Oil, Gas and the Transition to Renewables 2024

Last Updated August 06, 2024

Norway

Law and Practice

Authors



Advokatfirmaet Simonsen Vogt Wiig (SVW) is one of Norway’s largest full-service firms, with 180-plus fee earners in offices in Oslo and major Norwegian cities, as well as an office in Singapore. SVW has one of Norway’s most powerful oil and gas teams, consisting of dedicated upstream lawyers and a host of specialists in other fields serving oil and gas clients, domestically and internationally. It provides legal services to international majors and independents as well as international and Norwegian supply and oil service companies. The firm’s services comprise the full life cycle and all aspects of the activities of oil and gas players. SVW advises governments on legal framework development (commercial, resources and HSE), public international law and negotiation of treaties, production-sharing contracts, and service and development contracts. The international practice comprises assistance to international energy companies on new ventures and investments, transactions and international pipeline projects.

The Norwegian state’s ownership of offshore “petroleum” resources and its exclusive and sovereign rights to exploration for and exploitation of petroleum resources were established by law in 1963. Excluding the Svalbard special regime, state ownership of mainland onshore petroleum resources was established by law in 1973. There is no ongoing mainland onshore petroleum activity. No specific secondary legislation has been adopted for the purpose of mainland onshore petroleum activities. Petroleum as defined by the 1996 Petroleum Act (PA) comprises more than hydrocarbons, see 1.4 Principal Hydrocarbon Law(s) and Regulations.

Exploration Licence

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

Production Licence

A production licence (concession) is required for entities 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. A facility licence (concession) is required to operate upstream facilities not included in an approved 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 production licence, provided the operator of the facility holds the required petroleum licence (concession).

Direct State Participation

Direct state participation is exercised through the State Direct Financial Interest (SDFI), determined by the government on a discretionary basis. SDFI participation is considered and is subject to the petroleum regulatory and concessionary regime as a licensee, save that the SDFI does not obtain information relevant to the selection of suppliers of goods and services and does not take part in procurement decisions. The SDFI is not a legal entity separate from the state. SDFI licence interests and associated activities are managed by Petoro AS on behalf of the state (see 1.3 National Companies).

Regulatory functions are exercised by state institutions. No regional or local authorities have any specific regulatory authority over “petroleum” resources or upstream operations. Pursuant to the applicable law and delegated powers, regional and municipal authorities have regulatory functions of a general nature where a project includes onshore facilities that require authorisations for planned use and management of land (including internal waters and harbours).

Stortinget

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

Cabinet

The Cabinet comprises 19 ministers, and makes formal administrative, regulatory and budgetary decisions in meetings ceremonially headed by the King of Norway. 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. Each minister is in charge of the day-to-day activities within their area of responsibility. Subject to applicable law, a ministry takes administrative decisions in individual cases and passes secondary legislation in the form of ministerial regulations.

Ministry of Energy (ME)

The Ministry of Petroleum and Energy (MPE) changed its name to the Ministry of Energy (ME) effective from 1 January 2024. The change was purely a name change reflecting MPE energy transition responsibilities, and the MPE’s authority, pursuant to applicable law and administrative decisions, continues unamended in the ME. The ME continues to be in charge of petroleum resource management, petroleum sector facilities and operations subject to Norwegian law and jurisdiction. This includes resources, facilities and operations in all onshore and offshore areas except for the territory of Svalbard. It includes activities outside the Norwegian continental shelf (NCS) when consistent with public international law. The ME is in charge of activities conducted on trans-boundary fields and the natural gas pipeline network, all subject to bilateral treaties. It manages the state’s participation interest (“SDFI”) and the gas pipeline-system operator, Gassco AS. Corporate governance of the management of the SDFI upstream interest management company, Petoro AS, and the state’s interest as shareholder in Equinor ASA have been transferred to the Ministry of Trade, Industry and Fisheries (MTIF). The ME is the appeal body for appeals against decisions taken by the Norm Price Board. The Ministry also lately became responsible for the management of offshore renewables, carbon capture and storage (CCS), and deep-sea mining activities. Effective from 1 July 2023, the MPE (now the ME) took over responsibility for the health, safety and working environment of those in the onshore and offshore petroleum sector from the Ministry of Labour and Social Inclusion (“AID”). The regulatory role also comprises supervision and emergency preparedness on facilities offshore and terminals onshore. The transfer also included responsibility for the health, safety and working environment (“HSE”) aspects of offshore renewables, CCS and deep-sea mining activities.

The Norwegian Offshore Directorate (NOD) – previously the Norwegian Petroleum Directorate (NPD)

The Norwegian Petroleum Directorate (NPD) changed its name to the Norwegian Offshore Directorate (NOD) effective from 1 January 2024. The change was purely a name change reflecting the NPD’s energy transition responsibilities, and all NPD authority, pursuant to applicable law and administrative decisions, continues unamended in the NOD. The NOD remains the upstream petroleum sector’s technical adviser and reports to the ME. The NOD conducts NCS-relevant petroleum sector analysis and data management. In co-operation with other authorities, the NOD ensures the comprehensive follow-up of offshore and onshore petroleum operations and, subject to delegated power, develops secondary regulations and non-binding guidelines. The NOD is the registrar of the Petroleum Registry, in which exclusive petroleum rights (licences) must be registered, as well as any ME-approved mortgage or other security on petroleum facilities. NOD has also been delegated power to supervise projects relating to offshore renewable energy, in particular offshore wind projects, the transportation and offshore subsea injection and storage of CO₂ (CCS) and deep-sea mining.

Regulatory Authority for Energy (“RME”)

The regulatory authority for energy (“RME”) was appointed the independent downstream natural gas regulator by the MPE (now the ME) from 1 November 2019, pursuant to the Natural Gas Act Section 4. The RME has responsibilities in the downstream natural gas sector that are comparable to, but slightly less comprehensive than, those of the NOD. The RME is not in charge of HSE or environmental protection.

Norwegian Offshore Industry Authority (NOIA) – previously the Petroleum Safety Authority (PSA)

The Petroleum Safety Authority (PSA) changed its name to the Norwegian Offshore Industry Authority (the NOIA) effective from 1 January 2024. The change was purely a name change reflecting PSA energy transition responsibilities, and all the authority of the PSA, pursuant to applicable law and administrative decisions, has continued unamended in the NOIA. The NOIA is a directorate that previously reported to the Ministry of Labour and Social Inclusion (“AID”), but effective from 1 July, it reports to the ME. The NOIA monitors the HSE aspects of the petroleum sector, offshore renewables, CCS activities and deep-sea mining. It is authorised to issue regulations covering safety and the working environment within its sector of responsibility. It takes administrative decisions in the form of approvals and consents, makes orders (prohibitions and exemptions), and may issue administrative fines. The NOIA may suspend or shut down upstream petroleum and other operations subject to its HSE jurisdiction. Its supervisory HSE responsibility comprises all upstream oil and gas, offshore renewables, CCS and deep-sea mining activities on the NCS (fixed, movable or floating) installations and vessels, all pipeline systems, including intermediary terminals for natural gas export to the EU and the UK, and certain upstream onshore facilities subject to Norwegian jurisdiction pursuant to bilateral treaties.

Ministry of Finance

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 Oil Taxation Office does not deal with downstream natural gas or activities related to the transport, storage, distribution or sale of petroleum products. These activities are regulated solely by the general tax regime.

Ministry of Climate and Environment (MCE)

The Norwegian Ministry of Climate and Environment has the main responsibility for ensuring integrated government climate and environmental policies, regulation and supervisory functions. The MCE focuses on and is responsible for the protection of the natural environment, biodiversity, pollution control, climate change and cultural heritage matters.

The Norwegian Environment Agency (NEA)

The Norwegian Environment Agency’s tasks and responsibility are the protection of Norway’s natural environment, preventing pollution, and managing waste and climate change matters. Among its core responsibilities are environmental monitoring and control of the petroleum sector’s environmental footprint, including granting emission and discharge permits for upstream petroleum activities, from exploration to the completion of decommissioning, as well as in the downstream oil and gas sectors. The NEA is also central in all environmental impact assessment (EIA) processes, from the opening of areas for petroleum activities to EIAs submitted with decommissioning plans.

Ministry of Transport (MT)

The Ministry of Transport (MT) is in charge of the government’s emergency response to acute pollution from petroleum operations and shipping. The National Coastal Administration (NCA) is the MT advisory and executive body. The NCA Department of Emergency Response is responsible for government emergency response measures against acute pollution.

Norwegian Maritime Authority (NMA)

The Norwegian Maritime Authority (NMA) is the administrative and supervisory authority to the MT in matters related to health and safety, material security and the environment on Norwegian-flagged vessels and foreign ships in Norwegian waters. The NMA is responsible for ensuring the legal protection of Norwegian-registered ships and registered rights on those ships. The NMA is subordinate to the MTIF and the MCE.

Petoro AS

Petoro AS (“Petoro”) is a wholly state-owned company, managing the State Direct Financial Interest (SDFI) in petroleum licences on behalf of the state. Petoro does not apply for licences. State participation in production licences is discretionarily decided by the government. The SDFI participating interest is considered a licensee. Petoro does not sell SDFI entitlements to petroleum production, but supervises such sales executed by Equinor ASA (previously Statoil).

Petoro was established pursuant to Chapter 11 of the PA and legislation applicable to limited liability companies. Petoro is subject to ordinary limited liability company corporate law requirements. In addition, Petoro has to submit certain long-term and other qualified plans for the general assembly’s approval. Petoro votes as a licensee in the unincorporated joint venture established pursuant to the petroleum licence. Petoro holds certain joint venture veto rights for the protection of the state’s resource management interests. Petoro is excluded from participating in public procurement decisions, consistent with EEA public procurement law obligations.

Gassco AS

Gassco AS (“Gassco”) is a wholly state-owned joint-stock company appointed as the system operator of Gassled – the submarine natural-gas gathering, transportation and landing pipeline system. Gassco cannot own pipelines, terminals or gas extracted or produced. Gassled IS (“Gassled”) owns almost all upstream gas transportation pipelines and their related onshore terminals and holds a facilities licence. Gassled, with minority SDFI participating interest, is organised as an unincorporated joint venture in the same fashion as the NCS production licence. Gassco manages capacity bookings and capacity allocation. The MPE (now the ME) has issued regulations stipulating conditions for access and tariffs to be paid to use Gassled. All shippers with a duly substantiated need for capacity have access to Gassled on a non-discriminatory, objective and transparent basis. Tariffs are based on booked capacity, not throughput. Due to the security situation in Europe following the Russian invasion of Ukraine, Gassco was declared by the government, in September 2022, to be subject to the Act of 6 January 2018 No 24 (the “Security Act”) as an undertaking engaged in activities “of vital importance to fundamental national functions”.

