The Oil and Gas Law Review: Austria
With a land area of 83,879km² and a population of approximately 9 million, Austria is the 14th largest country in terms of land area and the 15th largest in terms of population in the European Union, constituting 1.7 per cent of the population of the European Union.
According to Statistik Austria, gross domestic natural gas consumption in 2017 was 325,899TJ, whereby domestic production was 43,665TJ and total gas imported amounted to 481,712TJ.2 Austria relies heavily on oil and gas imports, primarily from the Russian Federation.
Despite being a net importer of oil and gas, Austria has a respectable domestic upstream gas sector, with key fields in the Vienna Basin in Lower Austria and the Molasse Basin in Upper Austria and Salzburg.
The Austrian upstream sector is dominated by two companies, OMV (formerly Österreichische Mineralölverwaltung AG), a partly federal state-owned company responsible for approximately 88 per cent of crude oil and natural gas liquids produced, and Rohöl-Aufsuchungs AG (RAG), a privately owned company responsible for approximately 12 per cent of oil and 14.5 per cent of gas.
In addition to its upstream sector activities, Austria plays a central role in the European midstream natural gas sector, with the Central European Gas Hub at Baumgarten an der March being the main transit point for imported Russian gas to Western Europe.
Beyond domestic production, OMV is heavily involved in the international upstream sector, with operations in, inter alia, the North Sea, Tunisia, New Zealand, Romania and Yemen. OMV is the operator of Austria's only refinery in Schwechat. In addition to its upstream activities, RAG focuses on drilling technology and on large-scale gas storage, boasting a storage capacity of approximately 5.9bcm, 70 per cent of the Austrian annual gas demand.
This chapter will focus on Austrian domestic oil and gas exploration and production.
Legal and regulatory framework
Due to its size and administrative structure, Austrian energy legislation is fairly comprehensive with one central act regulating oil and gas exploration and production as well as general mining activities on the federal state level, with the enactment of certain minor pieces of legislation being delegated the relevant ministry or to the state governments.
The administrative role is again very centralised, with Section VI of the Federal Ministry for Sustainability and Tourism (the Ministry) responsible for the performance of a great deal of administrative duties in the upstream sector.
Given the greater development and importance of the mid- and downstream sectors in Austria, a greater amount of legislation has been enacted and further administrative bodies are involved in these sectors in comparison to the upstream sector.
i Domestic oil and gas legislation
The central legislative act for the exploration and production of oil and gas is the Mineral Resources Act 1999 (MRA),3 applicable to the entire federal state.
Due to its membership in the European Union, Austria has implemented a number of directives that apply to the upstream energy sector. The Oil and Gas Licencing Directive,4 which aims to ensure non-discriminate access to oil and gas exploration and production, was implemented in Austria under the Federal Procurement Act 2006.5
The Stocks of Crude Oil and Petroleum Products Directive,6 intended to address the issue of European Union energy security, was implemented by the Oil Stockholding Act 2012,7 the Energy Steering Act 2012,8 the Oil Statistics Regulation 20119 and the Gas Statistics Regulation 2012.10
On the basis of these key acts, a number of regulations have been issued detailing specific provisions, such as accident management and waste disposal, which shall be introduced below.
As described above, the Ministry plays a very central role in the Austrian upstream sector. The Ministry derives its powers from the Mineral Resources Act, as well as other relevant legislation as expanded upon below. It is primarily responsible for the development of national oil and gas policy, and it authorises and manages the exploration and production on behalf of the federal state.
As a Member State of the European Union, Austria is part of the internal market for gas,11 having implemented the European Third Energy Package, as well as the Energy Union, both of which aim to liberalise the European natural gas market. In addition to the above-mentioned European directives, the reporting provisions of the Regulation on Wholesale Energy Market Integrity and Transparency (REMIT)12 have direct effect on Austrian gas market participants, as detailed below.
Austria is a signatory to the Energy Charter Treaty, which aims to facilitate the trade of energy between the signatory states, which include major players such as the European Union and its Member States, the Russian Federation, Ukraine and Australia. The Energy Charter Treaty provides specifically for non-discriminatory trading rules for energy, reliable cross-border transit flows, the protection of direct foreign investment, the promotion of energy efficiency, and an international dispute resolution scheme between participating states and between investors and host states.
i Right to explore and produce
Oil and gas are considered property of the federal state pursuant to Section 4(1)(2) of the Mineral Resources Act, and the federal state has the right to explore for and produce oil and gas.
It may alternatively transfer the exercise of this right in specific exploration areas for a specific duration to individuals, companies, or commercial law partnerships, provided that these possess the necessary technical capabilities and financial resources.
