BA-HR OIL & GAS NEWSLETTER

Transcription

1 Advokatfirmaet BA-HR DA Tjuvholmen allé 16, NO-0252 Oslo PO Box 1524 Vika, NO-0117 Oslo T: F: E:

2 SMALL TEAMS FOR BIG MATTERS

3 MARKET UPDATE General: After having dropped to its lowest level in 11 years at the beginning of 2016, the oil price has been on an upward trend since February 2016, with the Brent spot index having been in the area of USD per barrel since the summer. Even though the oil price is still at a significantly lower level than in the period from 2008 to 2014, there is a steady stream of reports on cost reducing measures having started to take effect and plans for new developments progressing. On 12 January 2017, the Norwegian Petroleum Directorate published its annual publication with facts and figures from the Norwegian Shelf (NCS) for the past year, reflecting that: Oil production increased for the third consecutive year in 2016, and gas production was at the same level as in 2015, which was a record year. Investments on the NCS (excluding exploration) in 2016 amounted to NOK 135 billion, about NOK 50 billion less than the peak years 2013 and For 2017 the investments (excluding exploration) are expected to be around NOK 120 billion. (Source: NPD.no) 36 exploration wells were drilled in 2016, 20 fewer than in discoveries were made, one more than in production licenses were awarded in APA 2015, while 10 were awarded in the 23rd licensing round. 4 fields, all of which are located in the North Sea, were shut down in 2016: Varg, Volve, Jette and Jotun. Licencing rounds and field developments: Since our last newsletter, Statoil has submitted PDO s for both Utgard and Trestakk whilst the PDO for Oseberg Vestflanken 2 has been approved by the Ministry. Further, DEA has submitted a PDO for the development of Dvalin (formerly Zidane) and Centrica have submitted a PDO for Oda. Seven development projects with a total estimated value of NOK 233 billion are currently ongoing: Johan Sverdrup, Gina Krog, Hanz, Maria, Martin Linge, Asta Hansteen and Flyndre. The Ivar Aasen field started production in December Additionally, the 24th licencing round nomination process was initiated in August 2016, with the announcement of acreage expected before summer New political signals about how the Norwegian Labour Party (NLP) will treat the question of a potential impact assessment for the Lofoten, Vesterålen and Senja coastal areas (LoVeSe) were made official by the NLP s program committee in early January. The NLP seems to be heading for a compromise where areas immediately off the coast of Lofoten are to be spared, whereas the Nordland VI area may be assessed. The proposal for a new party program is scheduled to be sent out on a party-wide hearing early February, with adoption at the NLP s national congress in April. 3

4 DEA acquired licence interest in seven licences in the Njord area in the Norwegian Sea, including 20% increased interest in the Njord field, from Engie E&P Norge AS. Gazprom and OMV entered into a basic asset swap agreement, pursuant to which Gazprom will receive a 38.5% stake in OMV (NORGE) AS. Final documents are expected to be signed by mid (Source: NPD.no) Changes to Government: In December 2016, Terje Søviknes replaced Tord Lien as Minister of Petroleum and Energy. M&A: Since April 2016, there has been an upswing in transaction activity in the NCS market. Det norske has merged with BP Norge AS, creating the combined oil company Aker BP, held 40% by Aker and 30% by BP. Statoil sold a part of Edvard Grieg to Lundin against additional shares in Lundin, increasing Statoil s ownership share in Lundin to 20.1%. OMV sold its 20% share in Dvalin (Zidane) to Petoro and DEA. Statoil acquired 4 licenses from Tullow Oil, including the Wisting discovery in the Barents Sea. Further, Statoil acquired interests in five other Barents Sea licenses, through deals with DEA, OMV, ConocoPhillips and Point Resources. Statoil also acquired Wintershall s 25% share in the Byrding project in the North Sea. Det norske acquired a portfolio of exploration licenses from Tullow Oil. Faroe Petroleum acquired Dong s license interests in Ula, Tambar, Tambar East, Oselvar and Trym. OKEA acquired OMV s share of 0.554% in the Ivar Aasen Unit and Wintershall s 10% interest in Yme. In particular Det norske s merger with BP Norge has received attention in the market place. Building on past acquisitions and the strong asset portfolio of BP Norge, the renamed entity Aker BP has established itself as an important player with a substantial portfolio on the NCS. It is also noted that Statoil has been active on the buying side, acquiring both license interests and share positions in other oil companies, compared to other years when Statoil has been perceived as a net seller of assets. An important development of relevance for future transaction is the letter sent from the Ministry of Petroleum and Energy to Norwegian Oil and Gas in November 2016, stating that the Ministry of Petroleum and Energy in connection with future transfer of companies with petroleum production on the NCS will assess whether to set conditions related to the selling parent company being secondarily liable for relevant decommissioning cost attributable to the target company. Pursuant to the Petroleum Act 5-3, the seller of a licence interest will be secondary liable for defined cessation costs towards the other licensees and the Norwegian State. The liability is imposed on the seller of a license interest and does as such not extend to its (former) parent company. The Ministry of Petroleum and Energy makes reference to the preparatory work for the Petroleum Act and declares that such conditions will be assessed in relation to consent to future transfer of companies, which is required 4

