Production of oil and gas on the Norwegian continental shelf (NCS) commenced in the 1970s following the discovery of the Ekofisk field. In the subsequent years, several additional large discoveries were made, and these fields have been, and still are, very important to the development of the activities on the NCS, also enabling the tie-in of a number of smaller fields. The Norwegian government has over the past 20 years introduced various adjustments in the legal (including fiscal) regime to attract new players to the NCS, and today almost 50 foreign and Norwegian companies are active on the NCS.
The petroleum resources are vested in the Norwegian state, and a sophisticated licensing system with mandatory participation in an unincorporated joint venture with standard joint operating agreement and accounting agreement enable private and state-owned companies to explore, develop, and produce petroleum in accordance with the principles laid down in licences and applicable acts and regulations. The main principle of Norway's management of its petroleum resources is that exploration, development and production must be carried out in a prudent manner with the aim to maximise value creation for the society, and that revenues must accrue to the Norwegian state and thus benefit society as a whole. In 2018, 53 exploration wells were spudded on the NCS and 12 discoveries were made. Most of the new discoveries are small and near existing or planned infrastructure. At total of 83 fields were in production while 14 fields were under development by the end of 2018. In addition, nine plans for new developments (PDOs) were approved by the authorities during 2018.
In 2018, the total production of oil and gas (condensate and natural liquid gas included) reached approximately 227 million Sm³ of marketable petroleum. The Norwegian Petroleum Directorate (NPD) estimates that the overall production from the NCS will decline slightly in 2019 and then increase again during the period 2020–2023. The highest increase in production is expected in 2020, as a consequence of the major Johan Sverdrup fields commencement of production. For more information about the Johan Sverdrup field, see Section IX.
Norway supplies about 2 per cent of the global oil consumption. Gas production remained high in 2018, at about the same level as in 2017. Gas sales totalled 120 billion Sm³ in 2018. The growing demand for natural gas in other parts of Europe is an important explanation for this rise. In 2018, natural gas accounted for almost 50 per cent of total production by oil equivalents. The NPD's estimate for total proven and unproven petroleum resources on the NCS is about 15.6 billion standard cubic metres of oil equivalents. Of this, 45 per cent has been sold and delivered.
Norway is Europe's second-largest oil producer (after Russia), the world's third-largest natural gas exporter and an important supplier of both oil and natural gas to other European countries. The petroleum industry is by far the largest industry in Norway. Numbers published by Statistics Norway shows that total oil and gas investments on the NCS, excluding exploration, is expected to reach over 140 billion kroner in 2019, while the export value of crude oil and natural gas was about 442 billion kroner in 2018.
The oil and gas sector is Norway's largest measured in terms of value added, government revenues, investment and export value. In 2018, the export value of crude oil, condensate and natural gas was about 442 billion Norwegian kroner. This makes oil and gas the most important export contributor in the Norwegian economy. The Norwegian government's total net cash flow from petroleum activities, including the dividend from Equinor (formerly Statoil) and various fees, is estimated to approximately 263 billion kroner in 2019. This represents a significant increase in revenues compared to the last four years, mainly because of higher oil and gas prices.2 The state's income from the petroleum sector is transferred to a separate fund; the Government Pension Fund – Global. By 10 September 2019, the fund was valued at approximately 9,600 billion kroner.3
II LEGAL AND REGULATORY FRAMEWORK
The main statute relevant for petroleum activities is the Petroleum Act No. 72 of 29 November 1996 (the Petroleum Act) while the more detailed rules are set out in various regulations, including the following pertaining to resource management:
- the Petroleum Regulations No. 653 of 27 June 1997 (the Petroleum Regulations);
- the Resource Management Regulations No. 749 of 18 June 2001;
- the Regulations Relating to the Use of Facilities by Others No. 1625 of 20 December 2005; and
- the Regulations Relating to the Stipulation of Tariffs, etc. No. 1724 for Certain Facilities of 20 December 2002 (the Tariff Regulations).
In addition, there are various regulations relating to health, safety and environment, elaborated on in Section VII.