Equinor ASA

Equinor ASA (“Equinor”) – until 2018 Statoil ASA – remains a publicly listed joint stock company in which the state holds 67% of the shares. Equinor is awarded rights like any other applicant and is subject to the same regulatory requirements as other licensees. Equinor still sells SDFI oil and gas production entitlements on behalf of the state. Due to the security situation in Europe following the Russian invasion of Ukraine, Equinor was declared by the government, in September 2022, to be subject to the Act of 6 January 2018 No 24 (the “Security Act”) as an undertaking engaged in activities “of vital importance to fundamental national functions”.

Regional or municipal authorities do not have any legislative powers in relation to “petroleum” resources. The Norwegian upstream petroleum regime may be divided into three segments, based on the location of the resource in question. There is no specific midstream regulation, but downstream natural gas transmission and distribution are regulated separately in line with EEA obligations implementing EU internal market rules in natural gas.

The Petroleum Act

The Petroleum Act of 29 November 1996, No 72 (PA) established resource ownership, and regulates resource management, facilities and all petroleum activities associated with the exploration for and production of petroleum from offshore petroleum resources subject to Norwegian jurisdiction. “Hydrocarbons” is a narrower definition of resources than the Norwegian statutory definition of “petroleum” applicable to such natural resources. “Petroleum” is defined in PA Section 1-6 letter a) as “all liquid and gaseous hydrocarbons existing in their natural state in the subsoil, as well as other substances produced in association with such hydrocarbons”. The petroleum and petroleum deposit definitions (see Section 1-6 letter b)) reflect the Norwegian natural resource management and resource rent collection approach. The aim is to secure optimal extraction and production of petroleum (including pressure control and extraction of associated non-hydrocarbons) from all petroleum deposits. 

Supplementary regulations

The PA is supplemented by a number of regulations, adopted as royal decrees, ministerial or directorate regulations. The most notable is the Petroleum Activities Regulations (“PR”) of 27 June 1997, No 653.

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

Title to petroleum resources

Title to petroleum resources in the ground, whether on the NCS or mainland territory, is vested in the state. The PA regulates the NCS seabed, facilities and petroleum operations and related activities associated with these resources. Petroleum rights licences are awarded as public administrative law concessions, not private law negotiated contracts. Concessions are standardised and awarded in annual predefined mature areas and in regular often biannual numbered licensing rounds in frontier areas. The PA establishes an obligation to co-ordinate petroleum activities including to unitise deposits reaching beyond the geographical limits of an individual production licence. Unitisations are currently based on a standard unit agreement and subject to ME approval. There are currently 93 fields producing on the NCS, of which approximately half are based on unitisations. Unitised fields are referred to as “Business Areas”. The PA also covers the exploitation of resources when exploitation takes place in maritime areas subject to Norwegian jurisdiction.

Upstream and downstream facilities and petroleum activities arising out of offshore resources may be governed by the PA when conducted onshore in Norway. The PA may also apply outside the NCS when Norway exercises jurisdiction consistent with international law. Energy (electricity) generation and supply dedicated to petroleum production or offshore utilisation are also regulated by the PA.

In accordance with Sections 1–5 of the PA, other Norwegian laws apply to petroleum operations and facilities subject to the PA. The PA-defined term “petroleum activities” comprises more than the common industry understanding of “petroleum operations”. This is particularly relevant for staff located outside of Norway when in charge of planning, preparation and management of NCS operations.

Other acts impacting petroleum activities

Other important acts with a substantial impact on petroleum activities are:

  • the Act of 18 June 2021, No 89, on the Norwegian continental shelf;
  • the Act of 13 March 1981, No 6, relating to protection against pollution and waste;
  • the Act of 17 June 2005, No 62 (the “Working Environment Act”), relating to the work environment, working hours and employment protection, etc, has resulted in several regulations (see 1.2 Regulatory Bodies on NOIA-enforced regulations);
  • the Act of 4 June 2015 on wage agreement terms has resulted in several regulations that are partly applicable to the petroleum sector (see 1.2 Regulatory Bodieson NOIA-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, has resulted in several regulations that are partly applicable to the petroleum sector (see 1.2 Regulatory Bodies on NOIA-enforced regulations);
  • the Act of 24 May 1929, No 4, pertaining to the supervision of electrical installations and equipment, has resulted in several regulations partly applicable to the petroleum sector (see 1.2 Regulatory Bodies on NOIA-enforced regulations);
  • the Act of 21 June 1963, No 12, relating to scientific research; 
  • the Act of 21 December 1990, No 72, relating to tax on the discharge of CO₂ in petroleum activities on the continental shelf; and
  • the Act of 13 June 1975, No 35, relating to the taxation of sub-sea petroleum deposits (the “Petroleum Taxation Act”).

The 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 with a long-term perspective for the benefit of 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, pay due regard to regional and local policy considerations and other activities.”

The PA has only been moderately amended since it came into force on 1 July 1997. The most significant amendments were made 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 Companies.

The PA and the PR form the legal foundation for the licensing regime.

Regulatory Regime

In 2005, a separate regulation for third-party access and the 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 applicable to Gassled facilities.

Several additional regulations have been adopted by the ME, NOD and NOIA. The main regulations enforced by the NOD and NOIA were adopted pursuant to the Petroleum Act, the Working Environment Act, the Fire Protection Act, the Product Control Act, the Electric Installations Act and a number of healthcare specific acts. In addition to the PR, the main regulations are published at www.sodir.no and www.havtil.no.

A number of labour law regulations have been adopted by the ASD and Labour Inspection Authority pertaining to the workplace, including acceptable exposure and threshold values and limits applicable to the working environment, performance of work, organisation, management and employee participation, labour hire undertakings, and worker identification requirements, etc. The website www.arbeidstilsynet.no may also be consulted.

The Land Petroleum Act (LPA)

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 mainland territory. The LPA also applies to resources in 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. Mainland Norway consists mainly of base rock, so exclusive upstream rights or petroleum activities based on onshore resources have not yet been conducted.

The Svalbard Regime

The PA and LPA do not apply to the territory of Svalbard, which is subject to Norwegian sovereignty pursuant to the Svalbard Treaty. The Svalbard regime follows a separate mining code applicable only to activities in that territory.

The Natural Gas Act (NGA)

Norway mostly relies on hydroelectric power for its energy supply. Natural gas is almost entirely exported. There is only a small downstream natural gas sector in Norway. Downstream activities are based on natural gas from Norwegian offshore resources. The Act of 28 June 2002, No 61 (the “Natural Gas Act” or NGA), governs transmission and distribution of natural gas, and small-scale LNG storage and regasification plants. The NGA is accompanied by the Natural Gas Regulations (NGR). The structure and regulatory approach of the NGA are similar to the PA, but additionally include the specific EU internal market rules applicable to downstream natural gas infrastructure and market regulation adopted as part of Norway’s EEA obligations.

Exclusive petroleum exploration and production rights, and rights to construct and operate facilities related to offshore petroleum deposits, are subject to public administrative law-based concessions. These take the form of either a production licence or a facilities licence. The licensing system has been in place since the first licensing round awards in 1965. All licences awarded are related to petroleum (See 1.4 Principal Hydrocarbon Law(s) and Regulations). Onshore licences have not yet been awarded.

Investors may be privately or publicly owned or controlled. Persons or entities subject to international embargo by the UN or the EU will not be permitted to obtain participation interest in a petroleum licence or take over an entity holding such rights. Investments in upstream petroleum activities and natural gas transportation have become subject to increased government scrutiny pursuant to the Security Act, subsequent to the Russian 2022 invasion of Ukraine (see 1.3 National Companies). Further amendments to the Security Act, entailing increased scope and stricter control over ownership of undertakings engaged in activities “of vital importance to fundamental national functions”, have been adopted by Stortinget, but some amendments have not yet come into force.

All exclusive upstream licences are normally required to have two or more participants. Participants in a production licence will be compelled, as a condition of the award, to enter into an unincorporated joint venture and be subject to a standard petroleum agreement with two mandatory exhibits enclosed, and their provisions by reference incorporated into the petroleum agreement: the joint operating agreement (JOA) and the accounting agreement (ACC).

From 1965 until 2007, the format of the petroleum agreement was progressively changed. After this date, the system was harmonised to be identical for all operative production licences. For facilities licences, the joint venture may have different formats. Since the formation of Gassled, most gas pipeline joint ventures operated under a facilities licence have been established under a standard unincorporated joint venture agreement approved by the ME.

Consistent with EU internal market rules, 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. However, it is difficult to envisage that a single physical person could fulfil the technical, capacity, organisational and financial requirements of the law to obtain a Norwegian offshore production licence participating interest. Due to the ease of establishing an EEA entity, the ME does not, in practice, distinguish between EEA entities and non-EEA entities.

All upstream petroleum rights are governed by public administrative law, not private law-based contracts or licences. Concessions are awarded on the basis that the state exercises exclusive sovereignty or sovereign right over its natural resources. Licences are awarded for petroleum activities relating to sub-sea petroleum deposits. “Petroleum activities” is a broad scope term defined in the PA Section 1-6. The term comprises all planning, preparation, onshore and offshore operations, and use of facilities, as well as plugging of wells and decommissioning of facilities. Petroleum comprises more than hydrocarbons, see 1.4 Principal Hydrocarbon Law(s) and Regulations.

Before any petroleum activities by commercial entities are permitted, the area must be opened for petroleum activities. The ME’s (and its predecessor the MPE’s) consistent practice has been not to favour single licensee production licences. All licensees must be pre-qualified and have a minimum level of organisation, capacity, competence and financial strength to fully contribute to the petroleum activities of the licence in question.

Opening New Areas

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, and the impact on the petroleum industry, related businesses, the non-oil economy, infrastructure and local communities, etc) is collected, analysed and submitted in a Stortingsmelding (“Meld St” which is comparable to a UK White Paper) to Stortinget, 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 by the government on its policies. It is debated, but is not formally adopted. The government may have to return the report to Stortinget to implement its policies because they require legislative or budgetary decisions.

