I INTRODUCTION

There are oil and gas deposits in the Danish part of the North Sea, and at the time of writing there are in total 19 oil or gas-producing fields. The first concession (the Sole Concession) was granted to A P Møller-Maersk back in 1962 and covered the entire Danish area. The Sole Concession was amended by agreement with the Danish government in 1981, and areas are gradually being handed back to the Danish state.2

The Danish Energy Agency (DEA) has finalised eight rounds3 of applications to obtain licences to explore for hydrocarbons in the North Sea. The seventh round concluded in 2016 resulting in the award of 16 new licences. An eighth round was initiated in 2018, with areas offered for licensing in the Central Graben and in the adjoining areas further east bounded at 6° 15' E longitude. The round concluded on 1 February 2019, and five applications from four companies are currently being processed by the DEA. According to the DEA, it is the aim to initiate additional rounds of applications every second year with the next, ninth round planned for 2020.

In addition to the licensing rounds, Danish legislation has since 1997 foreseen an open-door procedure for unlicensed areas east of 6° 15' eastern longitude.4 Applications may be submitted at any time between 2 January and 30 September of each year. Neither the licensing rounds nor the open-door procedure contain nationality requirements for obtaining or participating in a licence.

The Danish state participates through the independent entity Nordsøfonden5 in all licences granted since 2005 whether in a licensing round or through the open-door procedure with a 20 per cent stake.6 In addition, Nordsøfonden participates with a 20 per cent stake in the Sole Concession.

Denmark has been a net exporter of energy since 1997 and was until recently expected to be largely self-sufficient in oil and natural gas. However, pursuant to the DEA's latest forecast,7 Denmark is only expected to be self-sufficient with regard to natural gas. For 2019, the DEA anticipates an oil production of 6.1 million m³ and a production of natural gas (sales gas) of 2.4 billion normal cubic metres (Nm³). Denmark's reserves of oil are as of 1 January 2019 estimated to 128 million m³ and of sales gas to 70 billion Nm³, both figures including contingent resources.8 As indicated, the DEA's latest forecast for Denmark's self-sufficiency in oil foresees that Denmark will no longer be self-sufficient. According to previous forecasts, Denmark was expected to be a (marginal) net exporter of oil for a number of years, but the forecast has lately been reduced due to reassessments following new data, production experience and postponed commissioning dates for several extensions of production fields. Turning to natural gas, the DEA forecasts that Denmark will be self-sufficient until 2034 with the exception, however, of 2020 and 2021, which is mainly attributable to the restoration of the Tyra field that is scheduled to begin in September 2019 and continue until July 2022.

Besides the finishing of the eighth licensing round, major news in the Danish oil and gas industry so far in 2019 includes the environmental impact assessment-approval of the Baltic Pipe as well as the completion of Total and Noreco's (separate) acquisitions of almost 50 per cent in total of the Danish Underground Consortium. On the political front, the formation of a new government in June 2019 with a distinct green agenda marks the highlight.

II LEGAL AND REGULATORY FRAMEWORK

The Danish field of upstream oil and gas activities is regulated through a number of different acts, statutory orders and guidelines.

i Danish oil and gas legislation

The main act regulating the Danish upstream oil and gas activities is the Danish Subsoil Act9 (DSA), which is a framework act. Alongside with the Danish Continental Shelf Act10 (CSA) and the Danish Pipeline Act11 (DPA), the DSA forms the body of regulation that creates the basis for the social management and management of most raw materials, including oil and gas, in Denmark. The main acts and their key provisions, as well as the most relevant statutory orders, are set out in overview in the following sections.

The Danish Subsoil Act

The DSA sets out the basic legal framework for the exploration and recovery activities concerning raw materials and hydrocarbons in the Danish subsoil and on the Danish continental shelf. Several of the provisions in the DSA implement EU directives.12 The DSA is based on the view that the exploration for and recovery of Denmark's raw materials covered by the act require comprehensive societal management.

The DSA covers prospecting, exploration, exploitation, supervision as well as the Danish government's rights of purchasing hydrocarbons and any other use of the subsoil.13 All reservoirs of raw materials including hydrocarbons covered by the act belong to the Danish state.14 Consequently, initiation of all major activities, such as investigation, exploration and production require a separate approval from the Danish Minister for Climate, Energy and Utilities15 (or the DEA pursuant to delegation). With respect to the relevant European Union law, this allows the Danish government to make societal considerations, for example, and protect these through specific terms in each licensing round.