Pursuant to Section 178 of the Federal Procurement Act, as rights owner for the exploration and production of oil and gas on the federal territory, the federal state must transfer these rights in accordance with the fundamental freedoms of the European Union, the principle of non-discrimination, the principles of free and fair competition, and the equal treatment of bidders for the rights.
The Mineral Resources Act additionally makes provision for the exploration for geological structures in which gas may be stored underground.
Instead of the transfer of rights being done by means of a licensing regime or a production-sharing agreement, a civil law contract is concluded between the Ministry in agreement with the Federal Ministry for Finance, in return for an 'appropriate' consideration.
This consideration comprises either an 'area interest' for exploration or a 'field interest' and 'production interest' for production (including the right to acquire the oil or gas produced) for the duration of the transfer. Pursuant to Section 69(1) of the Mineral Resources Act, this consideration may, however, be suspended when deemed necessary to: (1) avert a macroeconomic imbalance; (2) avert a deterioration in the competitive structure of the mining rights holder; (3) avert a deterioration of the security of supply of the market with state-owned mineral resources; (4) improve the utilisation of resources by federal mineral resources; or (5) protect other economically important concerns.
From a practical perspective, primarily OMV and RAG are involved in the exploration and production of oil and gas in the Austrian Federal territory, whereby the federal state has 31.5 per cent ownership of OMV through the Austrian State Holding Company.
ii Work programme
A key condition of exploration and production of oil and gas by both the federal state and any rights holder is the submission of a work programme for approval by the Ministry in accordance with Sections 71 and 72 of the Mineral Resources Act.
The work programme must include details on the nature, extent and aim of the proposed work, its chronological order, the proposed plant, the planned safety systems and measures to restore the land use upon decommissioning, and the name of the responsible person. Any material changes made to an approved work programme, specifically the performance of work other than that previously declared or the use of different means, must be approved by the Ministry.
An exploration report must be submitted to the Ministry at the end of each calendar year, which contains details on the outcomes of the exploration.
iii Further approvals
Pursuant to Section 119 of the Mineral Resources Act, any drilling project or probe that exceeds a depth of over 300 metres requires approval by the Ministry. Following application, a consultation period will begin, whereby the site will undergo inspection and the concerns of any neighbours to the site will be taken into account.
The drilling approval may be time-limited, and can only be issued when the following criteria have been fulfilled:
- the affected land owners have agreed to the plans, or if not possible, the issuance of an expropriation court order issued in accordance with Sections 148 to 150 of the Mineral Resources Act;
- the use of state-of-the-art measures to prevent avoidable emissions;
- the use of measures to ensure that subject to current medical science, no harm will come to the health or lives of individuals and that no unreasonable nuisance will be caused to individuals;
- the use of measures to ensure that no unreasonable levels of harm to the environment or water will be caused by waste products;
- the use of measures to ensure that if possible, any waste is prevented or recycled, and that other waste will be properly disposed of in a commercially reasonable manner; and
- the use of measures to ensure that any air pollution complies with the relevant state regulation in accordance with Section 10 of the Air Pollution Control Act 1997.15
As the transfer of exploration and production rights is governed by a civil law contract, and with no draft publicly available, it is difficult to establish any standardised key terms beyond what is prescribed by legislation.
iv Registration and reporting obligations
Of relevance to gas producers, REMIT entered into force on 28 December 2011, with the aim of increasing the stability and transparency of the European wholesale energy markets, as well as tackling market manipulation and insider trading.
By virtue of the direct effect, Austrian gas producers (but notably not oil producers), defined by REMIT as market participants who enter into contracts for the sale of wholesale energy products on the wholesale energy market, are subject to a number of reporting obligations.
Pursuant to Article 4(1) of REMIT, Austrian gas producers are obliged to publish information to the Agency for the Cooperation of Energy Regulations16 on the capacity and use of their production facilities, as well as any planned or unplanned unavailability.
Pursuant to Article 8(1) of REMIT, Austrian gas producers are further obliged to submit information on: (1) gas sold; (2) the price and quantity; (3) the dates and times of execution; (4) the parties to the transaction; (5) the beneficiaries of the transaction; and (6) any other relevant information. Gas producers subject to this Article 8(1) obligation must furthermore register with the Austrian national regulatory authority,17 Energie-Control Austria, in short, E-Control.18
In accordance with Section 11(2)(1) of the Gas Statistics Regulation 2012, the gas production plant operator must register itself with E-Control.
As described above, Austria has implemented the Stocks of Crude Oil and Petroleum Products Directive into a number of national acts and regulations.