Award of Upstream Petroleum Licences

The PA and PR establish the legal basis for awarding all upstream petroleum licences. Obligatory documents executed pursuant to a production or facilities licence (whether a JOA or ACC) have dual functionality. They contain conditions for exercising rights pursuant to the concession, but at the same time form a contractual agreement between licensees (see below).

Only the government may conduct petroleum activities without being issued a concession, licence or permit. Government activities must be conducted in accordance with the rules of the upstream petroleum regime. The NOD awards non-exclusive exploration licences. The ME prepares, announces and obtains Cabinet approval for the award of exclusive production licences. Applications for licences require the payment of a nominal fee.

Application for a Production Licence

Prior to announcing the licensing rounds, pre-qualified industry players are invited, on a voluntary and confidential basis, to nominate acreage. Only pre-qualified entities may submit an application for a production licence. Pre-qualification follows a defined process.

A production licence is awarded to a group of applicants compelled to form an unincorporated joint venture. Individual and group applications are permitted. The ME is not bound to award the licence according to group applications and may exclude any group applicant or include other applicants in the licence awarded. Awards are based on objective and non-discriminatory terms and conditions consistent with EU internal market rules implemented pursuant to EEA obligations.

Public bidding rounds

Production licences are awarded pursuant to public bidding rounds. Awards are based on geo-scientific understanding, the applicant’s operational and financial capacity, experience and plans for the area. Each production licence is awarded on a standard formula to which a petroleum agreement is annexed. The petroleum agreement establishes the unincorporated joint venture under which licensees are jointly and severally liable. Annexed to the petroleum agreement are a non-negotiable Exhibit A, a standard JOA, and Exhibit B, a standard ACC. An executed petroleum agreement is a condition for the production licence to remain in force.

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

Award of Exploration Licences

Non-exclusive exploration licences are awarded according to an “open door” policy. The licence is limited to three years. It enables seismic companies and other interested entities to collect seismic data and carry out other exploration-related activities, including drilling a shallow well for calibration purposes.

A single entity may be awarded an exploration licence. Additional regulatory and reporting requirements must be fulfilled before and during activities. A non-exclusive exploration licence does not extend any privilege, preference or right of any nature to obtain an exclusive production licence.

Frontier acreage licensing rounds

Frontier acreage licensing rounds currently occur on a bi-annual basis. An exception subsequent to a political settlement between the centre-left Labour Party-led minority government and the Socialist Left Party was made, resulting in the 26th Licensing Round being postponed by a year. This may be the advent of a new regime. The annual licensing rounds – Awards in Predefined Areas (APA) – consist of acreage previously licensed and relinquished or in proximity to existing upstream production facilities. The initial exploration period is shorter and the content of the obligatory work commitment or programme is stricter in APA licences, but all production licences contain an obligatory work programme. Increasingly, APA-Round licences comprise obligations to submit a plan for development and operation (PDO) within a relatively short deadline.

Three blocks identified to reach north of the (biological) ice rim were expunged and were not included in the acreage offered in June for the 2022 APA Round. Their removal was the outcome of a compromise between the Labour-led minority government and the Socialist Left Party for the adoption of the annual national budget in May 2022.

Award of Facilities Licences

Facilities licences are not awarded based on bid rounds. They are a licence awarded to construct and operate facilities. Facilities licences typically comprise installations or pipelines serving several production projects under different production licences. They may also comprise offshore wind farms dedicated to the supply of electricity for petroleum project purposes (see 6.3 Other Energy Transition Considerations).

Licensees normally form an unincorporated joint venture. Previously, such facilities licences were obtained almost exclusively by entities that at the same time have a direct interest in one or more production projects in which these licensees have a participating interest. This has somewhat changed over the years, in particular in relation to submarine pipelines that were absorbed into the Gassled natural gas submarine pipeline network that supplies natural gas to the EU and the UK.

State Participation

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 the SDFI and managed by Petoro.

Taxes

All entities engaged in NCS petroleum resources activities are subject to Norwegian state corporate income and capital gains tax. Entities holding an exclusive production licence or a facilities licence are also subject to special petroleum tax. There is no project or licence-based ring-fencing of petroleum activities-related income or capital gains tax arising out of offshore petroleum resources-related petroleum activities. Withholding tax rates vary and are determined by legislation to the extent that they are not regulated by a double taxation treaty. Since 17 June 2022 a new cash flow-based petroleum special tax regime has applied to all new projects that do not fall under the temporary COVID-19 mitigation scheme (see 7.4 Material Changes in Law or Regulation). Transition rules apply for older projects (see 2.4 Income or Profits Tax Regime: Upstream).

Norm Price System

For fiscal purposes, a norm price system is stipulated on crude oil transactions not traded at arm’s length. The amendments made to the upstream petroleum tax regime in 2020 and 2022 will not affect the regulation of norm prices.

Local Content Quotas

No economic terms are negotiated in petroleum licences. Whether the state participates is the government’s discretionary decision. There are no local content quotas for materials, goods, services or employment of personnel. See 2.6 Local Content Requirements: Upstream.

Production Bonuses

Production bonuses may be imposed pursuant to law, but this provision has never been used. No production or profit splits are authorised and there are no longer any royalty obligations.

Societal Obligations

There are no (longer) societal obligations in kind or in cash. Licensees have to offer the government the possibility to allow civil servants and petroleum sector teachers to participate in licensee training programmes.

Additional Fees

An administrative fee for services rendered has to be paid for all licence applications. These fees are to reimburse the public administration’s costs. There are also fees to be paid to the regulatory authorities for the monitoring and control of petroleum activities. These fees have no fiscal nature or effect.

For production licences, an annual progressive acreage fee applies for acreage held beyond the period initially allocated to perform the obligatory work commitment. The fee does not apply to acreage comprised in 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 the costs associated with services provided. No fee has been imposed to date.

A company tax-resident in Norway is subject to income tax on its worldwide income according to the General Tax Act (GTA). The Petroleum Tax Act (PTA) extends the geographical scope of the GTA to include income generated by companies that is related to petroleum activities subject to the Norwegian tax jurisdiction.

The PTA contains special rules relating to taxation of petroleum activities with regard to cost allocations, deductions, depreciations, etc. The PTA introduces the statutory basis for the collection of the resource rent arising from the production of petroleum. The PTA tax rate pursuant to this regime is 56%. The GTA corporate income tax rate is 22%. The marginal tax rate on entities holding exclusive petroleum rights is 78%.

The PTA applies to all offshore upstream and downstream petroleum activities and all extraction, processing and pipeline transportation and, additionally, to certain ancillary activities onshore arising out of offshore petroleum resources. An example is the Arctic onshore LNG production facility at Melkøya in the county of Finnmark. The tax authorities may determine that an onshore plant connected to the production of petroleum will be included under the PTA tax regime. Ancillary activities are otherwise only subject to the ordinary corporate income tax rate of 22%.

Tax Value of Cost Refunded

Operational costs, including exploration, are tax-deductible when incurred. A licensee may claim a cash refund for the tax value of direct and indirect NCS-related exploration costs (financial costs excluded). A cash refund may only be claimed if the amount does not exceed the annual loss in ordinary income and only against special tax.

The COVID-19 mitigation scheme introduced in June 2020 temporarily increased the uplift and depreciation rates for investments subject to the special tax regime and applied to projects that had submitted a PDO by 31 December 2022. A new special tax regime was introduced on 17 June 2022, effective for all new projects that do not fall under the COVID-19 temporary regime. For older projects, transition rules apply.

For a description of the COVID-19 2020 interim amendments in the PTA and the new cash flow-based special petroleum tax regime applicable from 2022, see 2.3 Typical Fiscal Terms: Upstream and 7.4 Material Changes in Law or Regulation.

The state may take a direct interest in an exclusive petroleum licence by reserving a participation interest for the SDFI. Any state interest is held by the SDFI and managed (almost without exception) by Petoro AS. SDFI participation is no longer obligatory or “carried” during the exploration phase. The SDFI contributes economically according to its share and subject to cash-calls issued by the operator, from the awarding of the licence until completion of decommissioning of facilities.

Equinor and its subsidiaries no longer have any privileges or preferences with regard to participation in exclusive upstream licences, but compete for any participation interest and for appointment as an operator.

Norway is a member of the EEA and is thus part of the EU internal market. Non-discriminatory rules, including the four freedoms, apply to upstream and downstream petroleum activities and entities. The non-discriminatory obligation in principle only 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. See 4.2 Sanctions.

The EEA internal market’s rules apply to petroleum activities, including procurement.

Apart from language skill requirements for safety reasons, local content provisions granting preference to Norwegian-owned or controlled suppliers, goods, services, personnel or capital originating from Norwegian sources are not permitted under the applicable law. Free movement of individuals that are citizens of the EEA Agreement member states applies. For these citizens, discrimination based on nationality is prohibited. Since Brexit, bilateral treaties have been put in place with the United Kingdom of Great Britain and Northern Ireland. An agreement is also in place with the Swiss Confederation.

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 a local content requirement. The requirement of licensee organisation in Norway is also not a local content requirement. It is an individually based assessment of the need for local organisation to fulfil the licensee’s obligations, in particular in relation to HSE.

Norwegian is the administrative language and the Petroleum Regulations require the use of Norwegian to the greatest extent possible. This rule is imposed for the same reasons as the organisation and supply base provisions – to ensure safe and prudent operations in compliance with applicable Norwegian law. It also enables government to access all relevant licensee internal communications and resources for the verification of compliance, as well as efficient co-ordination of resources in case of emergency. Furthermore, all applications for authorisations of any kind and all administrative decisions by the authorities are made in Norwegian. Other languages may be used when necessary or reasonable, however – typically, in contracts and communications with foreign suppliers.

A Development Plan

Only the state and holders of a production licence may develop and produce NCS petroleum deposits. Pursuant to PA Chapter 4 and PR Chapter 4, the licensees must submit a development plan for ME approval to produce petroleum. The plan must consist of two parts: a technical and economic plan with detailed descriptions, as well as a progress plan. The development plan must contain a description of alternative development solutions and the licensee’s preferred solution.

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

Staged or phased developments are permitted, provided they are all addressed in the development plan. Development and production from deposits other than those addressed by the plan require a new or amended plan. The obligation to submit a development plan may be waived under certain conditions by the ME. Deadlines for submitting PDOs are shorter for APA-Round licences than for production licences awarded in numbered licensing rounds.