Licences for the exploration and production of oil and gas may be granted through licensing rounds, and since 1997 Danish legislation has also provided for an open-door procedure. Since 1983, areas in the North Sea have been offered to interested companies in a total of eight licensing rounds with applications for the eighth round currently being processed. A licence is granted on the basis of a model licence with supporting documents containing detailed terms and conditions and is an integrated part of any licensing round.

A licence is considered private property in Denmark and is governed by Danish law. A transfer of licence rights in the oil and gas regime is, however, subject to prior approval from the DEA; see further Section V.

In order to obtain a licence to initiate exploration of and extraction from the subsoil as referred to in the DSA, a fee of 25,000 kroner is payable.16 Expenses borne by the authorities in relation to licensing activities under the DSA or in relation to the other activities governed by the DSA, CSA or DPA must be reimbursed by the relevant party.17 Additionally, a licensee is obliged free of charge to submit samples and other information obtained in the exercise of activities covered by the DSA to the DEA and to the Geological Survey of Denmark and Greenland (GEUS).18

The Danish Continental Shelf Act

The CSA is based on the UN Convention of the Continental Shelf.19 The purpose of the act is the creation of an elaborate Danish administrative basis of the sovereignty over mineral deposits, etc., pursuant to the Convention of the Continental Shelf.

Under the CSA and in accordance with the requirements set out in the DSA, exploitation or exploration of natural resources on the Danish continental shelf can only take place with a licence or permit from the Danish state.20

Additionally, the Act21 specifically requires a permit for the establishment of power lines and pipelines for transportation of hydrocarbons on the Danish continental shelf.

The Danish Pipeline Act

The purpose of the DPA is to improve the recovery of crude oil and condensate in the fields in the Danish part of the North Sea and to reduce the environmental impact of transportation and landing. Under the DPA, the owner, currently Danish Oil Pipe A/S22 (a subsidiary of Ørsted A/S), operates the pipeline on the Danish continental shelf from the Gorm field to Fredericia as well as separation facilities.23 Any party recovering liquid hydrocarbons in the Danish part of the North Sea is obliged to connect the field facility to the pipeline and use it to transport the crude oil and condensate intended for refining or marketing in Denmark.24 This obligation can be exempted by the Minister if the connection to the pipeline is considered uneconomical or inconvenient.25 In practice, the Minister's powers under the act are carried out by the DEA. The DPA also governs the users' payment of the costs of capital for establishing the facilities as well as operating costs deriving from the use hereof.26

Turning to access to the upstream natural gas pipeline network, everyone may against payment be granted access to upstream pipelines and upstream systems (e.g., pipelines operated or constructed as a part of an oil or gas production along with the technical facilities related hereto) provided that they meet the third-party access requirements.27

Regulation on safety and protection of the environment

Regulation of safety and the protection of the environment for upstream oil and gas activities is primarily set out in the Offshore Safety Act,28 the Act on Protection of the Marine Environment,29 the Environmental Impact Assessment Act,30 the Statutory Order on Offshore Impact Assessment (Statutory Order on OIA)31 and the Statutory Order on Safety Zones and Zones for the Observance of Order and the Prevention of Danger.32

The purpose of the Offshore Safety Act is to promote a high level of health and safety offshore in line with society's technical and social development. The act sets out a framework within which the market participants themselves may solve health and safety issues arising.33 Under the Act, licensees must ensure that health and safety risks associated with offshore oil and gas activities are identified, assessed and reduced as much as reasonably possible.34

The Act on Protection of the Marine Environment contributes to the protection of nature and the environment in order for society to develop on a sustainable basis respecting human conditions of life and protecting vegetation and animal life.

The Environmental Impact Assessment Act and the Statutory Order on OIA concerns environmental impact assessments, appropriate assessments regarding international nature conservation areas and protection of certain species in Danish territorial waters, in the Danish exclusive economic zone and on the Danish continental shelf. Certain projects related to the DSA, CSA and DPA (e.g., the production of oil) may only be initiated after an environmental impact assessment and certain other impact assessments have been carried out.

Under the Statutory Order on Safety Zones and Zones for the Observance of Order and the Prevention of Danger, fixed installations, drilling rigs, drilling ships, etc., used for or in connection with exploration or extraction of raw materials on the Danish continental shelf must be surrounded by a safety zone.35

Regulation of taxation

Taxation of the upstream oil and gas field is regulated in the Act on Taxation of Income Originating from Production of Hydrocarbons in Denmark (the Hydrocarbon Tax Act);36 and in the Act on the Assessment and Collection of Taxes in connection with Production of Hydrocarbons (Act on Assessment and Collection).37

See Section VI, for further information on the taxation schemes for upstream oil and gas activities.

