petroleum law spring 2011 – development 2 · ministry of petroleum and energy state organisation...

§Ministry of Petroleum and Energy

Petroleum law Spring 2011 – development 2

Mette Karine Gravdahl AgerupAssistant Director General

Ministry of Petroleum and Energy

Ministry of Petroleum and Energy

1onsdag 2. mars 2011


PA Section 4-3: Plan for installation and operation (PIO)

• Installation and operation of an installation not being comprised by an approved PDO – a separate licence required

• Application for a licence for installation and operation of an installation (PIO): PA Section 4-3, cf. PR Sections 28, 29

• An application may be submitted by other companies than those who are licensees under a production licence, cf. PR Section 8

• Installation – pipelines, shipping terminals for gas, onshore processing plants, cooling facilities, facilities for production and transmission of electric power and other facilities for transport or exploitation of petroleum

• Applications to be submitted to MPE and Min. of Labour – copies to NPD, PSA and Gassco



State organisation of the petroleum sector

Gassco:

•Joint stock company, 100 % owned by the State c/o MPE

•Established 2001

•Responsible for, among others, further development of the gas transportation pipelines

•PR Section 66a



PIO• PR Section 28: The PIO comprises:

– Plan for installation and operation– Impact assessment

• Procedures for formulation of assessment program, impact assessment and approval are the same as for the PDO, cf. PR Section 29 fourth para

– The licensees submit a draft assessment program to interested ministries and others for consultation – at least 6 weeks

– MPE adopts the assessment program– The licensee carries out the impact assessment and submits it for

public consultation to interested parties – at least 6 weeks/normally 3 months’ time limit for comments

– MPE considers the impact assessment and presents any expected effects of the installation and operation of the facility in a Royal Decree or a proposition to the Storting



PIO

• Early authority involvement important – sufficient time for administrative decisions/feasibility of development solutions

• Normally, the applicants should start the IA process appr. 6 months before a PDO/PIO is planned to be submitted

• No prohibition against entering into contractual obligations before approval of the PIO – any such contracts are the company’s own risk



PIO – contents• PR Section 29: The PIO shall, among others, contain:

a) Information on the destination of the pipeline,routing, dimension and transportation capacity as well as other criteria for choices made;

b) Information on the proposed ownership of the pipeline;c) Description of technical solutions, including solutions to prevent and

minimise environmentally hazardous discharges;d) Information on management systems, including information on planning,

organising and implementing the installation/development; e) Information on how the facilities may be disposed of at the end of

petroleum activities; f) Description of technical measures relating to emergency preparedness;g) Information on other issues of importance to resource management; h) HSE issues



PIO – conditions

• PR Section 28 second paragraph:

• A licence to install and operate a facility may be subject to conditions, including:

a) The ownership to the facility (e.g. a pipeline dedicated to one field at the time of construction – subsequent tie-in to other pipelines – State participation)

b) The landing point of a pipeline (Norway/UK/the continent)

c) The routing of the pipeline, its dimension and transportation capacity (for subsequent third party use)



PIO – conditions:• PR Section 28 third paragraph:

• Conditions may be stipulated upon award of the licence – and later:– Tariffs may be stipulated for shipping of petroleum – both that of the

owner and third parties;– Obligation, as appropriate, of tie-in to other facilities, of an increase of

capacity and of modifications to the facility to enable it to be used for other types of petroleum than it was originally constructed for;

• Such orders must not raise the costs or unreasonably impede such use of the facility which has been assured by previous approvals of the Ministry

• The costs of implementation of orders as mentioned shall, if so decided by the Ministry, be borne by the party or parties in whose favour the order was given or shall be taken into account when the tariff is stipulated;

– Decide which petroleum shall be transported in a pipeline, however, such decision may not be to the detriment of petroleum which has been assured transportation in a pipeline by approval of the Ministry



PIO – agreements• The owners of a facility being licenced in accordance with PA

Section 4-3 must enter into an agreement – an owners’ agreement

• Not a model agreement – but normally based on the model joint operating agreement and accounting agreement

• The owners’ agreement is subject to approval of the MPE – the same applies to any subsequent amendments, additions to or exceptions from the owners’ agreement

• The owners form a joint venture when they get the licence to install and operate a facility