ME Approval

Unless ME pre-approval is obtained, licensees may not commit to substantial contractual undertakings before the development plan has been approved. Licensees may, however, apply to the ME to waive this obligation – ie, for long-lead items.

The ME is not compelled to approve licensees’ preferred development solution. If the authorities cannot accept the proposed solution, consultation with licensees to amend the plan will be initiated. A decision to approve or reject a development plan is an administrative law-based decision subject to appeal.

Any significant deviation from the facts or alteration of the terms and conditions under which a submitted development plan was approved must immediately be communicated to the ME.

Stortinget Consent

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

Other Approvals Required

All wells to be drilled subject to the PA, whether for exploration, appraisal, production or injection, require a drilling programme approved by the NOD. Discharges from drilling operations require a discharge permit pursuant to environmental law. No wells have to date been drilled within the territorial sea of the Norwegian mainland, and thus no local authority approval has been required. Drilling in Svalbard is subject to separate end specific rules, see 1.4 Principal Hydrocarbon Law(s) and Regulations.

The maximum duration of the exploration period, and the development and production period of a production licence, are stipulated by law. The exploration period, calculated from the award date, cannot exceed ten years. The most commonly used initial exploration period is eight years for frontier areas, which is reduced for APA.

The exploration period may be subdivided and always includes a number of obligatory work commitments. There are the statutory mandatory acreage relinquishment obligations stipulated in each production licence. In APA licences, all acreage regularly reverts to the state if the acreage does not comprise a deposit included in a submitted development plan. Restrictions are often imposed, normally for HSE purposes, particularly to protect the marine environment or to address severe weather conditions.

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

ME Classification

No direct or indirect transfer of all or part of a participating interest, or change of control over a licensee, may take place without the approval of the ME pursuant to the PA. With amendments to the Security Act coming into full force and effect (see 2.1 Forms of Private Investment: Upstream), additional notification or approvals may be required provided the undertakings, activities or facilities are deemed by the ME to be “of vital importance to fundamental national functions”. ME classification is decided on a case-by-case basis.

Tax Clearance

All direct or indirect transfers must also be cleared for tax purposes (application for consent or notification of compliance) by the Ministry of Finance (MFIN). Transfer of a participating interest is also regulated by the petroleum agreement regulating unincorporated joint ventures formed by licensees.

Consents and Approvals

Petoro AS, on behalf of the state, has a limited pre-emption right in exclusive petroleum licences. No transfer of production licence rights approved prior to completion of the mandatory work obligations is permitted without the consent of the other licensees. Corporate transactions are not subject to approval by the other licensees. The protection of the other licensees’ interest in a production licence is safeguarded by ME approval, pursuant to PA Sections 10–12.

Requirements of a Participating-Interest Transferee

A production licence participating-interest transfer will only be permitted to a qualified entity. The ME assessment is focused on the transferee’s potential contribution to the licence, and whether the transferee has the required capacity, capabilities and financial strength to participate actively in activities going forward. Requirements for consent are dynamic and hence different for an early-phase exploration project compared to a complex development or production project. The NOD and NOIA are consulted prior to consent. Participating-interest and change-of-control transfer consents may be conditional.

Transfer of Operatorship

An application for the transfer of operatorship may not form part of a participating-interest or assets transaction. A change of operator is subject to separate ME approval. Corporate transactions may result in the ME re-evaluating the status of the operator, but to date, corporate transactions to which the ME has given consent have not resulted in a change of operator in a licence. No tax assessment is required for operator changes since the operator so far and without exception has been a licensee, and the operator conducts day-to-day business on behalf of the licensees on a “no-gain, no-loss” basis.

The Role of MFIN

The MFIN assesses the tax effects of any proposed transfer. A notification and automatic consent procedure for four standardised transaction models where the transaction tax effect is neutral has been established by regulation. Consent is obtained provided the parties confirm in writing to the MFIN that the transaction meets requirements. Without such a declaration, a formal Petroleum Special Tax Act Section 10 assessment will be undertaken. MFIN approvals may be conditional. Under the PTA, the MFIN is delegated the power to deviate from applicable tax laws if necessary, to ensure tax neutrality.

Registration Requirements

Any change of participation interest in an exclusive licence must be registered in the Petroleum Registry. Establishment or change of any type of security in an exclusive licence or upstream facility requires ME approval. Providers of security will only be afforded limited step-in rights in the case of default.

Non-exclusive Licences

Non-exclusive licences are not normally transferred, as they are time limited and contain no obligatory work commitment.

Production Permits

Production may only be conducted in accordance with an approved development plan and a production permit. The production permit is issued subsequent to the authorities having satisfied themselves that the licensees comply with the regulations, in such a manner that petroleum or reservoir pressure is not wasted and is consistent with the development plan production profile. The production permit system ensures optimal resource depletion. The licensee has to justify and document any deviation from the development plan and the forecast production profile. The production permit has been used in a few instances to regulate the production level of individual production projects. Limitations have in each case been justified for state economic reasons and implemented so that individual licences carried the economic impact proportionally. In recent times, the government has permitted increased natural gas outtake to the potential detriment of ultimate liquids depletion from six specific fields to meet the natural gas supply shortages in Europe as a result of the 2022 Russian attack on Ukraine and the EU sanctions that followed.

International obligations

Norway is not a member of OPEC(+) and is not subject to any internationally imposed quotas. Norway is an EEA member state and thus subject to EU internal market rules. Norway has aligned its sanctions policy towards Russia with that imposed by the EU following the attack on Ukraine in 2022. EU sanctions also apply to petroleum sales.

Production Volumes

The government regularly approves production volumes. Volumes are stipulated to ensure optimal recovery of petroleum and are not imposed to regulate prices or markets. Norway is not an OPEC member. However, the Norwegian government has a major economic stake as the resource owner and tax collector, with a substantial interest in commercial operations on the NCS through the SDFI. Thus, the Norwegian government has been forced, from time to time, to cut oil production due to extreme market developments. The last time this happened was May 2020. The natural gas demand increased sharply with the reopening of the economy in late 2021 and increased further after the 2022 Russian attack on Ukraine. The Norwegian government adjusted production permits for six production projects accordingly. The amended permits allowed an increase in natural gas production, to the potential detriment of ultimate liquids depletion. By so doing, the government has deviated from the resource management principles introduced in 1971 – which require optional liquids production before allowing gas-pressure depletion – colloquially referred to as the ten oil commandments (banning flaring, and not allowing wastage of petroleum or reservoir pressure, which would prevent socio-economic optimal recovery of all petroleum in the ground).

The Norwegian petroleum activities governance regulatory regime is divided into two segments. Upstream is regulated by the 1996 Petroleum Act (PA), the 1973 Land Petroleum Act (no activities to date) and the special Svalbard mining regime (no production to date), while downstream natural gas-related activities are regulated by the 2002 Natural Gas Act (NGA). The Norwegian regime does not specifically single out midstream as a separate regulatory space.

Upstream

The Norwegian upstream petroleum regime 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 defined for production, except the downstream natural gas sector, are regulated by a variety of laws generally applicable to the industrial sectors.

Downstream

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

Investment in the construction, operation and use of downstream natural gas and the LNG infrastructure is subject to the Act of 28 June 2002, No 61 of common rules for the internal market in natural gas (the NGA), and the subsequent ministerial regulations of 14 November 2003 (the 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.

Refining, distribution and sale of petroleum products, and petrochemical industry activities are not regulated by petroleum-specific legislation. These activities and the infrastructure are subject to general legislation applicable to large industrial facilities, the handling and transportation of flammable or explosive goods, and product liability legislation. There are no specific limitations on investors in these economic segments, save for those arising from international sanctions (UN) and Norwegian sanctions aligned with the EU sanctions imposed on Russia following the Russian military attack of Ukraine in 2022.

Property Rights

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 expropriation is subject to compensation. Both expropriation and compensation may be contested before 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 Private Investment: Midstream/Downstream).

There are no state or private monopolies with regard to investment in downstream natural gas facilities. Access to downstream natural gas networks, storage or LNG plants is subject to negotiation with the system owner and operator. Access is subject to the applicable law and is granted on non-discriminatory terms and conditions consistent with EU internal market requirements. There are no Norwegian state monopolies in refining, the petrochemical industry, or the transportation, distribution or sale of petroleum products.

Pursuant to the NGA, the NGR and by delegation from the ME, a concession for the establishment of natural gas transmission pipelines and certain other high-pressure natural gas pipeline networks must be obtained from the RME. The same applies for qualified standalone LNG production or regasification projects or natural gas storage not covered by PA regulation (ie, not incorporated in an upstream production project).

Land rights must be obtained from the 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 Private Investment: Midstream/Downstream. The Norwegian petroleum regime in principle follows the same legal and regulatory delineation. Downstream licences related to natural gas, as well as activities related to any other activities downstream of the commodities delivery point (see 3.2 Downstream Operations Run by a National Monopoly: Rights and Terms of Access), are subject to the ordinary Norwegian tax and fiscal regime (GTA). 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. Refining, the petrochemical industry, and the transportation, distribution and sale of petroleum products are subject to Norwegian legislation harmonised with EU internal market rules, including those rules governing HSE and product liability.

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

No company or special rights exist in relation to downstream petroleum activities or licences. However, Gassco AS is the wholly state-owned, sole Gassled system operator (see 1.3 National Companies).

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 Private Investment: Midstream/Downstream.

Downstream licence (concession) terms are determined by the NGA, the NGR and the RME. A concession pursuant to the NGA/NGR is only required for larger scale or inter-regional projects.

Norwegian legislation contains mandatory obligations relating to the use and operation of natural gas transmission pipeline systems, storage and LNG plants with regard to third-party use, tariffs and providing 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. Such power is limited by public administrative law as outlined in the Public Administration Act, related regulations and customary law.

Concessions are granted subject to application. Concessions are granted for 30 years but may be extended. Individual conditions may be stipulated with regard to system operational safety, and gas supply quality, price and regularity, including the security of the 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 the application and award of a concession are outlined in Chapter 2 of the NGR.

See 3.1 Forms of Private Investment: Midstream/Downstream.

Downstream natural gas transportation and storage is – in the case of transmission, distribution and sale – regulated by a regime aligned with the EU internal market rules applicable to natural gas. On 1 November 2019, the RME was appointed the independent downstream natural gas regulator by the MPE (now the ME), pursuant to the NGA Section 4. RME responsibilities in the downstream natural gas sector are comparable to, but slightly less comprehensive than, those of the NOD in the upstream petroleum sector. Like the NOD, the RME is not in charge of HSE or the protection of the natural environment.