Regulatory agencies

The DEA is an agency under the Ministry of Climate, Energy and Utilities and is, inter alia, responsible for matters relating to energy supply and consumption.38 The DEA is responsible for the entire chain of tasks concerning energy production and supply, transportation and consumption, including energy efficiency and savings. Additionally, the DEA is responsible for the Danish national CO₂ targets and initiatives to limit emissions of greenhouse gases. The power to award licences for exploration and exploitation of oil and gas is not among the DEA's powers, it rests with the Minister.39

In addition to the DEA, the Danish Utility Regulator (DUR) has a supervisory and appeal function in the energy sector.40 The DUR's tasks are set out in the acts regulating the supply of electricity, natural gas and district heating. The director of the DUR is formally appointed by the Minister for Climate, Energy and Utilities, but the Minister has no powers of instruction in relation to the DUR's director or staff. Accordingly, the DUR is fully independent of the government and its personnel cannot seek or receive instructions from anyone in the performance of their duties and shall perform their duties with impartiality.41

Disputes regarding access to the upstream gas pipelines and fees and prices connected hereto are referred to the DUR with recourse to the Danish Energy Board of Appeal.42

Treaties

Besides the New York Convention,43 which has been ratified by Denmark,44 there are no other significant conventions or bilateral agreements specifically relevant to litigation in exploration or the production of oil and gas. Reference is made to the Act on Administration of Justice45 and the Danish Arbitration Act.46

Double taxation

Under the Hydrocarbon Tax Act, foreign persons and companies carrying out hydrocarbon activities in areas fully or partly subject to Danish sovereignty are subject to taxation in Denmark on the income from the activity from the point in time where the activity commences. If Denmark has entered into a double taxation treaty with the country where the foreign company is resident for tax purposes, the treaty may, however, modify the Danish tax liability.

III LICENSING

Any right to explore for or produce hydrocarbons requires a licence issued in pursuance of the DSA47 based on one of the licensing methods outlined in Section II.i. The DEA has finalised eight rounds48 of applications for licences to explore for hydrocarbons in the North Sea. The seventh licensing round covered the unlicensed area west of 6° 15' eastern longitude, including Central Graben, where most of the Danish finds have been made. The eighth round for the same area was open for applications until 1 February 2019 and resulted in five applications, which are currently being processed by the DEA. The DEA intends to initiate licensing rounds every second year with the next round planned for 2020.

In addition to the licensing rounds, Danish legislation has since 1997 foreseen an open-door procedure for unlicensed areas east of 6° 15' eastern longitude. Applications may be submitted at any time between 2 January and 30 September of each year. In February 2018, the Danish government decided49 to stop future investigations and drillings for oil and gas onshore and in inland waters, thus limiting the open-door procedure to the North Sea east of 6° 15' eastern longitude.

Nordsøfonden50 will participate with a 20 per cent stake in any licence awarded. The licencing rounds and licences issued based on the open-door procedure include model licence terms as well as a model joint operating agreement to be entered into if there are more participants in a licence. The model terms are set out by the DEA within the framework of the DSA and supporting regulation as set out in Section II.i.

The main terms of the model licence for the eighth round were as follows:

  1. delineation of the area where the licensee obtains the exclusive right to explore for and – in the case of commercially exploitable finds – produce oil or natural gas or both. Certain other rights may be allocated to third parties;51
  2. the frame for the work programme to be adhered to by the licensee;52
  3. the obligation to enter into a joint operating agreement within 90 days following granting of the licence;53
  4. extensive information requirements to the DEA and the DEA's rights of participation as observer as well as confidentiality obligations;54
  5. liability issues (strict liability), insurance obligations, obligation to provide security;55
  6. regulation of revocation and termination of the licence, including decommissioning of facilities and the Danish state's right of assignment of facilities, etc., intended for long-term use without payment of consideration;56
  7. the full immunity granted by the licensee regarding any claim that may be raised against the Danish state following the licensee's activities;57 and
  8. dispute resolution (the ordinary Danish courts unless agreement on arbitration) with venue in Copenhagen. Any licence issued is subject to Danish law in force.58

As mentioned, if there are several parties to a licence (as will usually be the case due to the participation of Nordsøfonden) they are as part of the model licence terms obliged to enter into a joint operation agreement (JOA) regarding the exploration and production of hydrocarbons. The JOA is subject to the DEA's approval. The terms of the most recent model JOA (2019) regulate, inter alia, the duration of the JOA; the obligations and responsibilities of the operator (e.g., information to the licensees, records to be kept, expenditures and change or removal of the operator); the set-up and working of the organising committee, including voting procedures; the work programmes to be performed with budgets, fees and accounting procedures; procedures in case one or more parties wants work undertaken that has not been approved by the organising committee (sole risk operations); offtake of hydrocarbons as well as regulation of assignments, encumbrances, withdrawals and defaults in payments.