The Petroleum Taxation Act No. 35 of 13 June 1975 (the Petroleum Taxation Act) is also considered a core statute governing taxation of exploration, production and extraction of sub-sea petroleum deposits. Four of the most relevant appurtenant regulations are:
- the Regulations on Petroleum Taxation No. 316 of 30 April 1993;
- the Regulations Relating to Consent to the Transfer of Licence and Ownership Interests According to the Petroleum Taxation Act Section 10 of 1 July 2009 No. 956;
- the Regulations Relating to Taxation on Rental of Moveable Production Facilities No. 819 of 18 August 1998; and
- the Regulations for Determining the Norm Price No. 5 of 25 June 1976 (the Norm Price Regulations).
i Domestic oil and gas legislation
The Petroleum Act provides the general legal basis for petroleum activities on the NCS. According to the Act and the Petroleum Regulations, licences can be awarded for exploration, production and transport of petroleum, meaning that the proprietary right to the petroleum deposits on the NCS is vested in the state. Official approvals and permits are necessary in all phases of the petroleum activities, from award of exploration and production licences, in connection with the acquisition of seismic data and exploration drilling, to plans for development and operation, production and decommissioning.
Prior to awarding production licences, an impact assessment must be carried out to evaluate factors such as the economic and social effects, and the environmental impact the activity could have for other industries and the adjacent districts in the relevant areas. The impact assessment and opening of new areas are governed by Chapter 3 of the Petroleum Act and Chapter 2a of the Petroleum Regulations.
Production licences are awarded through licensing rounds announced by the Ministry of Petroleum and Energy (MPE). The announcement is made official on, inter alia, the NPD's website (www.npd.no).
The production licence regulates the rights and obligations of the companies in relation to the Norwegian state. The licence supplements the requirements in the Petroleum Act and stipulates detailed terms and conditions. The licensees become the owners of the petroleum that is produced. More detailed provisions regarding the licensing regime and production licences can be found in Chapter 3 of the Petroleum Act and the Petroleum Regulations.
If the companies find it commercially viable to develop a field, they are required to carry out prudent development and operation of proven petroleum deposits. When a new deposit is to be developed, the company must submit a plan for development and operation to the MPE for approval. An important part of that plan is to perform an impact assessment that is submitted for consultation to various bodies that could be affected by the specific field development. Development and operation is governed in more detail by Chapter 4 of the Petroleum Act and the Petroleum Regulations.
As a general rule, the Petroleum Act requires licensees to submit a decommissioning plan to the MPE two to five years before the licence expires or is relinquished, or before the use of a facility ceases. Decommissioning or disposal of facilities is governed by Chapter 5 of the Petroleum Act and Chapter 6 of the Petroleum Regulations.
Liability for damages resulting from pollution is governed by Chapter 7 of the Petroleum Act. The licensees are responsible for such damage without regard to fault.
Safety aspects associated with the petroleum activities are governed by Chapters 9 and 10 of the Petroleum Act, with appurtenant HSE regulations. The petroleum activities shall be conducted in a prudent manner to ensure that a high level of HSE can be maintained and developed throughout all phases, in line with the continuous technological and organisational development.
The Norwegian state participates directly in the petroleum activities through the state's direct financial interest (SDFI) managed by the wholly state-owned company Petoro AS (Petoro). Detailed rules governing the management of the SDFI are laid out in the Petroleum Act Chapter 11.
The main governmental offices responsible for petroleum activities on the NCS are the MPE, the Ministry of Finance (MoF), the Ministry of Labour and Social Affairs, the Ministry of Climate and Environment, and the Ministry of Trade, Industry and Fisheries.
The MPE has the overarching responsibility for managing the petroleum resources and is also responsible for the state-owned companies Petoro and Gassco AS. Gassco is the operator for the integrated pipeline system for transporting gas from the NCS to other European countries. The NPD is subordinated to the MPE and its paramount objective is to make sure that the resource management of the Norwegian petroleum resources are conducted in a best possible manner.
The MoF has the main responsibility of ensuring that the state collects the applicable taxes and fees from the petroleum activities, including corporate tax, special tax, CO₂ tax and NOₓ tax. The Petroleum Taxation Office is part of the Norwegian Tax Administration, reporting directly to the MoF, and is responsible for ensuring correct levying and payment of taxes and fees adopted by the political authorities.
Moreover, the Petroleum Safety Authority (PSA), under the Ministry of Labour and Social Affairs, has the regulatory responsibility for technical and operational safety, including emergency preparedness and working environment in petroleum activities.