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

There are no restrictions on product sales into the local market, except for during a declaration of national emergency, in which case, emergency legislation comes into force.

EU internal market rules, including the four freedoms, the prohibition of quantitative (import and) export restrictions and competition law, apply to petroleum produced (which includes crude oil, condensates and natural gas) and petroleum products marketing and sales.

Beyond limitations following from international sanctions that are binding on Norway – such as the sanctions against Russia following the 2022 Russian attack on Ukraine, imposed by Norway aligned with the EU – or domestic delivery obligations pursuant to law (under extraordinary circumstances), licensees are in principle free to export all petroleum and petroleum products produced (see 4.2 Sanctions).

Most of the liquid volumes extracted from subsea deposits are processed and loaded directly onto tankers offshore. Some volumes are landed by submarine pipelines for onshore final processing before being shipped. Natural gas extracted, not consumed for production purposes or re-injected, is exported through large submarine trunk pipelines to the UK and the EU. The exception is Snøhvit natural gas production, shipped to market as LNG. All these activities are regulated in Norway as upstream activities, not mid or downstream activities. Refining capacity is limited and predominantly for domestic supply. Chemical industry activities are not subject to any sector-specific limitations beyond the described sanctions.

Currently, no liquids are reserved for the domestic market. Domestic consumption is limited, and supply obligations are unlikely to be imposed due to SDFI volumes available to the government and the availability of petroleum products from domestic refining, petroleum product imports and the EU internal market rules’ prohibition of import and export restrictions.

Emergency Rules

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. No currently applicable rules have been invoked to date. Previously, emergency rules were imposed for a short period of time during the OPEC oil embargo in the early 1970s. Deliveries compelled under current rules will be paid for at rates consistent with market prices. 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 retains a substantial participating interest in several production projects. Only crude oil and other liquids may theoretically be required, as Norway consumes practically no natural gas at all. All energy supply for purposes other than goods and public transportation is almost entirely satisfied by hydroelectric-generated power (approximately 90% of the total energy supply).

To establish or operate a larger-capacity downstream natural gas pipeline system, storage or LNG plant, a licence (concession) is required. The limited distribution and small-scale LNG plants and storage facilities currently operating do not require a specific NGA/NGR licence. There are no natural gas transmission systems in Norway. Only qualified entities may hold a licence. Each licence may contain non-discriminatory and objective conditions. EU internal energy market principles requiring vertical unbundling apply.

The same applies to LNG production facilities to the extent that such facilities are not comprised of an upstream production project – see 2.8 Other Key Terms: Upstream and 7.2 Liquefied Natural Gas (LNG). Downstream petroleum facilities other than those used for downstream natural gas purposes, such as crude oil or petroleum products storage, 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. There is no public information indicating that the application of the 2018 Security Act and its adopted (but not yet completely implemented) amendments have imposed limitations on transfers of interests in the downstream hydrocarbons (petroleum products and natural gas) sectors so far.

Due to 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. The Norwegian upstream regime applies to petroleum, a term wider than hydrocarbons – see 1.4 Principal Hydrocarbon Law(s) and Regulations.

Norwegian-aligned EU sanctions against Russia may impose limitations on investments.

Norway adheres to sanctions and embargoes imposed by the UN. Norway has to date implemented most EU sanctions imposed against Russia, whether sanctions relate to outward or inward investments, or the operations of Russian-controlled entities, Russian entities, citizens, or persons associated with sanctioned entities or persons, for Russia’s invasion of Ukraine and annexation of Ukrainian territory (2014 and 2022). Norway’s sanctions seek to align with the EU’s successive and expanding Russia sanctions.

Upstream petroleum-related regulatory and supervisory authority on HSE and natural environment protection rests with ministries and directorates (see comments under 1.1 System of Hydrocarbon Ownership,1.2 Regulatory Bodies and 1.4 Principal Hydrocarbon Law(s) and Regulations).

The relevant ministries and directorates are listed under 1.1 System of Hydrocarbon 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 1.2 Regulatory Bodies, the competent directorate with regard to downstream natural gas transmission, distribution and storage regulations is the Norwegian Water Resources and Energy Directorate (the “NVE”) – go to www.nve.no.

The licensee, owner or users (as the case may be) of a major hydrocarbon project must fulfil certain requirements in order to obtain permits pursuant to the provisions of the Pollution Control Act applicable to certain discharges and emissions. Adapted to the relevant circumstances, these rules apply along the upstream and downstream value chain.

For further information, see 2.2 Issuing Upstream Licences/Obtaining Hydrocarbon Rights, relating to conducting area (SEA) and activity-specific EIAs, as well as 2.2 Issuing Upstream Licences/Obtaining Hydrocarbon Rights and 2.7 Development and Production Requirements, on applicable pollution-control legislation.

For downstream projects, regardless of whether they are subject to an NGA/NGR licence, the requirements for EIAs follow from the Act of 27 June 2008, No 71 on planning and building matters (the “Planning and Building Act” or PBA) and the regulations of 21 June 2017, No 853 on environmental impact assessments.

Pursuant to the provisions of the PA Chapter 2 and the PR Chapter 2a, the state conducts comprehensive EIAs prior to opening acreage for petroleum activities (see 2.2 Issuing Upstream Licences/Obtaining Hydrocarbon Rights, 2.7 Development and Production Requirements and 5.2 Environmental Obligations for a Major Hydrocarbon Project).

The EIAs cover the impact on the natural environment, industry and infrastructure, and societal impacts, such as on employment. The resultant report is submitted to Stortinget for consideration and support of a recommendation on whether to open new areas to offshore petroleum activities.

An 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 Hydrocarbon Rights, 2.7 Development and Production Requirements and 5.2 Environmental Obligations for a Major Hydrocarbon Project). The EIA is conducted in a fashion comparable to the initial or subsequent specific EIA. It must be based on updated information and additional investigation, as specified in an approved EIA programme.

The PA and 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 PA Chapter 8 contains specific rules relating to compensation for Norwegian fishermen; and
  • the PA Chapter 9 contains specific rules on safety.

Cessation of activities, decommissioning and potential disposal of facilities are regulated by the PA Chapter 5 and the PR Chapter 6. Wells are not considered facilities in relation to decommissioning. Plugging and abandonment of wells are not included in a decommissioning plan. Decommissioning legislation is consistent with requirements that follow from ratified treaty obligations such as UNCLOS, the London Anti-dumping Convention and the OSPAR Convention.

A development plan must contain information of a general nature with regard to the decommissioning of facilities and removal of installations.

To date, submarine pipelines do not have to be removed. Flowlines and umbilicals connecting 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 already required in a PDO comprising one or more petroleum deposits and appurtenant production facilities and commodity offtake solutions, 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 the planned cessation of petroleum (operations) activities or use of a facility. A plan may comprise one or more facilities in one or more areas.

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

Rules apply with regard to emissions into the air and discharge into the land or sea under the Pollution Control Act, including fiscal disincentives in the form of, for example, the CO₂ tax. The CO₂ tax rate applies to onshore and offshore upstream and downstream petroleum (operations) activities. The CO₂ tax rate is higher for downstream activities (not comprised of regulated quotas) and for the use or consumption of petroleum products, than it is for upstream production activities. However, all new and select modified upstream production facilities are subject to compulsory electrification based on supplies from onshore hydropower or offshore wind projects. There is also a limitation on emissions to the air of nitrogen oxides (NOx) and volatile components.

Regional and local government have no power with regard to oil or gas production volumes (see 2.10 Restrictions on Production Rates). However, regional and local authorities, through powers pursuant to the PBA, may have an impact on industrial activities, including onshore terminals, onshore upstream pipelines and downstream oil and gas projects through their zoning, and thus, on the use of land.

Over the last five years, the government has increasingly applied pressure to the upstream oil and gas industry to reduce its emissions from production operations. From the early 1970s, flaring was banned and during the following years, additional restrictions on NOx and volatile organic compound (VOC) emissions were implemented, as well as an increasingly progressive CO₂ tax. From the mid-1990s, development plans had to be accompanied by an EIA report that was subject to public consultation prior to submission. The EIA required assessments of emissions relating to the construction and operation of production facilities, but not of emissions from the ultimate consumption of the oil and gas produced. In 2020, a Supreme Court judgment with reference to Article 112 of the Constitution imposed an obligation on the government to assess emissions from the ultimate consumption of petroleum produced. The government was again challenged in the courts in January 2024 on its implementation of this obligation. The case is currently under appeal. Pending a final solution, the government has circulated for public comment a draft amendment to the guidelines for submitting development plans, which entails licensee obligations. The proposal is also contentious in that the geographical and functional scope of the PA is limited to upstream production and utilisation, to the extent utilisation is connected to, or forms an integral part, of upstream activities.

Energy production from renewable sources, such as offshore wind, is still subject to the PA and the special upstream petroleum fiscal regime. The supply of electricity to offshore petroleum production or transportation projects is also subject to the PA and the special upstream petroleum fiscal regime, as well as Act LOV 29 June 1990 No 50 relating to the production, transformation, transmission, sale, distribution and use of electricity (the “Energy Act”).

Energy production from renewable resources other than hydropower is regulated onshore by the Energy Act. Renewable energy projects offshore not for supply to projects subject to the PA, are subject to Act 4 June 2010 No 21 relating to renewable energy production offshore (the “Offshore Energy Act”). Offshore renewable energy production subject to the Offshore Energy Act may so far only connect to the onshore grid. Such projects are currently only underway in areas close to onshore energy regions that either supply onshore consumption and are connected to a foreign grid through interconnectors, or a region that additionally supplies offshore petroleum production projects. A debate has arisen in the Stortinget on whether the upstream industry should be compelled to construct and pay for offshore wind-supplied electricity for emissions-reduction purposes, as well as offloading the strain on supply to onshore consumption and the export of electricity from regulated hydropower projects. Thus, the Offshore Energy Act and government initiatives may in the near future play an even more important role in the energy transition of Norway, enabling the country to maintain its substantial natural gas export to Europe and the UK, while at the same time reducing overall Norwegian gas emissions.

Electrification of Offshore Petroleum Production

Norwegian authorities have for several years imposed as a condition for the approval of new upstream petroleum production projects that offshore installations must be powered by electricity. In practice, this has implied electricity through cables connected to the onshore grid supplied from onshore regulated hydropower sources rather than from offshore turbines. Electrification projects have so far included both the construction of new facilities and modification of existing installations.