The JOA is an agreement between the participants in a licence and the parties to a JOA may agree to changes in the wording of the JOA provided, however, that any such change is approved by the DEA.

IV PRODUCTION RESTRICTIONS

A licence to establish and operate pipeline systems for use regarding activities covered by the DSA may be restricted by conditions issued by the Minister. Accordingly, a licence may be granted on terms restricting dimensions, transport capacity, ownership, etc.59 There are no further restrictions on production entitlements except for oil in crisis situations (oil reserve stocks).60

Additionally, there are as such no restrictions on export of oil and gas produced in Denmark.

With respect to the above-mentioned DPA and the general requirements set out in the Statutory Order on Access to Upstream Pipelines,61 there are no specific requirements for sales of production into the local markets.

Laws applicable to price settings

In accordance with the Statutory Order on Access to Upstream Pipelines,62 prices, terms and conditions are negotiated between the parties.63 The overall conditions must not discriminate between applicants and the final agreement, including the prices, must be reported to the DUR. The DUR ensures that the owners of the pipelines do not abuse their (in reality) monopoly rights.64

Further, the Danish Competition and Consumer Authority will apply the prohibitions against anticompetitive agreements and abuse of a dominant position in Sections 6 and 11 respectively of the Danish Competition Act. These provisions are equivalent to Articles 101 and 102 TFEU.

V ASSIGNMENTS OF INTERESTS

It follows explicitly from the DSA that a licence may neither directly nor indirectly be transferred to a third party unless the DEA approves of the transfer including any terms and conditions attached to the transfer.65 Accordingly, any transfers of shares that may result in a controlling interest in a licensee or the entering into agreements that may have a similar effect must be approved by the DEA. This also applies to transfers of shares or parts in a licence if there are several licensees to the same licence.66 The DEA may only approve of a transfer if after the transfer, the (new) licensee is also assessed to possess sufficient technical and financial means and may be expected to carry out their business in such way that society will obtain as much knowledge and benefit from it as possible. The DEA may in order to approve a transfer, whether in whole or in part impose conditions on the parties to the transfer.67 The Danish state has no preferential right of purchase to licences issued under the DSA.

Even though a transfer has been approved by the DEA, the transferor of a licence for exploration or production of hydrocarbons68 or a licence to establish or operate upstream pipelines69 retains a secondary financial liability for any decommissioning expenses regarding facilities existing at the time of the transfer. This secondary financial liability remains in force irrespective of the any subsequent transfers of (part of) the licence.

It is always a condition for approval of a transfer that the transferor issues a statement of acceptance of the secondary financial liability towards the licence's licensees from time to time and the Danish state.70 Accordingly, no licensee can escape the financial liability for decommissioning costs.

It follows from the DSA that any expenses incurred by the DEA in the handling of a licence, including the approval of a transfer, shall be borne by the licensee.71

Licences issued pursuant to the Subsoil Act enjoy immunity from legal prosecution.72

VI TAX

i The Danish hydrocarbon tax regime

The tax regime applicable to companies engaged in hydrocarbon exploration and production in Denmark consists of a combination of corporate income tax and hydrocarbon tax combined with a special hydrocarbon tax allowance.

In general, companies engaged in oil and gas activities are subject to the generally applicable Danish tax rules applicable to Danish companies and branches, with the adjustments provided in the Hydrocarbon Tax Act73 and the Hydrocarbon Tax Assessment and Collection Act.74

Under the Hydrocarbon Tax Act, foreign persons and companies that carry out hydrocarbon activities in areas fully or partly subject to Danish sovereignty are subject to taxation in Denmark on the income from the activity from the time the activity commences. Hydrocarbon activity includes preliminary investigations, exploration and recovery of hydrocarbons and activities related therewith, including the installation of pipelines, supply services and transport by ship and pipeline of recovered hydrocarbons. If Denmark has entered into a double taxation treaty with the country where the foreign company is resident for tax purposes, the treaty may, however, modify the Danish tax liability.