The Norwegian Environment Agency, under the Ministry of Climate and Environment, is responsible for all environmental issues pertaining to the petroleum activities, such as granting the requested permissions to pollute.
Another governmental body involved is the Norwegian Coastal Administration, under the Ministry of Transport, and is responsible for the state's oil spill preparedness.
Finally, the Norwegian Maritime Authority (NMA) is the administrative and supervisory authority in matters related to safety of life, health, material values and the environment on maritime vessels involved in the petroleum activities. The NMA is among others issuing certificates/LOC to mobile drilling units used in the petroleum activities, and is also following up if such units are in compliance with the applicable maritime regulations. The NMA has entered into a cooperation agreement with the PSA, dividing responsibility as to the follow-up of mobile offshore units. The NMA is subordinate to the Ministry of Transport.
Norway is a contracting state to both the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and the Lugano Convention on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters. Further, Norway is a party to bilateral investment protection treaties entered into with different states regarding mutual promotion and protection of investments. The Agreement on the European Economic Area (EEA) and the TRIMs (Trade-Related Investment Measures), TRIPS (Trade-Related Aspects of Intellectual Property Rights) and GATS (General Agreement on Trade in Services) agreements (treaties of the World Trade Organization), to which Norway is a party, are considered bilateral investment treaties. An example of a multilateral treaty ratified by Norway is the cooperation agreement between Member States of the European Free Trade Association and the European Investment Bank.
Double taxation relief is available in accordance with double taxation treaties (DTTs), entered into between Norway and several foreign states. The DTTs are mostly based on various editions of the OECD Model Tax Convention on Income and on Capital, or the UN Model Tax Convention in case of DTTs entered into between Norway and typical developing countries.
Since 1992, Norway has been practising what is referred to as the 'credit system'. Under the credit system, income derived from a foreign source is considered liable to tax in Norway, but the taxpayer is credited a tax relief based on taxes paid in the state of source. Credit is normally limited to the rate of Norwegian tax levied on the foreign income. Following introduction of the credit system, many of the older double tax treaties that have been based on the exemption method have either been or are currently under renegotiation.
Under Norwegian domestic tax law, relief from double taxation is either granted by way of a double tax credit or by deduction of the foreign tax from the Norwegian corporate tax basis.
There are two distinct licences that the MPE may grant: exploration licences and production licences. In addition, a specific licence to install and operate pipelines is also granted by the MPE. The exploration licence is not exclusive, and does not give a preferential right if a subsequent production licence is granted. A production licence is, on the other hand, exclusive, meaning the licensees are given a sole right to conduct surveys, exploration and production within the geographical area defined by the production licence. The award of a production licence is based upon the applicant's technical expertise, financial strength, geological understanding and experience on the NCS or similar areas.
It should be noted that exploration and production licences are awarded separately, and that an exploration licence will not necessarily be awarded prior to a production licence. Exploration licences are granted for a period of three calendar years unless otherwise specifically stipulated in the licence. Production licences are granted for an initial period of up to 10 years, and if the licence is granted for a shorter period of time, the MPE may subsequently extend the licence period within the 10-year limit. When the licensees have fulfilled the mandatory work obligations set out in the production licence they may require a further extension of the production licence. A possible extension period is stipulated in the applicable production licence and shall as a general rule be up to 30 years, but may under specific circumstances be up to 50 years.
Production licences on the NCS are awarded following two different licensing rounds; areas regarded as mature are subject to an annual simplified licensing round referred to as awards in predefined areas (APA). On the other hand, areas that are not regarded as mature are subject to ordinary licensing rounds traditionally held every second year. Companies can apply individually or as a group. Based on the applications submitted, the production licences are awarded to a group of companies forming a joint venture on the basis of relevant, objective and non-discriminatory announced criteria. One of the licensees is further appointed as an operator.
Production licences can also be obtained through direct or indirect transfer of participating interests. Such transactions require the consent of both the MPE and the MoF (see the Petroleum Act Sections 10–12 and the Petroleum Taxation Act Section 10).
