – PDO) or Plan for Installation and Operation (PIO - to obtain a facility licence) submitted up to 1 January 2023 and approved by the government by 1 January 2024; 
  • to allow licensees subject to petroleum special tax to claim direct payment out of the tax value of deficits and non-utilised uplift for 2020 and 2021. The expected tax value for the year in question will be paid out in advance, through bi-monthly instalments.

The collective value of added liquidity to the oil and gas companies was expected by the government to be approximately NOK100 billion, or about USD10.5 billion. This was prior to additional changes made by the majority of the MPs, including increased uplift (from 10% to 24%) as well as pay-outs in pre-estimated instalments.

Several upstream projects were in the pipeline, waiting to be sanctioned as an immediate effect of the "compensation package" adopted by Stortinget:

  • Aker BP, Equinor and the other licensees in the area had for several years discussed development of the NOAKA fields (Krafla, Fulla and North of Alvheim), without agreeing a concept. They made a final investment decision (FID) only days after the law amendments were enacted, with the PDO expected to be submitted to Government for approval in 2022;
  • the FID for the planned HOD development was adopted by the licensees on June 18th and the PDO was submitted shortly after, on June 24th.

Several projects for the electrification of power supply to offshore production facilities were either sanctioned as an immediate effect of the package or are expected in the near future;

  • Equinor, on behalf of the Sleipner licensees, submitted an amended PDO for connection of the Sleipner field (the Utsira High area) to the Utsira electricity cable. The FID for connection of the Gina Krog field in the same area was also made;
  • electrification of the NOAKA field will similarly be considered, either through a cable (from shore) or through a standalone offshore wind farm, similar to the Hywind Tampen project for which a PDO was approved earlier this year;

-       Electrification of several onshore receiving terminals and processing facilities are currently being assessed by the Ministry of Petroleum and Energy, including for the Melkøya LNG onshore production facility, the onshore Kårstø processing plant and the onshore terminal and processing plant at Mongstad.

Focus on reduced emissions and electrification

In relation to discussions on the interim amendments of the PTA, the parliament instructed the government to propose a plan for reduction of NCS emissions by 50% by 2030 (from 2005 levels) including electrification of existing and new fields. "Electrification" in this context means the substitution of CO2- and NOx-emitting gas turbines on production facilities with electricity generated by onshore hydropower projects and supplied through subsea cables, or potentially from other "green" offshore power sources such as wind power.

The debate on offshore electrification of offshore facilities has been ongoing since 1996, when Stortinget decided that all future PDOs should comprise an assessment and overview of costs associated with electrification. For many years, the industry was resistant to the idea because of the costs and security of supply.

In recent years, the industry attitude appears to have started to change. Contributing factors have been the increased CO2 price in the EU carbon-trading system and quotas (currently about NOK250 per ton), in combination with a constantly rising Norwegian CO2 tax (Currently NOK500) which means that the cost of emissions is altering the balance of electrification projects. In addition, the general climate change focus, binding reduction targets set by the Paris Climate Agreement, as well as the expectations of the public, mean that more environmentally viable oil and gas production is important for the legitimacy of the industry and public opinion.

Estimates indicate that NOx and CO2 emissions from gas turbines in the upstream industry amount to about a quarter of total Norwegian emissions. The industry (the industry's trade association NOROG in co-operation with other interested trade organisations and the trade unions), collaborating through KONKRAFT, published a report in February 2020, stating that industry was committed to reduce emissions by 40% by 2030 (based on 2005 levels) and reach "close to zero" emissions by 2050. Stortinget has, at the same time, required the minority Government to raise the bar further, increasing the 2030 target by an additional ten percentage points.

In 2002, the Government released a report based on a prior study on the possibility of supplying offshore production facilities with power from shore. The report was updated in 2008. Because of recent indications of the potential increase in viable electrification projects, the Government decided to update the report once again in 2020. This updated report was submitted to the Ministry of Petroleum and Energy on 26 June 2020.