All companies involved in oil and gas exploration are required to report hydrocarbon activities and tax liability to Skattestyrelsen – the Danish Tax Authorities. The relevant forms and further information can be found in English on the Danish Tax Authorities' website.75

Taxpayers liable for hydrocarbon taxes are subject to special rules regarding the tax assessment pursuant to the Hydrocarbon Tax Assessment and Collection Act, which entails, inter alia, that separate tax returns must be filed for ordinary corporate income (income not covered by the hydrocarbon tax rules) and for each hydrocarbon income stream.76

ii Tax rates and income types

The two-string Danish hydrocarbon tax system combines corporate income tax at the rate of 25 per cent77 (Chapter 2 income) and a special hydrocarbon tax at a rate of 52 per cent (Chapter 3A income) for the income year 2019. The overall effective tax rate for Chapters 2 and 3A income is 64 per cent for the income year 2019.

Income covered by Chapters 2 and 3A includes first-time sales of hydrocarbons, gains and losses on licences, exploration rights and assets used for hydrocarbon activities and financial income related to the activities.

Income related to, inter alia, hydrocarbon feasibility studies, services to hydrocarbon companies, the construction of pipelines, services and transportation of hydrocarbons is not covered by Chapters 2 or 3A. This income is, as other ordinary corporate income, subject to the ordinary corporate income tax rate at 22 per cent for the income year 2019.

iii Ring-fencing

The ring-fence78 exhaustively list the streams of income that are subject to separate tax assessment under Section 20B of the Hydrocarbon Tax Act. In general, expenses and tax losses not related to Danish oil and gas activities may not be offset against the Chapters 2 and 3A oil and gas-related taxable income. However, Chapter 2 losses may be offset against ordinary corporate income.

iv Incentives

Chapters 2 and 3A tax losses realised after 2002 may in general be carried forward indefinitely.

A special hydrocarbon tax allowance has been introduced to ensure that the 52 per cent Chapter 3A hydrocarbon tax is levied exclusively when production from a field is particularly profitable. The Chapter 3A hydrocarbon tax allowance is an uplift of 30 per cent on the depreciation allowance of qualifying expenditures, including capitalised exploration costs and investments made in production plant and equipment. The allowance only applies to the tax basis for hydrocarbon tax. The uplift is allowed as a 5 per cent deduction per year over a six-year period and is granted in addition to the ordinary tax depreciation of plant and machinery and amortisation of capitalised exploration costs over a five-year period.

Additionally, political agreement has been reached to reduce taxation for oil and gas exploitation in an 'investment window' from 2017–25. The purpose of the political agreement is to incentivise hydrocarbon operators to rebuild the Tyra-field through which almost all natural gas from the Danish North Sea fields is transferred. The incentives are contained in Chapter 3B of the Hydrocarbon Tax Act.

The agreement provides for, inter alia, a raise in the hydrocarbon deduction from 5 to 6.5 per cent (capital up-lift) and an accelerated timing of capital allowances meaning that investments made within the investment window may be subject to capital allowances from the time of investment rather than from the time of delivery of an asset ready to generate revenue.

Uptake of the incentives that taxpayers covered by the Hydrocarbon Tax Act are entitled to is voluntary; however, the investment window also contains an additional surplus tax, which becomes payable if the global oil prices reach certain thresholds. This surplus tax is imposed at either 5 per cent or 10 per cent and may be offset in the hydrocarbon tax.

VII ENVIRONMENTAL IMPACT AND DECOMMISSIONING

i Summary of environmental laws and regulations applicable to oil and gas operations

The most relevant environmental laws and regulations applicable to oil and gas activities are the Act on Protection of the Marine Environment, the DSA, the Environmental Impact Assessment Act, the Statutory Order on OIA, the Statutory Order on Alerts Regarding Pollution of the Sea from Oil and Gas Facilities, Pipelines etc.,79 and the Statutory Order on Safety Zones and Zones for the Observance of Order and the Prevention of Danger.