IV PRODUCTION RESTRICTIONS
Pursuant to the Petroleum Act the production of petroleum shall be conducted in the most cost-effective manner. The production schedule is subject to the prior approval of the MPE. There are, as a starting point, no restrictions on production entitlements or rights related to exports of oil and gas. The government is, however, provided with some special legal tools that may be used in times of crisis. First, if necessary owing to important interests of society, the government may stipulate production schedules other than those stipulated for one or several petroleum deposits. This legal tool also includes the right to reduce the production level. Second, in the event of national or worldwide difficulties in the supply of oil and gas, the licensees may be required to make deliveries of their production to cover national requirements and to provide transport to Norway. Furthermore, in the event or threat of war or other extraordinary crisis, the licensees may be required to place petroleum at the disposal of Norwegian authorities. The potential legal restrictions listed above are all to be considered as narrow safety nets, implying that the potential restrictions on production entitlements have only been utilised a few times since commencement of petroleum activities on the NCS.
The Norwegian Petroleum Price Council is, according to the Petroleum Taxation Act, Section 4, responsible for setting the norm prices, used in order to calculate the taxable income for the oil companies operating on the NCS. Determination of norm prices is based on the principle that it should reflect the price that could have been achieved between independent parties. The procedure for determining norm prices is governed by the Norm Price Regulations.
Where the Council does not find it reasonable to set norm prices, the actual price achieved will be used as the applicable tax reference price. Note that the norm price system is not applicable to taxation of dry gas sales. Such sales are insofar as the price reflects the market value taxed on the basis of the actual price achieved.
V ASSIGNMENTS OF INTERESTS
Transfer of assets in production licences is subject to the MPE's prior consent (see the Petroleum Act Section 10-12). The requirement also applies to the purchase of at least one-third of the shares in a company holding a production licence or if the purchaser passes the thresholds of one half or two-thirds control of the company holding the production licence. Although the above thresholds are not exceeded, shareholder rights such as veto rights or the right to consent to certain activities under the Norwegian licence could easily trigger the need for consent under Section 10-12. A corresponding consent related to the tax consequences must, according to the Petroleum Taxation Act, also be obtained from the MoF. There are no requirements as to any specific consideration being made. The consequence of not obtaining a required consent under the Petroleum Act Section 10-12 is that the transaction may not be completed.
It is not possible to provide an exact estimate of the time frame for obtaining approval from the MPE, as it may vary from days to many months. Factors that may influence the process are, inter alia, whether the assignee is a company already established on the NCS, the complexity of the transaction and the financial situation of the assignee. In the majority of the transactions on the NCS, it takes more than three weeks to receive approval from the MPE.
If transferring licences in the development or production phase, the assignor is exposed to a potential secondary financial liability for decommissioning costs. The liability is limited to the assignor's participating interest for installations existing at the field at the date the transfer is registered in the Norwegian Petroleum Register. For more information, see Section VII.
The Norwegian state has, through the SDFI, a pre-emption right in all production licences being transferred on the NCS. The pre-emption right is exercised through the wholly state-owned company, Petoro. The pre-emption right does not apply to transactions involving transfer of shares. The pre-emption right has never been exercised, but it may not be ruled out that it can still be utilised in the future.
Petroleum activities on the NCS are governed by the Petroleum Taxation Act. The Act levies a special tax of 56 per cent in addition to the ordinary corporate tax rate of 22 per cent, leaving the marginal tax rate at 78 per cent. However, there is an uplift allowance when calculating the special tax. The uplift equals 5.2 per cent per year over a four-year period on capital investments, in total 20.8 per cent. The uplift was introduced to ensure a regular rate on return on the capital investments.
All exploration costs may be deducted. For production facilities and pipelines governed by the Petroleum Act, a linear depreciation rate of 16.66 per cent per year is granted.
Oil and gas companies operating on the NCS with no taxable surplus may carry forward their losses and their uplift allowance included interest. The interest rate is set annually by the MoF. The right to carry forward such losses is for an indefinite time period.
Consolidation between the different fields on the NCS is permitted, and the companies may use taxable surplus obtained from one field and settle this against losses incurred from activities on another field on the NCS.
Owing to a special provision in the Petroleum Taxation Act, companies that are in a tax loss position may annually claim a cash reimbursement from the state equivalent to the fiscal value (78 per cent) of exploration costs that the company has carried during the income tax year. The legislation also allows the companies to pledge or sell such reimbursement claims against the state. In all, the right to claim reimbursement of exploration costs and the right to carry forward losses equivalent to the fiscal value is beneficial for operating companies without positive taxable income and that are in a start-up phase.