5 pursuant to the Petroleum Act The letter is ambiguous and raises several questions of both practical and legal nature; including tax treatment of payments, should the liability materialize. What seems to be clear is that the possibility of a clean exit for foreign parent companies will be substantially restricted compared to past practice. COURT CASE ON THE VALIDITY OF THE 23RD LICENSING ROUND On 18th October 2016, the environmental organisations Greenpeace Norden and Natur og Ungdom (Nature & Youth) (collectively, the plaintiffs) submitted a writ of summons to Oslo District Court, claiming that the Norwegian Government s decision on awarding production licenses in the 23rd licensing round is invalid. The defendant in the case is the Government of Norway represented by the Ministry of Petroleum and Energy. The Government disputes the claim and submitted its defence to the Oslo District Court mid- December. The case is expected to be scheduled during Background On 18th May 2016, in its 23rd licensing round, the Norwegian Government, represented by the Ministry of Petroleum and Energy, resolved to offer 13 companies ten production licenses, and thus entitling and obliging the recipients of the licenses to carry out exploration drilling, seismic surveys and other activities. The production licenses relate to 40 blocks located in the Barents Sea South and Barents Sea South-East. The decision was ratified by a royal decree 10 June The case concerns the constitutional and procedural validity of the Norwegian Government s decision. The main question is to what degree Article 112 of the Norwegian Constitution provides a substantive protection of the environment, and whether or not Article 112 sets out an absolute threshold for the negative environmental impacts tolerable. The plaintiffs main arguments The plaintiffs primarily allege that the environmental consequences of the Government s decision to award production licenses in the 23rd licensing round in aggregate are so damaging that they breach an absolute threshold set out in Article 112 of the Norwegian Constitution. According to the plaintiffs, the awarded production licenses permit petroleum production partly in an area where petroleum activities have not previously been performed and where no infrastructure exists. By doing so, Norway will continue to contribute to major CO2 emissions and thus global warming. The plaintiffs further emphasize that five of the awarded licences relate to 20 blocks located north of 73 degrees north, making this the northernmost area yet worked in the petroleum industry and a danger to the polar marginal ice zone where the sea ice meets the open ocean. According to the plaintiffs, these harmful environmental effects are together sufficiently serious to render them incompatible with the safeguards against environmental intrusion established under Article 112 of the Norwegian Constitution. Alternatively the plaintiffs allege that the decision is invalid due to procedural error, namely inadequate assessment and consideration of the individual s right 5

6 to a healthy environment. The Plaintiffs claim that the procedural requirements following Section 17 of the Norwegian Public Administration Act, Section 3-1 of the Norwegian Petroleum Act and Article 112 of the Norwegian Constitution, must be made more rigorous in light of an irreversible decision that oppose the considerations Article 112 of the Constitution is intended to safeguard. The plaintiffs allege that the Government has made inadequate assessments in relation to Norway s climate obligations. The assessment work is from 2012, and thus the environmental impacts of the production licenses have not been discussed in particular based on the knowledge available in 2016 about the climate and the need for large emission reductions, as evident through the Paris Agreement ratified by Norway as the first developed country on 20th June The plaintiffs further allege that the Government has made inadequate economic proportionality assessments in light of the carbon budget, and also inadequate assessment of the potential damages to particularly valuable and vulnerable areas. The defendant s main arguments The Government rejects that the decision to award production licenses in the 23rd licensing round is invalid. In its defence pleading, the General Attorney refers to the decision being based on comprehensive professional, administrative and political processes, carried out in accordance with the Constitution and relevant legislation. With respect to the accusation of procedural error, the General Attorney makes reference to the relevant environmental consequences having been thoroughly examined with careful scrutiny and assessed prior to the award of production licenses. Both impact assessments and hearings have been conducted in this manner. The General Attorney makes reference to further examinations, assessments and necessary regulations that will take place in the years to come, if petroleum resources that might lead to production are found. The General Attorney further emphasizes that substantial political processes have lead up to the decision and that there have been broad political consensus in the Norwegian Parliament on questions regarding petroleum activities in the Barents Sea. After the Barents Sea South-East was opened for petroleum activities, the Norwegian Parliament has considered several propositions to stop the awarding of production licenses in the 23rd licensing round due to environmental considerations, both in 2014 after proposition submitted by Miljøpartiet De Grønne and in 2016 after proposition from SV. The essence of the accusations presented in the writ is similar to the essence in the propositions, and thus the plaintiffs arguments have already been assessed and rejected by a broad majority of publicly elected representatives in the Parliament. Hence, the General Attorney rejects that there have been any procedural errors in the process leading up to the decisions to award licenses in the 23rd licensing round. With respect to the accusation that the decision to award licenses in the 23rd licensing round will lead to consequences for the environment that breaches an absolute threshold in Article 112 of the Constitution, the General Attorney states that it is highly uncertain if such an absolute threshold can be deducted from Article 112 of the Constitution. Article 112 imposes a duty for the Government to implement measures to safeguard environmental consideration, and is an important element when interpreting general legislation. It does, however, not open up for the courts to set aside a well-reasoned decision made by the Government, if the Government, and in this case also the Parliament, have properly examined and assessed the environmental consequences of a specific measure. In the event that the courts should interpret Article 112 of the Constitution to include an absolute threshold 6