Licences for offshore projects involving a risk of affecting the environment may only be granted and utilised pursuant to an environmental impact assessment (EIA)80 and an impact assessment regarding international nature conservation81 as well as after consultation with the members of the affected general public, authorities and organisations.82

Exploration activities like pre-investigations (for example, seismic surveys) and drilling may not always require the preparation of an EIA or other impact assessments.83 As a rule, any planned work, including well drilling, shaft sinking, driving adits and drifts, may only be initiated after obtaining prior approval from the DEA.

ii Details of regulatory agencies with responsibility for environmental regulation

Besides the above-mentioned authorities the DEA and the DUR, the Danish Environmental Protection Agency (EPA) is the main regulatory authority for environmental regulation in Denmark.

The EPA is an agency under the Danish Ministry of Environment and Food. The Ministry is responsible for legislation and is the authority in charge of major national responsibilities as well as particularly complex tasks. The EPA prepares legislation and guidelines and grants authorisations in several areas.

iii Description of any key environmental approval necessary for oil and gas activities

When working with upstream oil and gas activities offshore, it is necessary to obtain permission for each and every significant step undertaken. Environmental authorisations, as well as EIAs, may also be required depending on the specific project and its location.

iv Summary of legal requirements with respect to decommissioning

The DSA regulates the decommissioning of oil and gas facilities such as, for example, the decommissioning of physical structures on and offshore. The DSA includes provisions set out in the Convention on the Continental Shelf of 1958 and the Sea Law Convention of 1982. The DSA also regulates the effect of licence expiry, cessation, relinquishment or revocation.

A licence under the DSA may be conditioned upon the Danish state being entitled to take over all or part of any facilities, equipment and installations intended for long-term use, as well as any required accessories and materials.84 The licensee is required to have the capacity to remove all or part of any facilities, installations, etc.85

VIII FOREIGN INVESTMENT CONSIDERATIONS

There are as such no legal requirements regarding the type of entity (partnership, limited liability company, etc.) applying for a licence. As Denmark is part of the European Union, the freedom rights set out in the Treaty on the Functioning of the European Union (e.g., the free right of establishment and free movement of capital) apply in Denmark.

Licences are granted after close assessment of the applications based on the criteria listed in the DSA86 and the terms and conditions stated in the licensing documents. Among these criteria is, inter alia, a requirement to demonstrate the necessary expertise and financial resources.87 There are no special requirements or limitations on using foreign companies or hiring foreign workers in connection with upstream oil and gas activities in Denmark. However, in connection with obtaining a licence for exploration for and production of hydrocarbons, companies participating in the licence must be registered with the tax authorities in Denmark and provide the necessary information for that purpose. As an alternative, companies can, for example, establish a Danish subsidiary or register a business address in Denmark.

IX CURRENT DEVELOPMENTS

Following the election on 5 June 2019, the Danish Social Democratic Party formed a new minority government on 27 June 2019 supported by the other left-wing parties of the newly constituted Danish parliament. In line with the tendencies of the 2019 European Parliament election held just before the Danish election, the new government has a strong focus on the climate agenda. Accordingly, the political agreement88 between the government and its supporting parties proclaims that Denmark will lead the way in combating the climate crisis, assume the international leadership for the green transition and do what it takes to honour the Paris agreement.

More specifically, the political agreement foresees, inter alia, (1) the introduction of a new climate act for a 70 per cent reduction89 of greenhouse gasses by 2030 and (2) a complete stop to the sale of diesel- and gasoline-fuelled cars by 2030. It remains to be seen whether the new government will amend the latest energy strategy, which gives priority to the North Sea production of oil and gas until 205090 as part of a green transition to ensure that at least 50 per cent of Danish energy will be renewable by 2030 and that Denmark will be independent of fossil fuels by 2050.

Besides the finishing of the eighth licensing round,91 the market for exploration and production from the Danish part of the North Sea saw the completion of two major transactions in 2019: (1) Total's acquisition on 1 April 2019 of Chevron Denmark Inc including Chevron's 12 per cent share of the Danish Underground Consortium (DUC);92 and (2) Noreco's acquisition on 31 July 2019 of Shell Olie- og Gasudvinding Danmark BV including Shell's 36.8 per cent share of the DUC.

Additionally, in July 2019 the Baltic Pipe reached a milestone as it was EIA-approved by the EPA following the issuance of a national plan for the project by the Minister for Industry, Business and Financial Affairs.93 The Baltic Pipe94 is a combined on- and offshore pipeline for gas that will connect Denmark and Poland to the Norwegian gas fields in order to ensure security of supply, increased competition and reduce prices and CO₂ emissions. West of Denmark, the pipe will connect to the Norwegian Europipe II in the North Sea, run through Denmark and connect to the Polish grid east of Denmark across the Baltic Sea. The Danish part of the project involves a new 105–110km offshore pipe, 210km of additional piping onshore, a new compressor station in Sealand and an extension of the receipt terminal in Jutland. Commissioning of the Baltic Pipe is expected in the autumn of 2022.