Other taxes and fees related to activities on the NCS include the CO₂ tax, which for 2019 is 1.08 kroner per litre of produced petroleum, the NOₓ tax and the area fee.
The MoF will provide its consent to any transfer of licences or participating interests in licences that comprise the Petroleum Act, Sections 10–12. The main objective is to ensure a neutral tax effect of the transactions.
VII ENVIRONMENTAL IMPACT, HSE AND DECOMMISSIONING
The Norwegian Environment Agency manages and enforces the Pollution Control Act of 13 March 1981 No. 6, the Product Control Act of 11 June 1976 No. 79 and the Greenhouse Emission Trading Act of 17 December 2004 No. 99, and is responsible for granting permits, establishing requirements and setting emission limits. The overarching goal of the aforementioned acts is to protect the environment against pollution, including pollution from the petroleum industry. In addition, various EU directives related to the environment have also been implemented in Norwegian law, and must in this case be complied with when conducting offshore petroleum activities covered by the relevant legislation. Breach of the regulations enforced by the Norwegian Environment Agency may lead to administrative and criminal sanctions.
The PSA is the administrative body responsible for technical and operational safety, and the working environment related to offshore and onshore activities covered by the Petroleum Act. Said responsibility covers all phases of the relevant activities, including planning and design, construction and operation, and decommissioning and removal. All licensees conducting activities on the NCS shall have a management system that the PSA finds to be in compliance with the HSE regulations, and breach of the applicable regulations may be subject to administrative and criminal sanctions.
The main HSE requirements applicable to subsea and onshore activities forming an integrated part of the offshore petroleum production are set out in the following regulations:
- the Framework Regulations of 12 February 2010 No. 158;
- the Management Regulations of 29 April 2010 No. 611;
- the Facilities Regulations of 29 April 2010 No. 634;
- the Activities Regulations of 29 April 2010 No. 613; and
- the Technical and Operational Regulations of 29 April 2010 No. 612.
As a general rule, all mobile offshore drilling facilities, floating production, storage and offloading units (FPSOs), accommodation units and well intervention units registered in a national ship register are required to obtain an acknowledgment of compliance before commencement of petroleum activities. An exception is applicable to mobile facilities where the operator itself is responsible for the operations. The acknowledgment of compliance is provided by the PSA and expresses the authority's confidence that petroleum activities can be carried out using the facility within the framework of the regulations. An applicant can either be the owner of the facility or a party in charge of the day-to-day activities of the facility. After receiving an AoC, the mobile offshore facility still need to comply with mandatory requirements in applicable Acts and regulations.
The main legal framework relating to decommissioning of oil and gas facilities and pipelines is included in the Petroleum Act Chapter 5 and the Petroleum Regulations Chapter 6. The licensees are obliged to submit a decommissioning plan to the MPE prior to expiry or surrender of a production licence or a specific licence referring to installation and operation of facilities, alternatively before the use of a facility is permanently terminated. The plan shall contain proposals for continued production or shutdown of production and disposal of facilities. The MPE renders a final decision relating to the content of and the time limit for implementation of the decommissioning plan. The decision shall, inter alia, be based on technical, safety, environmental and economic aspects as well as considerations to other users of the sea.
In addition to national regulations, the decommissioning plan must take into consideration various requirements undertaken in international treaties and conventions. This particularly relates to the OSPAR Decision 98/3 on the Disposal of Disused Offshore Installations, the Guidelines of the International Maritime Organization (IMO) and the United Nations Convention on the Law of the Sea (UNCLOS).
The MPE is entitled to request a parental guarantee or any other security from the licensee at any phase of the petroleum activities, which also means that specific security may be requested in connection with the conclusion of decommissioning activities. In practice, the MPE has until now only requested a standard parental guarantee when the company is pre-qualified as a licensee or is being awarded its first production licence.
If a licence or a participating interest thereof has been transferred, the assignor shall (inter partes) be secondarily liable for financial obligations towards the assignee and the remaining licensees for the costs of carrying out the decision relating to disposal (see the Petroleum Act Section 5-3 and the Petroleum Regulations, Section 45a).