The aim of the Directive and, therefore, of these acts and regulations is to mitigate an energy supply crisis in the European Union by maintaining a minimum stock level, maintaining information on these stock levels and ensuring the accessibility and availability of the stocks.
Oil producers as well as oil importers are required by Section 3 of the Oil Statistics Regulation to submit monthly oil production data and oil import data respectively to the Ministry.
Gas producers are required to submit a monthly report on the physical imports and exports of gas through pipelines that make up part of their production facilities pursuant to Section 5(2) of the Gas Statistics Regulation, as well as on the total monthly production volume and own consumption as per each production plant pursuant to Section 5(4). Furthermore, gas producers must submit the maximum production rate, detailed information on and a graphic of the plant pipelines, and the technical maximum capacity per injection and feed out point per border station on an annual basis, pursuant to Section 7(2). E-Control publishes the submitted data from all market participants subject to reporting obligations on an annual basis.
Imports and exports of oil are regulated by the Oil Stockholding Act. While the importation of oil is highly regulated, whereby all import activities must be reported to the Ministry, there is no regulation and, therefore, under normal circumstances, no restrictions of oil exports from the Austrian market into the markets of EU Member States.
Should there be a direct threat to the Austrian energy supply, however, the federal state is permitted to block all energy exports (both oil and gas) in accordance with Section 18 in conjunction with Section 4 of the Energy Steering Act, to be done by means of a regulation enacted by the Ministry.
Assignments of interests
As described in Section III, the exploration and production of oil and gas with the Austrian federal territory is governed by a civil law contract. Provisions relating to assignments of interest, right of first refusal or preferential purchase rights upon transfer, and consideration as a condition to granting approval to transfer or waiving rights of first refusal may be included; however, as no draft contract is publicly available, it is difficult to determine whether these terms have been considered.
i Corporate income tax
Limited liability companies and stock companies are considered corporations within the meaning of Section 1 of the Corporate Income Tax Act 1988,19 as amended, and subject to corporate income tax. Corporations are subject to unlimited corporate income tax if they have their seat or place of management within Austria. Non-Austrian corporate tax residents (with neither a seat nor place of management in Austria) are subject to limited corporate income tax for only certain sources of income in Austria.
According to Section 7 of the Corporate Income Tax Act, the tax base for the corporate income tax is the yearly income of the corporation. The starting point for the calculation of the taxable income is the profit according to the external accounting under the provisions of the Austrian Commercial Code.20 In the course of the calculation of the taxable income, the profit according to the external accounting is adapted with increases and reductions to meet the requirements of the provisions of the tax law. These adaptions can, for instance, be required for the depreciation or valuation of assets, the consideration of non-deductible expenses, etc. It shall be noted that, inter alia, the Corporate Income Tax Act includes controlled foreign company rules, rules on participation exemptions, consolidated tax groups, and on non-deductible expenses.
The taxable income of the corporation is subject to corporate income tax at a rate of 25 per cent. Under the provision of Section 8 of the Corporate Income Tax Act, losses from previous years may be used to set off the taxable profit in the amount of a maximum of 75 per cent of the tax base of the current year (exemptions apply). The carryback of losses is not permitted and incentive regimes.
At the level of a shareholder of a corporation, profit distributions are in general subject to withholding tax in the amount of 27.5 per cent for individuals or 25 per cent for corporations. Dividends received from an Austrian resident company are in general tax exempt. Dividend payments received from foreign companies are tax exempt only if certain prerequisites are met.
ii Value added tax
Corporations trading in oil and gas are considered entrepreneurs within the meaning of Section 2 of the Value Added Tax Act 1994.21 The provisions of supplies or services in the exchange for a consideration performed in Austria by such entrepreneurs in general are subject to value added tax.
Under the provision of Section 10 of the Value Added Tax Act, the applicable value added tax rate in Austria is 20 per cent of the consideration. As regarding the sales of oil and gas produced upstream, pursuant to Section 10(1) of the Value Added Tax Act, oil is subject to a 20 per cent VAT rate, whereas pursuant to Section 10(2)(4)(c), gas is subject to a 10 per cent VAT rate. Depending on downstream processing, individual oil- and gas-derived end products may have different VAT rates from the upstream products.
iii Mineral oil tax
The mineral oil tax is a consumption tax. According to Section 1 of the Mineral Oil Tax Act 1995,22 mineral oil that is produced or imported to Austria as well as motor fuels and heating fuels is subject to mineral oil tax in Austria. Most hydrocarbon-containing products are covered by this law.