7 for measures adequately assessed by the appropriate authorities, the General Attorney elaborates further on why such threshold is not exceeded in this case. We will not attempt to summarize the defence pleading on this point, but the General Attorney points to the necessity of distinguishing between different environmental consequences. In particular, that the international cooperation on climate issues, including the Paris Agreement, is based on a fundamental principle that the political and legal responsibility for emissions rests on the state where the emission occurs. Hence, it is not a procedural error when global emissions is not explored or assessed in relation to the processes leading up to a decision to award production licenses on the Norwegian Continental Shelf. beyond the petroleum industry. Nevertheless, the case can be seen as part of an increasing trend, visible also in other jurisdictions, where NGO s increasingly seek to the courts and other legal means to express their views and support their work. Brief comments In conjunction with the 200 year anniversary of the Norwegian Constitution in 2014, certain amendments were made to the Norwegian Constitution, including Article 112 on the environment. The writ is seen as an attempt to test the scope of the amended Article 112 and an attempt to bring the debate on climate issues into the courts, rather than exploiting political means and democratic processes. The question on the extent and scope of petroleum activity on the Continental Shelf is by most seen as a political issue, rather than a legal topic. Since Norwegian petroleum activities have support from a broad political majority in the Norwegian Parliament, and such support was also strongly present in 2014 when the Constitution was amended, it will be interesting to see if the Norwegian Courts will make a decision which in essence will put a meaning to the Constitution that is contradictory to the expressed opinion of such a broad political majority. Should the plaintiffs be successful, it would also represent (or reflect) a substantial shift in the division of powers between the Parliament and the Norwegian Courts. It would have substantial impact on the processing of future public decisions with an inherent environmental aspect, and have impact well 7

8 FOR MORE INFORMATION, PLEASE CONTACT: Jan B. Jansen D: M: E: Jon Christian Thaulow D: M: E: Joachim M. Bjerke D: M: E: Thomas K. Svensen D: M: E: Stig K. Engelhart D: M: E: OUR SERVICES BA-HR s legal team has vast experience of working closely with a number of major players on the Norwegian continental shelf and follows developments. We have a thorough understanding of the legal framework governing the industry. We advise in large transactions and represent companies in legal disputes. We also assist in connection with major development projects. Furthermore, we have comprehensive experience within the regulatory field including extensive government relations. BA-HR also has firm expertise in energy taxation, appeals and litigation of tax disputes. We represent several large oil companies in complex tax disputes before the tax assessment administration and the court. RECENT CASES WITHIN THE OIL&GAS SECTOR Assisting in the merger between Det norske oljeselskap ASA and BP Norge AS, creating the combined oil company Aker BP ASA. Assisting in the establishment of Point Resources as a merger between Spike Exploration, Pure E&P and Core Energy. Assisting Det norske oljeselskap ASA in its acquisition of Premier Oil Norge AS. Assisting Det norske oljeselskap ASA in its acquisition of Svenska Petroleum Exploration AS. Assisting Shell in its acquisition/merger with BG Group. Assisting HitecVision in its acquisition of Rocksource/PURE and sale of Spring Energy AS. Assisting Det norske oljeselskap ASA in its acquisition of Marathon Oil Norge AS. Assisting with Noreco s divestment of exploration licenses to Det norske oljeselskap ASA. Assisting owners of Gassled in a litigation related to regulation of tariffs. Assisting Det norske oljeselskap ASA in connection with the unitisation of the Johan Sverdrup-field. Assistance related to tie-in disputes and the establishment of new licence holders on the Norwegian continental shelf. Assisting several oil companies with on-going tax cases. Rune Svoren D: M: E: rs@bahr.no Editorial: Stig K. Engelhart, Trond Lingaas and Hilde Kaspersen Editorial in charge: Jon Christian Thaulow This oil & gas newsletter contains information in summary form and is therefore intended for general guidance only. It is not intended to be relied upon as legal advice or be a substitute for detailed research or the exercise of professional judgement. Please refer to your advisors for specific advice. BA-HR will not accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this newsletter.