The MPE has through a letter dated 8 November 2016 to the Norwegian Oil and Gas Association (No: Norsk Olje og Gass) announced that the secondary financial liability may also apply to indirect transfer of licences (share sales). The approach is that the MPE in connection with providing consent to the transfer (Petroleum Act Sections 10–12) shall consider whether to attach a condition stating that the assignor shall undertake a secondary financial liability for decommissioning costs related to his or her participating interests for installations existing at the field at the time the transfer is registered in the Petroleum Register. To ensure fulfilment of this potential secondary financial liability, the MPE may request that also the ultimate parent company of the assignor undertake the same obligation through a standard guarantee with both the Norwegian state and the licensees as the beneficiaries. The new practice has been in place since September 2017.
Normally, the assignor will request the assignee to provide a parental guarantee or bank guarantee in order to make sure that the assignor is indemnified in the event of being held liable for any upcoming decommissioning costs.
VIII FOREIGN INVESTMENT CONSIDERATIONS
The MPE may grant an exploration licence to a body corporate irrespective of whether the company is domiciled or registered in Norway. Exploration licences may also be granted to physical persons domiciled in a state within the EEA. Production licences may be granted to a body corporate established in conformity with Norwegian legislation and registered in the Norwegian Register of Business Enterprises, and to physical persons domiciled within the area of the EEA. Pursuant to the EEA Agreement, companies applying for a production licence may also be established or domiciled in an EEA state.
According to the Petroleum Act, the licensees shall ensure that the activity on the NCS can be carried out prudently and in a manner that safeguards good resource management, health, safety and the environment. To ensure compliance with these requirements the MPE may, to the extent it is deemed necessary in relation to the scope of the licensee's activity, set special requirements regarding the licensee's organisation in Norway. The ministry may also, if indicated by the consideration for prudent resource management or health, safety and the environment, order the licensee to use specific bases. In practice, more or less all companies being awarded a production licence have been domiciled in Norway and registered as a company with limited liability within a reasonable period of time after the award.
When urgent, law firms will normally be able to incorporate and register a new company in the Register of Business Enterprises within 24 hours as long as all board members have a Norwegian identity number.
The minimum share capital is 30,000 kroner for a private limited liability company and 1 million kroner for a public limited liability company. At least 50 per cent of the board members in the company have to be EEA citizens residing in an EEA country.
The most common obstacle in incorporating and quickly registering a new company in Norway is obtaining Norwegian identity numbers for foreign board members who have not previously held any corporate positions in Norway. Obtaining these identity numbers normally takes two weeks.
ii Capital, labour and content restrictions
Except for common restrictions on the movement of physical bank notes, there are no particular restrictions on the movement of capital or access to foreign exchange. Note, however, that all cross-border transactions are reported to a central register.
In the private sector, hiring of employees is generally based on contractual freedom between the employer and the employee. However, certain details concerning the hiring process, such as the material content of the employment contract and term of notice, are regulated by the Norwegian Working Environment Act.
The employment may in addition to the Working Environment Act be regulated by collective bargaining agreements, depending on whether the company is bound by one or more such agreements. Several Norwegian collective bargaining agreements are applicable to the oil and gas sector, inter alia, pertaining to salary and working conditions. Regarding work permits, the Norwegian government differentiates between foreign workers from EEA countries and workers from other countries. Workers from EEA countries must register themselves to be able to work in Norway. Workers from other countries, however, will have to be categorised as skilled workers by the Norwegian Directorate of Immigrants to be granted a work permit. To qualify as a skilled worker, the employee must either have completed vocational training at upper secondary school level for at least three years (and there must be a corresponding vocational training programme in Norway), or the employee must have obtained a degree from a university or university college (e.g., a bachelor's degree as an engineer), or have qualifications obtained through work experience, if relevant in combination with courses, etc.
Corruption in general is criminalised in the Norwegian Penal Code and is defined as to request, receive, accept, give or offer an improper advantage to someone in connection with their position, office or assignment.
Public bodies and private entities may be found guilty of corruption if an employee has violated the Norwegian Penal Code while executing work for the employer.