Section 3 of the Mineral Oil Tax Act includes a detailed list of the applicable tax rates for most sorts of taxable products. All products not included in this list are subject to tax, with the tax rate applicable to a product on the list that comes closest to the product not included.
The tax liability for mineral oils in general arises if the taxable product is released into free circulation (i.e., by the removal from a tax warehouse). Special provisions apply to motor and heating fuels. For these fuels, the tax liability arises once they are first delivered for their intended purpose.
Environmental impact and decommissioning
In accordance with the Environmental Impact Assessment Act 2000,23 operations involving the production of oil and gas must undergo an environmental impact assessment by the Ministry if their production exceeds certain thresholds. Pursuant to point 27 of Annex 1 of the Environmental Impact Assessment Act, these thresholds are either when the production of oil exceeds 500toe/day per probe or when the production of gas exceeds 500,000m³/day per probe. A simplified assessment procedure is to be performed if production is carried out in protected areas either when the production of oil exceeds 250toe/day per probe or when the production of gas exceeds 250,000m³/day per probe.
In addition to the above listed criteria and approvals, rights holders must present the Ministry with a 'waste disposal plan' two weeks prior to commencement of operations at the latest in accordance with Section 117a of the Mineral Resources Act. This must be reviewed every five years, and should the activity have materially changed, amended appropriately. The aim of this waste disposal plan is to reduce or avoid waste and any damaging effects, as well as to establish short- and long-term disposal of waste as a result of exploration and production activities.
As described in Section III, prior to exploration and production, the rights holder must provide information on measures to restore the land usage upon decommissioning. Decommissioning of exploration and production equipment is specifically regulated in Section 119(14) of the Mineral Resources Act, whereby unless the rights holder has previously submitted a 'closure plan' including information on the intended conveyance of property, the person in possession of the plant must notify the Ministry.
If submitted, a closure plan must be submitted to the Ministry for approval pursuant to Section 144 of the Mineral Resources Act. This must include:
- a precise description of the closure procedure including safety measures;
- a description of measures to ensure the safety of individuals and property during decommissioning;
- a description of planned measures to restore land usage;
- information regarding the conveyance or alternative of any remaining property;
- the main geological and deposit-mineralogical documentation and documentation regarding the production activities performed by the rights holder; and
- a list of existing production operations or a map of underground operations.
Foreign investment considerations
Undertakings with their seat within the European Economic Area (EEA) (including European Union Member States) or Switzerland are not bound by any limitations in investing in the Austrian oil and gas upstream market.
Undertakings with their seat in a third country (i.e., a non-EEA country or Switzerland) are subject to the Foreign Trade and Payments Act 2011.24 Section 25a(2)(2) in conjunction with Section 25a(3)(2)(a) of the Foreign Trade and Payments Act provides that those wishing to (1) take over, (2) invest in (only when acquiring over 25 per cent of the company's voting rights), or (3) acquire a controlling majority in companies that are involved in energy supply require approval by the Ministry.
Should an investor from a third county aim to circumvent this rule through use of an undertaking with seat in the EEA or Switzerland, the Ministry may, in certain circumstances, conduct a review to ensure the above provision is enforced.
ii Capital, labour and content restrictions
Capital and labour from EEA countries or Switzerland into Austria is not and must not be limited by virtue of the European Union fundamental freedoms of capital and labour.
Austrian employers of workers posted from third countries – and by extension employers with seat in EEA member countries or Switzerland – must apply to the Public Employment Service for either a 'posting permit' for workers posted up to four months, or an 'employment permit' for periods lasting over four months.
In any case, a visa is required for posts of less than six months, and for those with posts exceeding six months a 'posted worker stay permit' is required. To receive this, in accordance with Section 59 of the Settlement and Residence Act 200525 the worker must fulfil the criteria listed in Part 1 of the Act, and provide confirmation of guaranteed work in accordance with Section 11 of the Employment of Foreign Nationals Act 197526 or an employment permit as a posted worker.
The Federal Bureau of Anti-Corruption (FBAC) is responsible for security and police matters regarding corruption for the entire federal state. The FBAC has been given its powers under the Law of the Federal Bureau of Anti-Corruption.27
Anti-corruption measures are primarily regulated in Sections 302 to 313 of the Austrian Criminal Code,28 whereby such corruptive practices are generally punished by imprisonment between six months to a maximum of 10 years, depending on the financial value of the advantage gained.
There are currently no significant anti-corruption issues in the Austrian upstream energy sector.
In 2015, the Austrian Energy Efficiency Act (AEEA)29 came into force in Austria. Its aim is to increase energy efficiency by 20 per cent by 2020 through the promotion of the use of renewables and the reduction of greenhouse gas emissions.