Since the advent of the power supply crisis in Europe, Norway has not only increased its gas export, but has also increased its onshore power production through several controversial wind power projects, using interconnectors to increase its export of electricity to, in particular, Denmark, Germany, the Netherlands and the UK, while the exchange with Finland and Sweden has been more balanced. The energy supply crisis has meant that Norway has at times had to import electricity and, for this reason, the government has increasingly supported the development of offshore wind, both to supply upstream oil and gas projects, and eventually to augment power-production capacity in Norway.

Offshore Renewable Energy Production

The first offshore wind farm, referred to as Hywind Tampen, is now operational and dedicated to supplying electricity for offshore petroleum production. This project’s construction, operation and use are regulated by petroleum legislation. The government has developed the base framework for offshore renewable energy production for the purpose of supplying the national grid. An offshore wind power project called Goliatvind is a technological demo-project with five turbines designed to produce 15 MW each of electricity to the Barents Sea Goliat petroleum production project (which requires 75 MW). As part of a wider energy transition debate discussions were raised in the Stortinget in the 2024 spring session regarding imposing an obligation on licensees to construct and operate offshore wind power for the future electricity supply to petroleum production projects.

Two areas for offshore power generation dedicated to supplying the grid have been identified. The first, Sørlige Nordjø II, was awarded a licence in early 2024. The award of a licence to the other acreage, Utsira Nord, has been postponed due to State Aid discussions with the ESA. Discussions regarding the potential development of the 1 GW Trollvind project have been shelved. The project was intended to supply offshore production facilities with electricity, as well as supply surplus power to the national grid in the western region of the country.

The government has so far only permitted a petroleum production-dedicated power supply from these offshore wind turbine projects, initiated by petroleum production licensee joint ventures. Hybrid projects potentially supplying both Norwegian petroleum production and the Norwegian onshore grid, or export to foreign offshore petroleum production or onshore grids, have not, so far, been permitted. Trollvind was shelved by Equinor during late 2023, because the government would not allow a hybrid solution.

The regulatory and fiscal terms applicable to hybrid solutions are far from clear. Onshore wind farms, several of which have become controversial, have increased onshore electricity generation and may from time to time supply offshore petroleum production projects through the grid. Onshore wind is connected to the integrated national grid which supplies domestic onshore commercial needs and consumers, as well as contributing to Norwegian electricity export through the many interconnectors in the Nordic countries (Sweden, Finland and Denmark) with Germany, the Netherlands and the UK.

CO₂ Injection and Carbon Capture and Storage (CCS) Projects

Prior to the 2017 CCS Regulations pursuant to the 1963 Continental Shelf Act coming into force, dedicated regulation governing CO2 injection and storage, and CO2 injections in subsea deposits, had not been undertaken, unless in association with the production of petroleum.

Subject to the PA and environmental law ban on venting and flaring, CO₂ extracted from petroleum deposits, as well as natural gas not consumed for petroleum production purposes, or sold, was reinjected into petroleum deposits to maintain reservoir pressure.

Norway has passed legislation and developed a concessionary regime for the construction, operation and use of offshore subsea reservoirs for the injection of CO₂ from power-generating, industrial and other projects’ consumption or use of coal or hydrocarbons. These dedicated reservoirs have the required storage characteristics.

The first carbon capture and storage (CCS) facilities licence was awarded in 2021. The government had previously initiated and given substantial financial support to the CCS projects referred to as Northern Lights and Longship. These programmes entailed the construction of an onshore terminal to receive CO₂ that would then be transported by submarine pipelines to dedicated offshore subsea facilities in order to be injected into seabed deposits. So far, one exploitation licence (EL 001 Aurora in the North Sea) and six exploration licences (EXL 002, EXL 004, EXL 005, EXL 006 and EXL 007 in the North Sea and EXL 003 Polaris in the Barents Sea) have been awarded.

Norway has not opened for exploration or production of shale or other unconventional petroleum resources. These are, in fact, expected to be limited, as most of the Norwegian mainland territory is base rock. Any such activity in Svalbard will be subject to the specific mining regime applicable to that territory.

There is only one LNG production project in Norway. The project is governed by the upstream petroleum regulatory regime (PA and PR) and tax regime (GTA and PTA). A special project-specific solution granting licensees an augmented uplift for tax purposes was established for this particular project. A few small-scale LNG regasification plants are in operation. They are so modest in size that the NGA and NGR do not require a particular licence (concession).

The Regulatory Regime

The regulatory regime is heavily resource management-orientated and standardised, with substantial direct non-carried state participation. The regime is considered, transparent, predicable and accountable. Uniform concessionary terms and streamlined processes for consent to asset or corporate transactions reduce transactional and operational costs. The regime facilitates portfolio optimisation through acquisitions or divestments. Standardised legislative minimum pre-qualification requirements make new entrant pre-qualification processes predictable and streamlined. A cash flow-based progressive fiscal regime, without any cost-recovery ceiling or depreciation rules applicable to the petroleum special tax at 56%, accelerates repayment of capital invested and reduces investment risk.

Resolution of Disputes

Disputes between investors and regulatory authorities, and between licensees, are subject to the ordinary courts. The parties may resort to arbitration or other conflict-resolution mechanisms in disputes between licensees or investors and suppliers, or among suppliers.

Restrictions and Standards

Norway is considered to have stricter rules applicable to health, safety, the working environment and natural environmental protection than most petroleum producers, including a ban on any upstream-related flaring and venting, as well as restrictions on discharges into the sea. All new production projects are subject to assessment for electrification eligibility. Power produced from onshore hydropower has until now been the source of energy for offshore electrification purposes. Some onshore wind projects have recently been connected to the grid to supply electricity for offshore petroleum production. Hywind Tampen is the first offshore wind project to supply offshore petroleum production projects. Norway is also considered to have strict decommissioning provisions in place for offshore facilities.

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

Amendments to the Gassled System

In spring 2024 the ME announced that it does not intend to renew the pipeline licences awarded by Gassled beyond their harmonised expiry date in 2028. The individual pipeline licences were initially awarded for up to 30 years, with several of them having previously been extended more than once. The practical implementation of the decision not to further extend these licences could be complicated, as several of the pipelines are also regulated by bilateral treaties with Germany, Belgium, France and the UK.

Amendments to the Petroleum Tax Law

The deadline for submitting projects subject to interim amendments to the petroleum tax law to mitigate the expected negative effects of COVID-19 expired on 31 December 2022. A number of projects for which development plans were submitted within the time limit are under construction and will therefore operate under the COVID tax incentive scheme for several years. Development plans submitted after the deadline will be subject to the new petroleum special tax regime described below.

Amendments to the Procedure Relating to Environmental Impact Assessments

Following the dispute raised by the environmental groups Greenpeace and Natur og Ungdom, the Norwegian Supreme Court in 2020 decided in a landmark judgment that the government had certain constitutional obligations to assess the ultimate climate effects of petroleum consumption or use of Norwegian petroleum production even if such consumption or use occurred beyond Norwegian law and jurisdiction. A new case was raised in front of the Oslo District Court by the same organisations in late 2023. The organisations claimed that the government had not, in line with the Supreme Court ruling, ensured that the climate effects of CO₂ emissions from the consumption or use of petroleum to be produced from three specific projects for which the ME had approved development plans, been subject to adequate EIAs. The court ruled in favour of the environmental organisations and found that the approvals of the development plans were invalid due to a procedural error that may have impacted the eventual approval. The court also imposed a preliminary injunction against any further government approvals necessary for the projects to proceed. The decision was appealed to the Courts of Appeal which, subsequent to a written procedure, lifted the injunction on the premise that the government had continued its approval process without deviating from normal procedure. The court hearing on the merits will take place in autumn 2024. During the spring of 2024, the government publicly circulated a proposal (for comment) to amend the non-binding guidelines for the preparation of production project development plans. The proposal is curious, as the obligation to undertake the EIA at the stage of development plans remains with licensees that may have limited access to the overall data relevant to assessing the potential CO₂ emissions from out of jurisdiction consumption or use. Technically, there may also be a legal snag to the proposal as the PA does not apply to exploitation of petroleum beyond the NCS, including on Norwegian or foreign land territories unless it follows from public international law or treaty. Emissions regulated by the EIA obligation applicable to licensees in relation to development plans are those emissions that occur as a result of the production of petroleum and the construction, placement and operation of facilities comprised by the development plan. There are also specific rules in Chapter 5 of the PA regarding emissions produced in the decommissioning and potential removal of facilities for which licensees or owners are responsible.

Petroleum Special Tax Regime

The petroleum special tax regime, effective from 17 June 2022, comprises all new petroleum projects subject to petroleum special tax that did not fall under the temporary COVID-19 mitigation regime that expired for all projects that had not submitted development plans by 31 December 2022 (see 2.3 Typical Fiscal Terms: Upstream). The new special tax regime is a cash flow-based tax system, allowing immediate deductions for investments as and when incurred against income subject to petroleum special tax. Uplift, accelerated linear depreciation, loss carried forward with interest, annual tax-value cash back of exploration costs, and refund of deficit at exit from Norwegian upstream petroleum activities have been abolished. Transition provisions are in place for older projects not covered by the COVID-19 mitigation scheme. No changes have been implemented in the GTA, which applies to all entities subject to Norwegian tax, irrespective of sector.

Transfer of constitutional responsibility for HSE in the upstream petroleum sector

Effective from 1 July 2023 the constitutional responsibility for upstream petroleum activities related to health, safety and working environment aspects moved from the Ministry of Labour and Social Inclusion to the Ministry of Petroleum and Energy. This is a reversal of the division of resource management and HSE constitutional responsibilities implemented in the early 1980s following the Alexander Kielland disaster. The split was further enhanced by the 2003 transferral of HSE regulatory and supervisory responsibility from the Norwegian Petroleum Directorate to the then-newly created PSA, renamed the NOIA effective from 1 January 2024. The NOIA remains a separate directorate and maintains its regulatory and supervisory responsibilities, including in relation to offshore CCS, renewable energy and deep-sea mining activities. The ME is already responsible for resource management and licensing in these sectors. No changes have been made in relation to the regulatory and supervisory responsibilities associated with the natural environment, pollution control and climate-related matters, which remain under the control of the Ministry of Climate and Environment.