In terms of what behaviour the code prohibits, the term 'advantage' is far-reaching, and may refer to any kind of payment, favour, commitment, etc. Furthermore, the Code does not require that the advantage has had any influence on any decisions or policies, or had any other negative effect in practice. Therefore, it is not necessary to prove that the entity or individual charged has gained from the corruption. The advantage need not be of an economic nature.
It is then the term 'improper' that defines which advantages amount to corruption. Admittedly the term is rather vague, and whether an advantage is defined as improper depends on the circumstances of the case. Public bodies and officials acting on behalf of public bodies will (as opposed to private individuals and undertakings) generally be subject to a stricter norm when assessing whether an advantage conferred or obtained is to be regarded as improper.
Although not characterised as corruption, the Penal Code criminalises 'trading in influence'. Trading in influence refers to situations where a person gives or offers a middleman an improper advantage in return for exercising influence on the conduct of any position, office or assignment. If the middleman's relationship with the giver and the intention behind attempting to exercise influence has been concealed, the behaviour is likely to be caught by the Penal Code.
Moreover, pursuant to Regulation of 26 June 2009 No. 856, all licensees are obliged to report payments made in relation to petroleum activities on the NCS. This Regulation accomplishes the criteria set out by the Extractive Industries Transparency Initiative (EITI) promoting revenue transparency and accountability in the extractive sector, including the oil and gas sector. For more information about EITI, see https://eiti.org/homepage.
IX CURRENT DEVELOPMENTS
The activity level on the NCS has increased since the dramatic drop in oil prices in 2014. Fifty-three exploration wells were spudded on the NCS and 12 discoveries made during 2018. Fourteen fields were under development, and a record number of nine new field development plans were approved by the authorities in 2018.4
The development of the Equinor-operated Johan Sverdrup field stands out as the project people in the industry are most enthusiastic about. The Plan for Operation and Development (PDO) was approved by the MPE in August 2015. The oil and gas production capacity for the full field is expected to be in the range of approximately 650,000 barrels of oil equivalent per day, and the operator expects that the total production from the field will be 2.7 billion barrels. Production in phase 1 is planned to start by the end of October 2019. The partners submitted the PDO for the second phase of the development in the end of August 2018. Phase 2 is currently scheduled to come on stream in the second half of 2022. The field is expected to be producing for approximately 50 years. This makes Johan Sverdrup one of the five largest fields ever discovered on the NCS.
One of the other giant development projects on the NCS is the Johan Castberg field located in the Barents Sea. The field discovered in 2011 is located 110 kilometres north of the Snøhvit field, and proven resources are estimated to be between 450 to 650 million barrels of oil. The development concept is a floating production, storage and offloading vessel (FPSO) with additional subsea features. The PDO was approved by the authorities in June 2018, and commencement of production is expected during fourth quarter of 2022. The field is scheduled to be producing for 30 years.
It is expected that major field developments such as Johan Sverdrup and Johan Castberg, many small and medium-sized discoveries in close proximity to existing infrastructure, and the government's 'green light' for exploration and production activities in the very promising area in the south-east of the Barents Sea will ensure that the NCS continues to be one of the most prosperous petroleum provinces in the years to come.
The newly constructed Polarled pipeline has a total length of 482 kilometres and ties the Aasta Hansteen field in the Norwegian Sea to the Nyhamna gas processing facility in north-western Norway. Polarled is the first offshore pipeline crossing the Arctic Circle and is designed for a transport capacity for of approximately 70 million cubic metres of gas per day. The pipeline expands the existing gas transport network on the NCS and facilitates for phasing in resources available in existing and future Norwegian Sea discoveries. Gassco is the operator of the Polarled pipeline, which received its first gas volumes when the Aasta Hansteen field came on stream in December 2018.
Access to third-party infrastructure is governed by two different regulations. Access to the gas transportation network (Gassled) is governed by Regulation 20 December 2002 relating to the stipulation of tariffs for certain facilities (the Tariff Regulations). Third-party access to other offshore infrastructure is governed by Regulations 20 December 2005 relating to the use of facilities by others (TPA-Regulations). The Tariff Regulations provides rules on regulated access with set tariffs, while access to infrastructure under the TPA-Regulations is based on negotiated terms within set criteria. The aim of both regulations is to ensure efficient use of existing infrastructure on the NCS, and the overriding principle is that only the owner shall be entitled to maximise profit through production and not in the transportation network and other infrastructure. The increased use of third-party facilities on the NCS is likely to give rise to more disputes related to the specific tariff level and other applicable terms and conditions under the TPA-Regulations.