A few points made in the report are worth special attention. Currently, eight NCS production projects receive power from the Norwegian power grid generated by hydropower. Electrification has also been decided for an additional eight production projects. Six more electrification projects are approaching FIDs. If all 22 projects are implemented, more than 50% of NCS production will be run on hydropower supplied through cables from the mainland in a few years, cutting almost five million tonnes of CO2 emissions.

However, the source of electrification does not necessarily have to come from the mainland. In the recent government approval of the Hywind Tampen amended PDO, the power source is a planned 11-windmill offshore wind farm. Similarly, wind power is also considered for a potential electrification of the NOAKA field development as well as other production facilities on- and offshore.

The result of Stortinget's request to Government regarding a plan for reduced emissions, which is to include electrification, remains to be seen. It seems likely that the pressure on the industry for the electrification of the power supply to offshore facilities (for new as well as existing installations) will increase. The interim petroleum tax package may have a nudging effect, but only in the relatively short term. Further incentives for investing in "clean" production or emissions disincentives (for instance, further increases in CO2 tax) should not come as a surprise.

Together with the compensation package, Stortinget further requested that Government take several additional actions related to the upstream sector. Among those was a request to submit proposals that may enable zero or very low emissions from support and supply vessels involved in or assisting offshore production.

At the end of March this year, the Government was also requested by Stortinget to advance investment decisions on a number of CCS projects as a measure to enhance investments during the coronavirus crisis. Projects identified included those projects where pilots already had been ongoing for a number of years. The CCS request is indirectly related to the oil and gas industry, as NCS acreage relinquished by the upstream industry containing depleted petroleum deposits suitable for a CCS project may be utilised for CO2 storage.

Advokatfirmaet Simonsen Vogt Wiig

+47 21955500

+47 21955501

post.oslo@svw.no www.svw.no
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Law and Practice

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Advokatfirmaet Simonsen Vogt Wiig (SVW) is one of Norway's largest full-service firms, with 180-plus fee earners and offices in Oslo, Stavanger and all major Norwegian cities, as well as a foreign office in Singapore. SVW has one of Norway's most powerful oil and gas teams, consisting of ten dedicated upstream lawyers and a host of specialists in other fields serving the firm's oil and gas clients. The firm's practice comprises all aspects of the oil and gas industry and is global in reach. Simonsen Vogt Wiig provides full-spectrum legal services to international majors and independents active on the Norwegian continental shelf as well as international and Norwegian oil service companies. The firm's services comprise the full life cycle and all aspects of the activities of oil and gas players. Simonsen Vogt Wiig advises numerous governments on resource management, legal framework development, public international law and negotiation of legal instruments, from bilateral treaties to production-sharing contracts, as well as service and development contracts. The international practice also comprises assistance to international oil and gas and oil-service companies in relation to new ventures, transactions and international pipeline projects.

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Authors



Advokatfirmaet Simonsen Vogt Wiig (SVW) is one of Norway's largest full-service firms, with 180-plus fee earners and offices in Oslo, Stavanger and all major Norwegian cities, as well as a foreign office in Singapore. SVW has one of Norway's most powerful oil and gas teams, consisting of ten dedicated upstream lawyers and a host of specialists in other fields serving the firm's oil and gas clients. The firm's practice comprises all aspects of the oil and gas industry and is global in reach. Simonsen Vogt Wiig provides full-spectrum legal services to international majors and independents active on the Norwegian continental shelf as well as international and Norwegian oil service companies. The firm's services comprise the full life cycle and all aspects of the activities of oil and gas players. Simonsen Vogt Wiig advises numerous governments on resource management, legal framework development, public international law and negotiation of legal instruments, from bilateral treaties to production-sharing contracts, as well as service and development contracts. The international practice also comprises assistance to international oil and gas and oil-service companies in relation to new ventures, transactions and international pipeline projects.

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