Consolidation of sector responsibilities

The transfer of HSE responsibilities for NCS and Exclusive Economic Zone-related non-living natural resources management is now consolidated in the ME. The ME is in addition to charge for resource management, operations and HSE upstream petroleum, offshore renewables, CCS and seabed mining as well as watercourse, electricity and natural gas downstream matters. The ME is thus the central ministry responsible for traditional energy production, transmission and distribution, as well as the energy transition. Core directorates in this regard are the NOA and NOIA. The RME and NVE remain in charge of onshore electricity generation and grids subject to Norwegian jurisdiction, including domestic grids and the land-based and subsea electricity interconnectors with neighbouring countries.

Amendments to the Security Act impacting the petroleum sector

In September 2022 the government determined that controlling Norwegian upstream petroleum production and natural gas transportation to Europe and the UK constitutes an activity “of vital importance to fundamental national functions”. Simultaneously, the government decided that Equinor and Gassco should be subject to the Security Act. The May 2023 amendments to the Security Act, expanding its scope of application and amending the provisions regulating control of ownership of undertakings engaged in activities “of vital importance to fundamental national functions”, were adopted by the Stortinget in early June 2023. The King in Council’s decision on 23 June 2023 promulgated the partial coming into force of the amended Security Act rules adopted by the Stortinget, with effect from 1 July 2023. The amended rules that came into force widen the Act’s scope of application and also have partial impact on the transfer of control over, or ownership of, undertakings. Since 1 July 2022 the MPE (now the ME) may also decide that undertakings of “significant importance”, without being of “vital importance”, may be comprised by the provisions of Chapter 10 Restrictions on Ownership. The comprehensive amendments to Chapter 10 of the Act, which further impose notification and approval requirements on both the seller and the buyer, as well as management, are still pending. When in force, these provisions have general application and may have a substantial impact on all NCS energy, CCS, or seabed mining related transactions.

Advokatfirmaet Simonsen Vogt Wiig

Filipstad Brygge 1
0252 Oslo
Norway

+47 21955500

+47 21955501

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 in offices in Oslo and major Norwegian cities, as well as an office in Singapore. SVW has one of Norway’s most powerful oil and gas teams, consisting of dedicated upstream lawyers and a host of specialists in other fields serving oil and gas clients, domestically and internationally. It provides legal services to international majors and independents as well as international and Norwegian supply and oil service companies. The firm’s services comprise the full life cycle and all aspects of the activities of oil and gas players. SVW advises governments on legal framework development (commercial, resources and HSE), public international law and negotiation of treaties, production-sharing contracts, and service and development contracts. The international practice comprises assistance to international energy companies on new ventures and investments, transactions and international pipeline projects.

Introduction

This article will briefly describe recent trends and developments relating to petroleum activities and participants in these activities on the Norwegian continental shelf (NCS). In addition, it will highlight a few relevant energy/oil and gas regulatory developments, including in light of energy transitions.

The Attraction of the NCS and Profiles of the Companies That Operate There

Continued consolidation of NCS operators

Besides the Norwegian state majority-owned Equinor and SDFI manager Petoro, the main players on the NCS are independents, after several oil majors exited from the NCS in recent years. Among the growing NCS companies are Vår Energi ASA, Aker BP ASA and PGNiG Upstream Norway AS. 

Vår Energi AS is an increasingly important NCS operator. This E&P company was a product of the 2018 merger between ENI Norge AS and the PE-controlled Point Resources Holding AS. Vår Energi subsequently acquired ExxonMobils NCS’s remaining non-operated assets and increased its participating interest in, among others, the Balder field. In June 2024, Vår Energi completed the acquisition of Neptune Energy Norge as part of a wider acquisition of Neptune Energy Group Limited, making Vår Energi the third- largest petroleum producer in Norway and a major operator on the NCS. 

Aker BP ASA has continued its growing strategy with the recent acquisition of Lundin Energy and has strengthened its position as one of the leading operators on the NCS, currently in charge of the biggest ongoing NCS offshore field development, Yggdrasil.

One of the fastest-growing NCS companies is the Polish independent PGNiG Upstream Norway (owned by PKN Orlen SA). Following its acquisition of INEOS’s Norwegian branch (2021), then Wellesley Petroleum’s 40% participating interest in the Ørn field, followed by the acquisition of LOTOS Exploration and Production Norge AS (through an international merger completed in 2023), the Polish state-owned company continued growing through its acquisition of KUFPEC Norway AS (completed in January 2024), as the Kuwait state-owned KUFPEC Norway AS exited the NCS. 

A few, mainly European, majors are still active through Norwegian subsidiaries, among them Repsol, Shell and TotalEnergies. ConocoPhillips remains the operator of the Greater Ekofisk Area, the first producing oilfield in Norway.

What makes the NCS so attractive?

There is still significant interest in the annual licensing rounds concerning predefined areas (“APA rounds”) comprising more “mature” acreage, predominantly close to existing facilities with future potential spare capacity. In January 2023, the Ministry of Petroleum and Energy (MPE) awarded 47 new APA production licences.

Numbered licensing rounds in frontier areas and the Arctic have been temporarily postponed due to a budget and climate change compromise between the minority government and the Socialist Left Party in 2022. Industry players have simultaneously shown less interest during this period of lower crude prices due to lack of recent significant discoveries and limited capacity in existing facilities for gas offtake, particularly in the Barents Sea. In the 25th licensing round awarded in 2021, only seven companies were awarded licence interests in four production licences. 

The 26th round of awards in predefined areas (APA) was announced on 8 May 2024, expanding the round from previous years by a total of 37 blocks in the Norwegian Sea and Barents Sea, with a deadline to apply for APA 2024 on 3 September 2024.

With the expansion of the predefined areas, the following criteria for selection of areas are emphasised by the Norwegian Offshore Directorate:

  • Areas close to infrastructure – this includes both existing and planned infrastructure. Any resources in the areas are considered time-critical.
  • Areas with exploration history – this includes areas that have previously been awarded and relinquished, areas with known plays and areas that lie between awarded and relinquished areas.
  • Areas adjacent to existing predefined areas, but which have not been applied for in numbered rounds.
  • Consideration for maintaining exploration activity and production on the continental shelf is also emphasised when assessing extensions of the APA area.

Continued development of oil and gas activities on the Norwegian continental shelf, based on a stable and predictable regulatory framework, have solid three-quarters majority support in the Norwegian parliament (Stortinget). NCS operators’ reporting on development projects – pre-sanctioned, sanctioned and in execution – demonstrate continued commitments from players in the oil and gas industry maintaining a high level of activity for 2024. 

Equinor, by far the major operator, has a large portfolio with a wide range of upcoming projects. These include not only various upstream NCS production projects, such as floating production storage offloading (FPSO), tie-back and subsea, pipelines, and brownfield, but also carbon capture and storage (CCS), hydrogen, electrification and renewables. The 21 projects in the execution phase show an estimated average break-even at USD35/BBL with 1.5 years’ payback time.

The energy transition has had a noticeable impact on the portfolio, content and execution of development projects. Electrification, including offshore renewables, hydrogen and CCS projects will increasingly become part of, or impact, the development of oil and gas projects.

The increased focus on CCS on the NCS as part of the energy transition, both by industry players and the authorities, is notable. The Ministry of Energy or ME (effective from 1 January the Ministry of Petroleum and Energy changed its name), on 6 June 2024 announced three new areas in the North Sea open for companies to apply for exploration licences related to CO₂ storage. The government continues to express its commitment to enabling and facilitating large-scale CO₂ storage on the NCS as an important measure to meet the climate change challenges, and reach its gas emissions reduction goal.

Energy Transition Considerations

Electrification of offshore petroleum production

Norwegian authorities have for several years imposed as a condition for the approval of new upstream petroleum production projects that offshore installations must be powered by electricity. In practice, this has implied electricity through cables connected to the onshore grid supplied from onshore regulated hydropower sources rather than from offshore turbines. Electrification projects have so far included both the construction of new facilities and modification of existing installations. 

Since the advent of the power supply crisis in Europe, Norway has not only increased its gas export, but has also increased its onshore power production by several controversial wind power projects and through the interconnectors to, in particular Denmark, Germany, the Netherlands and the UK, it has increased its export of electricity, while the exchange with Finland and Sweden has been more balanced. The energy supply crisis has meant that Norway has, at times, had to import electricity and for this reason, the government has increasingly supported the development of offshore wind, both for supply to the upstream oil and gas projects, and eventually to augment power production capacity in Norway. 

Offshore renewable energy production

The first offshore wind farm, referred to as Hywind Tampen, is operational and is dedicated to supplying electricity for offshore petroleum production. This project’s construction, operation and use are regulated by petroleum legislation. The government has developed the base framework for offshore renewable energy production for the purpose of supply to the national grid. An offshore wind power project called Goliatvind is a technological demo-project with five turbines, each producing 15 MW towards the 75 MW supply of electricity required by the Barents Sea Goliat petroleum production project. As part of a wider energy transition debate, discussions were raised in the Stortinget in the 2024 spring session regarding imposing an obligation on the licensees to construct and operate offshore wind power for future electricity supply for petroleum production projects.

Two areas for offshore power generationdedicated to supply the grid have been identified – a licence was awarded to Sørlige Nordjø II in early 2024, while the award to Utsira Nord, the other acreage, has been postponed due to State Aid discussions with ESA. Discussions regarding the potential development of the 1 GW Trollvind project have been shelved. The project was intended to supply offshore production facilities with electricity, as well as supply surplus power to the national grid in the western region of the country. 

The government has so far only permitted petroleum production dedicated power supply from these offshore wind turbine projects initiated by petroleum production licensee joint ventures. Hybrid projects, meaning projects potentially supplying both Norwegian petroleum production and the Norwegian onshore grid, or export to foreign offshore petroleum production or onshore grids, have so far not been permitted. Trollvind was shelved by Equinor during late 2023, because the government would not allow a hybrid solution.

The regulatory and fiscal terms applicable to hybrid solutions are far from clear. Onshore wind farms, several of which have become controversial, have increased onshore electricity generation and may from time to time supply offshore petroleum production projects through the grid. Onshore wind is connected to the integrated national grid which supplies domestic onshore commercial needs and consumers, as well as contributing to Norwegian electricity export through the many interconnectors in the Nordic countries (Sweden, Finland and Denmark) with Germany, the Netherlands and the UK.

CO₂ injection and CCS projects

Prior to the coming into force of the 1963 Continental Shelf Act dedicated regulations governing CO₂ injection and storage, dedicated CO₂ injections into subsea deposits had not been undertaken, unless associated with the production of petroleum. 