– The shares in such a joint venutre = ownership interest– The shares in a joint venture under a production licence = participating

interest

• Operator (PA Section 3-7), voting rules and licence period are



Unitisation – PA Section 4-7• A field extending across the border of two production licences –

different licensees/another State

• Agreement to exploit the petroleum deposit as one unit – unitisation

• Purpose: Resource management

• The deposit to be divided between the relevant areas – geology decides

• Unisation agreement – sucject to MPE approval

• No agreement on unitisation – MPE stipulates conditions – including apportionment of the deposit



Joint activities – PA Section 4-7• Several petroleum deposits – criterion = ”obviously

more efficient to coordinate activities” – joint activities

• Purpose: Resource management

• Joint exploration drilling – MPE to be informed

• Joint production, transportation, exploitation or disposal – subject to MPE approval



Treaty issues • Norway’s treaties on delimitation of the continenbtal shelf: Obligation to exploit petroleum deposits extending across the delimitation line as a unit enhet

• Unitisation treaty – agreement between Norway and relevant country on exploitation of the deposit

• Unitisation agreement between the licensees of the two countries – subject to approval by the two countries

• Denmark, UK, Iceland, Greenland, Russia

• Norway/UK: Statfjord, Murchison, Frigg, Framework agreement 2005 (both unisation and joint activities)

• Norway/Denmark Trym agreement 2010



Delimitation treaty Norway-Russia Art. 5 no. 2

•Signed on 15. September 2010:

If the existence of a petroleum deposit is established on the continental shelf of one party and the other is of the opinion that the deposit extends onto its continental shelf, the latter party may make a statement to this effect to the former and submit documentation supporting its view

If such an opinion is expressed, the parties are obliged to enter into preliminary discussions on the extension of the petroleum deposit and the possibilites to exploit it as a unit. As part of these discussions, the party having initiated them support its opinion with evidence from geophysical data and/or geological data, including any available drilling data, and both Parties shall make their best efforts to ensure that all relevant information is made available for the purposes of these discussions. If the hydrocarbon deposit extends across the continental shelf of both Parties and the deposit on the continental shelf of the one Party can be exploited wholly or in part from the continental shelf of the other Party, or the exploitation of the hydrocarbon deposit on the continental shelf of the one Party would affect the possibility of exploitation of the hydrocarbon deposit on the continental shelf of the other Party, an agreement on the apportionment of the hydrocarbon deposit between the Parties and on the exploitation of the hydrocarbon deposit as a unit shall be entered into at the



Shut-down of petroleum activities – decommissioning

• PA Chapter 5

• The licensees are to submit a decommissioning plan to MPE:

– Before expiry of the licence period (PA Section 3-9)/ relinquishment (PA Section 3-15) of a production licence or licence to install and operate a facility

– Before the use of a facility is permanently terminated

• The plan to be submitted no earlier than 5 years, and no later than 2 years before the expiry of a production licence expires or the use of a facility licenced under PA Section 4-3 is permanently terminated

Opening ofnew areas Award Field

developmentField

operation RemovalSeismic surveys



Decommissioning plan – PA Section 5-1

• Contents:– Proposal to continue production or shut-down of production and

disposal of facilities

• Disposal (could, among others, imply):– Further use in the petroleum activities– Other use (e.g. facility for injection of CO2 for permanent storage in a

subsea reservoir)– Disposal/removal (wholly or partly)– Abandonment

• MPE may require further information and evaluations, or require a new or amended plan to be submitted (if original aspects of the disposal are significantly changed)

• MPE may waive the requirement to submit a decommissioning plan (small, simple operations of removal)



Decommissioning plan• The decommissioning plan shall consist of plan for disposal and

an impact assessment (PR Section 43)• Contents of the decommissioning plan (PR Section 44) shall

include:a) History of the field;b) The facility, including location, water depth, type of materials etc;c) The petroleum deposit and production; d) The possibility for continued production;e) Relevant disposal alternatives;f) Recommended disposal solution, including a time schedule for

implementation of the disposal;

• For each of the relevant disposal alternatives the following shall be described:

• a) Technical, safety related, environmental and economic aspects;• b) Relationship to other users of the sea, including information and evaluations

on the impact on fisheries and shipping.• Regarding facilities onshore, the plan shall only describe any



Decommissioning plan

• The impact assessment (PR Section 45):– A description of the potential effects of each of the relevant

disposal alternatives on commercial and environmental aspects, what could be done to reduce discharges and emissions in connection with the disposal, and to remedy any damage or inconvenience

• Assessment program – stipulated by MPE on the basis of a proposal from the licensees