Footnotes

1 Michael Meyer is a partner at Gorrissen Federspiel. The author is grateful to his colleague, assistant attorney Hans Nikolaj Amsinck Boie, for his assistance with this chapter.

2 For further information see the Danish Energy Agency's web page www.ens.dk (partly in English).

3 The first round took place in 1984, the second in 1986, the third in 1989, the fourth in 1995, the fifth in 1998, the sixth in 2006, the seventh in 2016, and the eighth round was concluded in February 2019. See further www.ens.dk.

4 Following the Danish government's decision in February 2018 to stop future investigations and drillings onshore and in inland waters, the procedure is limited to the North Sea east of 6° 15' eastern longitude; see Section III.

5 Nordsøfonden (the North Sea Fund) is established by law, see Act No. 587 of 24 June 2005 on a public fund to manage the state's participation in hydrocarbon licences and a public entity to administer the fund.

6 Nordsøfonden does at the time of writing not participate in licences 7/86 and 1/90 (Lulita), 7/89 (South Arne), 4/95 (Nini), 6/95 (Siri) 5/98 (Hejre) and 16/98 (Cecilie).

7 See the publication 'Resources and Forecasts' by the DEA, last released 27 August 2019, available at www.ens.dk.

8 For details please refer to the publication 'Resources and Forecasts' by the DEA, last released 27 August 2019, available at www.ens.dk.

9 Consolidated Act No. 1190 of 21 September 2018 with subsequent amendments. The Act was most recently amended on 1 July 2019, which among others codified the Danish government's decision to stop future investigations and drillings for oil and gas onshore and in inland waters; see Section III.

10 Consolidated Act No. 1189 of 21 September 2018.

11 Consolidated Act No. 807 of 13 August 2019.

12 Inter alia, Directive (94/22/EC) on the conditions for granting and using authorisations for the prospection, exploration and production of hydrocarbons, the Habitats Directive (92/43/EEC), the Birds Directive (79/409/EEC) and Directive (2009/31/EC) on the geological storage of carbon dioxide.

13 Section 1(2) of the DSA.

14 Section 2 of the DSA.

15 Dan Jørgensen was appointed Minister for Climate, Energy and Utilities in June 2019.

16 See Section 2 in Statutory Order No. 419 of 2 June 2005 on the Payment of Fees connected with Certain Licences Issued pursuant to the Danish Subsoil.

17 See Statutory Order No. 661 of 1 June 2018 on Reimbursement of Expenses related to the Authorities' Administration in connection with Hydrocarbon Activities.

18 See Sections 2 and 3 of Statutory Order No. 56 of 4 February 2002 on Submission of Samples and other Information about the Danish Subsoil.

19 Ratified by Denmark on 31 May 1963.

20 See Section 1 of the CSA.

21 See Section 4 of the CSA.

22 The pipelines are as part of the political agreement entered into regarding the IPO of DONG Energy A/S (now Ørsted A/S) to be divested to the state owned Danish TSO, Energinet.dk. The listing took place on 9 June 2016, but the divestment is still being negotiated between the parties.

23 See Section 1 of the DPA.

24 See Section 2 of the DPA. With regard to the other infrastructure in the Danish part of the North Sea, the DSA was amended on 1 January 2018 in order to improve third-party access, i.e. access to another licensee's infrastructure on predictable and reasonable terms.

25 See Section 2(3) of the DPA.

26 See Sections 3 and 3c of the DPA and Statutory Order No. 78 of 26 January 2018 on the Payment for Transport of Crude Oil and Condensate.

27 See the Statutory Order No. 920 of 25 June 2018 on Access to the Upstream Pipelines and Upstream Systems.

28 Consolidated Act No. 125 of 6 February 2018.

29 Consolidated Act No. 1033 of 4 September 2017 on the Protection of the Marine Environment with subsequent amendments.

30 Consolidated Act No. 1225 of 25 October 2018 on Environmental Impact Assessment of Plans and Programmes and of Specific Projects.