According to the new legislation, large corporations (the threshold is having over 250 employees or an annual turnover of at least €50 million) are required to either conduct an energy audit at least once every four years or install a certified energy management system in accordance with ISO standards.
The Austrian Energy Agency has been appointed as national monitoring body responsible for the assessment of these audits or implementation of energy management systems. Upstream oil and gas market participants may fall under the obligations under the AEEA if they fulfil the criteria of 'large corporations'. While the legislation does not provide any further obligations for these companies beyond energy suppliers, it is important to implement either of these systems.
Due to the complexity and cumbersome nature of these new rules, especially for energy suppliers, the new legislation is prone to induce additional cost and administrative burdens for energy suppliers and companies conducting business in the energy sector in Austria.
In the winter months from December 2017 to March 2019, OMV performed a significant survey on an area covering 1,500km² in the Weinviertel, in Lower Austria, to a depth of between 4,000 and 6,000m, generating data in the amount of 700 terabytes. According to the company, it was the biggest three-dimensional seismic survey of its kind performed in Europe. In doing so, OMV has increased its investment in the region by €30 million to approximately €90 million. On the basis of the collected data and its ongoing comprehensive analysis, a three-dimensional image is currently being created, which will enable OMV to further investigate potential gas reserves in the region. These oil and gas fields are expected to produce for at least another 15 to 20 years, and are expected to ensure OMV's national production rates at its 2015 rate of 32,000 barrels per day.
One of OMV's most recent ventures is known as 'Altlichtenwarth Tief 1', a 16-week-long exploration well in the Weinviertel to a depth of approximately 4,000km. Through this exploration, OMV had hoped to discover oil and gas reserves amounting to millions of barrels. The venture was finalised in March 2020 but, at time of writing, the final results do not appear to have confirmed the occurrence of commercial amounts of hydrocarbons. The capitalised cost of the well was €27 million as of 31 December 2019.
1 Andreas Gunst and Oskar Winkler are partners and Kenneth Wallace-Mueller and Christoph Schimmer are lawyers at DLA Piper Weiss-Tessbach GmbH.
3 Federal Law Gazette I No. 38/1999 as amended by Federal Law Gazette I No. 80/2015.
4 Directive 94/22/EC of the European Parliament and of the Council of 30 May 1994 on the conditions for granting and using authorisations for the prospection, exploration and production of hydrocarbons.
5 Federal Law Gazette I No. 17/2006.
6 Council Directive 2009/119/EC of 14 September 2009 imposing an obligation on Member States to maintain minimum stocks of crude oil or petroleum products.
7 Federal Law Gazette I No. 78/2012.
8 Federal Law Gazette I No. 41/2013.
9 Federal Law Gazette II No. 226/2011.
10 Federal Law Gazette II No. 475/2012.
11 Directive 2009/73/EC concerning common rules for the internal market in natural gas and Regulation (EC) No. 715/2009 on conditions for access to the natural gas transmission networks.
12 Regulation (EU) No. 1227/2011 on wholesale energy market integrity and transparency.
13 Federal Law Gazette No. 53/1985 as amended by Federal Law Gazette III No. 123/1997.
14 Federal Law Gazette No. 53/1985 as amended by Federal Law Gazette No. 1047/1994.
15 Federal Law Gazette I No. 115/1997 as amended by Federal Law Gazette I No. 77/2010.
16 As established by Regulation (EC) No. 713/2009 of the European Parliament and of the Council of 13 July 2009 establishing an Agency for the Cooperation of Energy Regulators.
17 As established by Article 39 of Directive 2009/73/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in natural gas.
18 As established in the E-Control Law (Federal Law Gazette I No. 110/2010).
19 Federal Law Gazette No. 401/1988 as amended by Federal Law Gazette I No. 194/1999.
20 German Empire Law Gazette S 219/1897 as amended by Federal Law Gazette I No. 120/2005.
21 Federal Law Gazette No. 663/1994.
22 Federal Law Gazette No. 630/1994 as amended by Federal Law Gazette I No. 194/1999.
23 Federal Law Gazette No. 697/1993 as amended by Federal Law Gazette I No. 89/2000.
24 Federal Law Gazette I No. 26/2011.
25 Federal Law Gazette I No. 100/2005 as amended by Federal Law Gazette I No. 70/2015.
26 Federal Law Gazette No. 218/1975.
27 Federal Law Gazette I No. 72/2009 as amended by Federal Law Gazette I No. 65/2013.
28 Federal Law Gazette No. 60/1974.
29 Federal Law Gazette I No. 72/2014.