Subject to the Petroleum Act (PA) and environmental law ban on venting and flaring, CO₂ extracted from petroleum deposits as well as natural gas that has not been consumed for petroleum production purposes or sold, has been reinjected into the petroleum deposits to maintain reservoir pressure.

Norway has now passed legislation and developed a concessionary regime for the construction, operation and use of offshore subsea reservoirs for the injection of CO₂ from power-generating, industrial and other projects’ consumption or use of coal or hydrocarbons. These dedicated reservoirs have the required storage characteristics. 

The first CCS facilities licence was awarded in 2021. The government had previously initiated and given substantial financial support to the CCS projects referred to as Northern Lights and Longship. These programmes entailed the construction of an onshore terminal to receive CO₂ that would then be transported by submarine pipelines to dedicated offshore subsea facilities in order to be injected into seabed deposits. So far, only one exploitation licence (EL 001 Aurora in the North Sea) and six exploration licences (EXL 002, EXL 004, EXL 005, EXL 006 and EXL 007 in the North Sea and EXL 003 Polaris in the Barents Sea) have been awarded.

Unique or Interesting Aspects of the Hydrocarbon Industry

The regulatory regime

The regulatory regime is heavily resource management-orientated and standardised, with substantial direct non-carried state participation. The regime is considered, transparent, predicable and accountable. Uniform concessionary terms and streamlined processes for consent to asset or corporate transactions reduce transactional and operational costs. The regime facilitates portfolio optimisation through acquisitions or divestments. Standardised legislative minimum pre-qualification requirements make new entrant pre-qualification processes predictable and streamlined. A cash flow-based progressive fiscal regime, without any cost-recovery ceiling or the depreciation rules applicable to the petroleum special tax at 56%, accelerates repayment of capital invested and reduces investment risk.

Resolution of disputes

Disputes between investors and regulatory authorities, and between licensees, are subject to the ordinary courts. The parties may resort to arbitration or other conflict-resolution mechanisms in disputes between licensees or investors and suppliers, or among suppliers.

Restrictions and standards

Norway is considered to have stricter rules applicable to health, safety, the working environment and natural environmental protection than most producers, including a ban on any upstream-related flaring and venting, as well as restrictions on discharges into the sea. All new production projects are subject to assessment for electrification eligibility. Power produced from onshore hydropower has until now been the source of energy for offshore electrification purposes. Some onshore wind projects have recently been connected to the grid to supply electricity for offshore petroleum production. Hywind Tampen is the first offshore wind project to supply offshore petroleum production projects. Norway is also considered to have strict decommissioning provisions in place for offshore facilities. 

Material Changes in the Law or Regulations

Amendments to the Gassled system

In spring 2024 the ME announced that it does not intend to renew the pipeline licences comprised by Gassled beyond their harmonised expiry date in 2028. The individual pipeline licences were initially awarded for up to 30 years, and several of them have been extended more than once. The practical implementation of the decision not to further extend licences may be complicated, as several of the pipelines are also regulated by bilateral treaties with Germany, Belgium, France and the UK.

Amendments to the Petroleum Tax Law

The deadline for submitting projects subject to the interim amendments to the petroleum tax law to mitigate the expected negative effects of COVID-19 expired on 31 December 2022. A number of projects for which development plans were submitted within the time limit are under construction and will therefore operate under the COVID tax incentive scheme for several years. Development plans submitted after the deadline will be subject to the new petroleum special tax regime described below.

Amendments to the procedure relating to environmental impact assessments

Following the dispute raised by the environmental groups Greenpeace and Natur og Ungdom, the Norwegian Supreme Court in 2020 decided in a landmark judgment that the government had certain constitutional obligations to assess the ultimate climate effects of petroleum consumption or the use of Norwegian petroleum production, even if such consumption or use occurred beyond Norwegian law and jurisdiction. A new case was raised in front of the Oslo District Court by the same organisations in late 2023. The organisations claimed that the government had not complied with the Supreme Court ruling to ensure that the climate effects of CO₂ emissions from the consumption or use of petroleum to be produced from three specific projects for which the ME had approved development plans, had been subject to adequate environmental impact assessments (EIAs). The court ruled in favour of the environmental organisations and found that the approvals of the development plans were invalid due to a procedural error that may have impacted the eventual approval. The court also imposed a preliminary injunction against any further government approvals necessary for the projects to proceed. The decision was appealed to the Courts of Appeal which, subsequent to a written procedure, lifted the injunction on the condition that the government continued its approval process without deviating from normal procedure. The court hearing on the merits will take place in autumn 2024. 

During the spring of 2024, the government publicly circulated a proposal (for comment) to amend the non-binding guidelines for the preparation of production project development plans. The proposal is curious, as the obligation to undertake the EIA at the stage of development plans remains with licensees that may have limited access to the overall data relevant to assessing the potential CO₂ emissions from out of jurisdiction consumption or use. Technically, there may also be a legal snag to the proposal as the PA does not apply to exploitation of petroleum beyond the NCS, including on Norwegian or foreign land territories, unless it follows from public international law or treaty. Emissions regulated by the EIA obligation applicable to licensees in relation to development plans, are those emissions that occur as a result of the production of petroleum and the construction, placement and operation of facilities comprised by the development plan. There are also specific rules in Chapter 5 of the PA regarding emissions produced in the decommissioning and potential removal of facilities for which licensees or owners are responsible.

Petroleum Special Tax Regime

The petroleum special tax regime, effective from 17 June 2022, comprises all new petroleum projects subject to petroleum special tax that did not fall under the temporary COVID-19 mitigation regime that expired for all projects that had not submitted development plans by 31 December 2022. The new special tax regime is a cash flow-based tax system, allowing immediate deductions for investments as and when incurred against income subject to the petroleum special tax. Uplift, accelerated linear depreciation, loss carried forward with interest, annual tax-value cash back of exploration costs, and refund of deficit at exit from Norwegian upstream petroleum activities have been abolished. Transition provisions are in place for older projects not covered by the COVID-19 mitigation scheme. No changes have been implemented in the General Tax Act (GTA), which applies to all entities subject to Norwegian tax, irrespective of sector.

Consolidation of sector responsibilities

The transfer of health, safety and working environment (“HSE”) responsibilities for NCS and Exclusive Economic Zone-related non-living natural resources management is now consolidated in the ME. The ME is, in addition, in charge of resource management, operations and HSE upstream petroleum, offshore renewables, CCS and seabed mining, as well as watercourse, electricity and natural gas downstream matters. The ME is thus the central ministry responsible for traditional energy production, transmission and distribution, as well as energy transition. Core directorates in this regard are the Norwegian Offshore Directorate (NOD) and the Norwegian Offshore Industry Authority (NOIA). The Energy Regulatory Authority (“RME”) and the Norwegian Water Resources and Energy Directorate (“NVE”) remain in charge of onshore electricity generation and grids subject to Norwegian jurisdiction, including the domestic grid and the land-based and subsea electricity interconnectors with neighbouring countries. 

Amendments to the joint operating agreement

The standardised production licence and its annex, the petroleum agreement, are subject to Norwegian law. Mandatory licence terms require all contracts relating to or arising from petroleum activities pursuant to an exclusive petroleum licence, to be governed by Norwegian law and Norwegian contract traditions. A joint venture agreement between the licensees, the joint operating agreement (JOA) is Enclosure A to the petroleum agreement forms of the standard non-negotiable terms and conditions where deviations from the standard JOA are dependent on ministry approval. The JOA is currently being revised.

Amendments to the Security Act impacting the petroleum sector

In September 2022, the government determined that controlling Norwegian upstream petroleum production and natural gas transportation to Europe and the UK constitutes an activity “of vital importance to fundamental national functions”. Simultaneously, the government decided that Equinor and Gassco should be subject to the Security Act. The May 2023 amendments to the Security Act, expanding its scope of application and amending the provisions regulating control of ownership of undertakings engaged in activities “of vital importance to fundamental national functions”, were adopted by the Stortinget in early June 2023. 

The King in Council’s decision on 23 June 2023 promulgated partial entry into force of the amended Security Act rules adopted by the Stortinget, with effect from 1 July 2023. The amended rules that came into force widen the Act’s scope of application and also have a partial impact on the transfer of control over, or ownership of, undertakings. From 1 July 2022 the MPE (now the ME) also decided that undertakings of “significant importance” without being of “vital importance” may be comprised by the provisions of Chapter 10 Restrictions on ownership. The comprehensive amendments to Chapter 10 of the Act, which further impose notification and approval requirements on both the seller and the buyer, as well as management, are still pending. When in force, these provisions will have general application and may have a substantial impact on all NCS energy, CCS, or seabed mining-related transactions.

Advokatfirmaet Simonsen Vogt Wiig

Filipstad Brygge 1
0252 Oslo
Norway

+47 21955500

+47 21955501

www.svw.no
Author Business Card

Law and Practice

Authors



Advokatfirmaet Simonsen Vogt Wiig (SVW) is one of Norway’s largest full-service firms, with 180-plus fee earners in offices in Oslo and major Norwegian cities, as well as an office in Singapore. SVW has one of Norway’s most powerful oil and gas teams, consisting of dedicated upstream lawyers and a host of specialists in other fields serving oil and gas clients, domestically and internationally. It provides legal services to international majors and independents as well as international and Norwegian supply and oil service companies. The firm’s services comprise the full life cycle and all aspects of the activities of oil and gas players. SVW advises governments on legal framework development (commercial, resources and HSE), public international law and negotiation of treaties, production-sharing contracts, and service and development contracts. The international practice comprises assistance to international energy companies on new ventures and investments, transactions and international pipeline projects.

Trends and Developments

Authors



Advokatfirmaet Simonsen Vogt Wiig (SVW) is one of Norway’s largest full-service firms, with 180-plus fee earners in offices in Oslo and major Norwegian cities, as well as an office in Singapore. SVW has one of Norway’s most powerful oil and gas teams, consisting of dedicated upstream lawyers and a host of specialists in other fields serving oil and gas clients, domestically and internationally. It provides legal services to international majors and independents as well as international and Norwegian supply and oil service companies. The firm’s services comprise the full life cycle and all aspects of the activities of oil and gas players. SVW advises governments on legal framework development (commercial, resources and HSE), public international law and negotiation of treaties, production-sharing contracts, and service and development contracts. The international practice comprises assistance to international energy companies on new ventures and investments, transactions and international pipeline projects.

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