31 Statutory Order No. 434 of 2 May 2017 on impact assessments, etc. offshore.

32 Statutory Order No. 657 of 30 December 1985.

33 Section 1 of the Offshore Safety Act.

34 Section 5 of the Offshore Safety Act.

35 Section 1 of Statutory Order No. 657 of 30 December 1985.

36 See Consolidated Act No. 1153 of 18 September 2018.

37 See Consolidated Act No. 1152 of 10 September 2018 with subsequent amendments.

38 See Statutory Order No. 1512 of 15 December 2017 on the DEA's duties and powers.

39 See Statutory Order No. 1512 of 15 December 2017 on the DEA's duties and powers, Section 8.

40 See Act No. 690 of 8 June 2018 on the Danish Utility Regulator and Statutory Order No. 163 of 26 February 2000.

41 See Act No. 690 of 8 June 2018 on the Danish Utility Regulator, Section 2.

42 See Section 37 a of the DSA.

43 The New York Arbitration Convention on the Recognition and Enforcement of Foreign Arbitral Awards, New York, 10 June 1958.

44 Statutory Order No. 117 of 7 March 1973 with subsequent amendments.

45 Consolidated Act No. 1284 of 14 November 2018 with subsequent amendments.

46 Act No. 553 of 24 June 2005 with subsequent amendments.

47 DSA Section 5.

48 The first round took place in 1984 and licences based on the seventh round were awarded in the spring of 2016.

49 The decision has subsequently been codified by Act No. 500 of 1 May 2019 on amendments to the Danish Subsoil Act.

50 See Section I.

51 The model licence terms Sections 2 and 3 with Annex 1.

52 ibid., Section 4 with Annex 2.

53 ibid., Section 18.

54 ibid., Sections 19–22.

55 ibid., Sections 30–32.

56 ibid., Sections 34–37.

57 ibid., Section 38.

58 ibid., Section 40.

59 DSA, Section 17(2).

60 DSA Section 17a and Act No. 354 of 24 April 2012 on Oil Minimum Stocks.

61 Statutory Order No. 920 of 25 June 2018.

62 ibid.

63 See Section 5 of Statutory Order No. 920 of 25 June 2018 on Access to Upstream Pipelines.

64 ibid.

65 See Section 29(1) of the DSA.

66 A provision to this effect is also included in the model licence for the eighth round, Section 33.

67 See Section 29(2) of the DSA.

68 See Section 5 of the DSA.

69 See Section 17 of the DSA.

70 See Section 29a of the DSA.

71 Statutory Order No. 661 of 1 June 2018 on the Reimbursement of Costs.

72 See Section 29(3) of the DSA.

73 Consolidated Act No. 1153 of 18 September 2018.

74 Consolidated Act No. 1152 of 10 September 2018 with subsequent amendments.

76 I.e., for separate income under Part 2 and for hydrocarbon income pursuant to Part 3A of the Hydrocarbon Tax Act.

77 The ordinary corporate income tax of 22 per cent added 3 per cent for hydrocarbon activities for 2018.

78 See Section 4 of the Hydrocarbon Tax Act.

79 Statutory Order No. 909 of 10 July 2015.

80 Under the Environmental Impact Assessment Act.

81 See Sections 28(a), 28(b) and 28(c) of the DSA and the Statutory Order on OIA.

82 See Section 35 of the Environmental Impact Assessment Act and Section 6 of the Statutory Order on OIA.

83 See generally the Environmental Impact Assessment Act and the Statutory Order on OIA for more detailed descriptions (i.e., offshore projects that necessitate the preparation of an EIA, requirements concerning the contents, other information to be submitted and procedures to follow).

84 See Section 8 of the DSA.

85 See Section 24(a) of the DSA.

86 See Section 12(a) of the DSA.

87 ibid.

88 Issued by the participating parties on 25 June 2019, available in Danish on the internet through various media.

89 With 1990 as benchmark.

90 In July 2017, the Committee for the Preparation of an Oil and Gas Strategy concluded that Denmark has a substantial potential of roughly 3 billion barrels oil equivalents (BOE) compared to the 3.8 billion BOE already produced (2015 figures).

91 See Section I.

92 The DUC is a joint venture between Total (43.2 per cent), Noreco (36.8 per cent) and Nordsøfonden (20 per cent) for the production of oil and gas from the area covered by the Sole Concession. The DUC is responsible for almost 90 per cent of the Danish production and owns a significant part of the critical infrastructure in the Danish part of the North Sea.

93 See the news statement from the Danish Environmental Protection Agency, released on 12 July 2019, available at www.mst.dk.

94 For more information about the Baltic Pipe, please visit www.baltic-pipe.eu or the homepage of the Danish TSO, www.energinet.dk.