Four of the stakeholders in Norway's gas pipeline network (Gassled) have through a ruling by the Norwegian Supreme Court of 28 June 2018 lost a major case against the Norwegian state. The claimants also lost the case in the district court and the Court of Appeal, and this has been one of the most discussed disputes in the Norwegian petroleum sector during recent decades. The companies involved included the investors that acquired a total 44 per cent stake in Gassled from oil- and gas majors back in 2011 and 2012. In 2013 (after the acquisition was completed), the Norwegian government introduced changes in the Tariff Regulations implying a cut in Gassled tariffs by 90 per cent on future gas resources (effective as from 1 October 2016). Never before have changes to the legal framework with such significant negative economic impact to the owners of oil and gas infrastructure been introduced in Norway, but the alterations must be seen in light of the principle that the owners of the transportation network shall only have a 'reasonable return' on their investment while the main profit shall be allocated to the upstream activities. The new owners held that this reduction was unlawful, and claimed damages amounting to approximately 34 billion kroner, which, it was argued, represent the reduced tariff income during the period 2016 to 2028 (the end of the licence period). The Supreme Court held in its unanimous ruling that there was no legal basis to declare the reduction of the tariffs through the alterations to the Tariff Regulations invalid, and added that the outcome did not raise any doubt.
On 20 April 2019, the EFTA Surveillance Authority (ESA) provided its decision in a complaint case concerning the Norwegian Petroleum Taxation Act. Under the Norwegian Petroleum Taxation Act, companies with taxable income can deduct exploration costs, an indispensable phase of petroleum extraction. Petroleum companies that do not have taxable income can carry forward their losses with interest, or ask for an annual cash refund of the tax value of these costs.
The case was brought to ESA by Bellona, an environmental non-profit organisation, claiming that the cash refund of the tax value of petroleum exploration costs entails unlawful state aid from the Norwegian state by giving a selective advantage to certain companies.
ESA found that the annual cash refund of the tax value of petroleum exploration costs does not entail state aid. ESA concluded that the measure is not selective since it is available to all companies on an equal footing. According to EEA state aid rules, a measure that is not selective does not constitute state aid.
The annual tax refund has been very important to attract new companies to conduct exploration activities on the NCS, and ESA's decision was applauded by the Norwegian petroleum industry.
In October 2016, the environmental groups Greenpeace and Natur og Ungdom sued the Norwegian state claiming that the decision of opening areas in the Arctic for oil and gas exploration was a breach of Article 112 of The Constitution of the Kingdom of Norway (the Constitution). The case was tried before Oslo District Court in November 2017, and the court ruled in favour of the state in its judgment of 4 January 2018.
The background for the lawsuit was the MPE's decision to open up areas of the Arctic Ocean for oil and gas exploration, and to offer 13 oil companies 10 production licences in the 23rd licensing round (see further information above). The plaintiffs claimed that the Norwegian State by its decision had violated Article 112 of the Constitution, and that the decision thus was invalid. Article 112 of the Constitution has the following wording (unofficial English translation):
Every person has the right to an environment that is conducive to health and to a natural environment whose productivity and diversity are maintained. Natural resources shall be managed on the basis of comprehensive long-term considerations which will safeguard this right for future generations as well.
In order to safeguard their right in accordance with the foregoing paragraph, citizens are entitled to information on the state of the natural environment and on the effects of any encroachment on nature that is planned or carried out.
The authorities of the state shall take measures for the implementation of these principles.
Oslo District Court found that the MPE had implemented sufficient measures to safeguard the environment, and that the decision to open up the area for petroleum exploration was not in breach of the threshold established under Article 112 of the Constitution.
The judgment has been appealed to Borgarting Court of Appeal, and the new trial is scheduled to take place in November 2019.
1 Yngve Bustnesli is a partner at Kvale Advokatfirma DA.
2 Sources: Resource- and production numbers are quoted from the website for Norwegian Petroleum, cf. www.norskpetroleum.no, the Norwegian Petroleum Directorate (www.npd.no) and Statistics Norway (www.ssb.no).