• IA to be adapted to the extent of the disposal

• IA to be submitted to MPE together with the disposal part of the decommissioning plan



Shut-down/disposal – international obligations

• The freedom of the authorities to decide on the disposal of facilities is limited by international obligations

• UNCLOS Art. 60, cf. Art. 80: – Facilites placed on the continental shalf shall as a

main rule be removed

• Abandonment of facilities shall take place in accordance with accepted international standards



The OSPAR convention• The OSPAR convention of 22 September 1992 – entered into force

on 25 March 1998

• Purpose: Prevent pollution of the marine environment, based on:– The precautionary principle– The polluter-pays-principle – The use of best available techniques (BAT)– The use of best environmental practice

• The duty to prevent pollution is stated in three annexes to the convention, establishing three different regimes:– Pollution from land based sources (Annex I)– Pollution from dumping or incineration (Annex II)– Pollution from offshore sources (facilities and pipelines for

petroleums activities) (Annex III) – especially Art. 5



OSPAR convention• Main rule Annex III:• Dumping or abandonment of offshore facilities and/or pipelines is

prohibited, unless specifically permitted by the competent authorities

• Permit to dumping/abandonment shall be given in accordance with applicable recommendations and decisions adopted under the OSPAR convention

• OSPAR Decision 98/3: Disposal of offshore facilities• Permit for abandonment of:

– Bottom frame of steel installations weighing more than 1000 tons, and which have been put in place before 9 February 1999

– Fixed concrete facilities – Floating concrete facilities – Pipelines

• Duty of reporting – must be reported to the OSPAR Commission



Decision on decommissioning

• PA Section 5-3: MPE decides on the decommissioning on the basis of the plan, and based on technical, safety, environmental and economic aspects and in consideration of other uses of the sea

• MPE may stipulate conditions in relation to the decision

• MPE to set a time limit for implementation of the decommissioning

• The licensee is obliged to implement the decommissioning in accordance with the plan



Decommissioning – the responsibility remains post transfer of a production licence

• The responsibilty for disposal continues also after the assignment of a (share of a) production licence, cf. PA Section 5-3 third paragraph (new)

• The licensee (the seller) shall be secondarily jointly and severally liable towards the other licensees (and the State, as appropriate) for the cost of implementing the decommissioning decision

• The economic liability shall be calculated on the basis of the size of the share transferred and may be raised against the seller after deduction of the tax value of the cost of implementing the decommissioning decision

• The seller’s liabilities remain also after the subsequent assignment of the share or parts of it, but only after any claim has been raised against the company who last transferred the share

• The economic responsibility shall be limited to costs related to facilities, including wells that existed at the time of assignment



Decommissioning – take-over by the State

• PA Section 5-6• The State has the right to take over fixed facilities upon expiry of

the licence period/the use of the facility has been permanently terminated Take-over by the State

• A decision to this effect to be taken by Royal Decree – including whether or not compensation shall be paid

• Upon take-over by the State: – Any liens, charges and encumbrances on the facility shall

lapse– Take-over of onshore facilites – compensation for

expropriation to be paid• Formal take-over 6 months after expiry of the licence period/the

use of the facility has been permanently terminated• Take-over by the State has never ocurred in practice



Assignments

• PA Section 10-12

• The licensee is free to sell his (share of) a licence

• A transfer is subject to:– The consent of the Ministry (always)– The consent of the other licensees if assignment in the initial

period (JOA Art. 23.1 second paragraph)

• Direct/indirect transfer of interest in a licence – also subject to MPE consent

• Petroleum Tax Act Section 10 – mutually dependent consent

• Purpose: Ensure Government control with licensees at all



Copies of data and materials

PA Section 10-4:

• The Ministry may require copies of all data and materials to be submitted to the Ministry or whomever is authorised by the Ministry – free of charge

• Ensures the State an overall knowledge of its own geology – upper hand in negotiations with industry



Security/insurance• The Ministry may require security from the licensee (PA Section

10-7) :– Upon the award of a licence and subsequently – Normally parent company guarantee – model form

• Insurance (PR Section 73)• The petroleum activities to be insured at all times. Shall at least

cover:• a) damage to facilities,• b) pollution damage and other liability towards third parties,• c) wreck removal and cleanup as a result of accidents,• d) insurance of the licensee’s own employees who are engaged in

the activities.• Contractors and subcontractors• Coverage: reasonable insurance cover, taking into consideration

risk exposure and premium costs• Informaton to MPE at the end of each calendar year


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