Oil and gas update
1. Court of Appeal ruled in favour of the Norwegian government in the Gassled case
Background
Gassled is the world’s largest offshore gas transportation system, consisting of a number of gas pipelines at the bottom of the North Sea and the Norwegian Sea, processing facilities onshore in Norway and receiving facilities in the UK, the Netherlands, France and Germany. Gassled was established in 2003 by a merger of several gas transportation systems owned by separate joint ventures, into a new joint venture (“Gassled JV”). Later, several other systems have been included.
For the transportation and processing of gas in Gassled the users (shippers) pay a predefined tariff to Gassled JV. The tariffs are laid down in the Tariff Regulation, initially enacted on 20 December 2002 and subsequently amended.
The case
The case concerns the competence of the Ministry of Petroleum and Energy (the “MPE”) to amend the tariffs for the transportation of gas in the Norwegian upstream gas pipelines (the “Gassled”). The Gassled tariffs are fixed in a formal Regulation (the “Tariff Regulation”) based on a reasonable return of 7% real before tax on invested capital.
By an amendment to the Tariff Regulation in 2013 (the “Amendment”), the MPE reduced the tariffs for un-booked capacity by 90%. Tariffs for capacity booked prior to the Amendment remained unchanged. Thus, the Amendment meant reduced upside revenues from new capacity bookings, but did not affect the revenues from already booked capacity.
Four Gassled owners, Njord Gas Infrastructure AS, Solveig Gas Norway AS, Silex Gas Norway AS and Infragas Norway AS (the “Claimants”) challenged the Amendment. Principally, they claimed that the Amendment was invalid. Alternatively, they claimed damages for alleged losses caused by the tariff reduction.
In a judgment by Oslo District Court on 25 September 2015, the claims were rejected. The Claimants appealed the judgment, and the Court of Appeal heard the case this spring, and rendering its judgment on 30 June 2017. The Court of Appeal agreed with the District Court that the Amendment adopted in 2013 was valid and that there was no basis for the Claimants claim for damages either. Thus, the appeal was rejected and the Claimants were ordered to cover the legal costs incurred by the State.
The four Claimants have until 16 September 2017 to file an appeal with the Supreme Court. Whether or not the Supreme Court will hear an appeal, is for the Supreme Court to decide.
Read a more extensive summary of the Gassled tariff dispute here.
2. Historically large areas in the Barents Sea announced in new licensing round
In the 24th licensing round, 102 blocks have been made available for applications. 93 of these block are located in the Barents Sea and 9 are located in the Norwegian Sea. The Norwegian Ministry of Petroleum and Energy aims to award the new production licenses during the first half of 2018.
The licensed areas are historically large, and the Minister of Petroleum and Energy, Mr. Terje Søviknes, proudly announced this new licensing round:
– New exploration acreage promotes long-term activity, value creation and profitable employment in the petroleum industry across the country. Profitable activity on the Norwegian continental shelf provides employment, as well as revenues to the state. Thus, awarding prospective acreage to the petroleum industry is a central pillar in the Norwegian government’s petroleum policy. The announcement of the 24th licensing round is an important contribution to the value creation on the Norwegian continental shelf, and shows our commitment to the Government’s petroleum policy. Profitable petroleum activity is important to maintain our welfare and further development of our society, says Minister of Petroleum and Energy, Mr Terje Søviknes.
The application deadline for companies is 12 p.m. on the 30th of November 2017.
Read the press release from the Norwegian Government here.
A map of the the blocks announced in the 24th licensing round can be found here.
The Norwegian Petroleum Directorate offers maps of all the current fields, discoveries, areas awarded, areas opened up for exploration and current production licenses.
The activity on the Norwegian continental shelf is high in general these days. The Norwegian Petroleum Directorate has a summary of the last six months here.
3. Climate change lawsuit against Arctic oil scheduled for November 2017
Nature and Youth and Greenpeace Nordic have filed a lawsuit against the Norwegian government for granting new oil drilling licenses in the Arctic Ocean. The plaintiffs argue that the Norwegian government violates their and future generations’ constitutional right to a healthy and safe environment. They also argue that the government in allowing oil drilling in the Arctic Ocean contravenes the Paris climate agreement.
The controversial oil drilling lisences were granted in the 23rd licensing round, when the Norwegian government opened up a new oil drilling area in the Barents Sea. Thirteen oil and gas companies were granted new license blocks:
- Statoil
- Chevron
- Aker BP
- ConocoPhillips
- PGNiG
- DEA
- Lundin Petroleum
- Idemitsu
- Capricorn
- Lukoil
- Tullow Oil
- OMV
- Centrica
This court case is about making governments everywhere responsible for the environment and accountable for their climate promises. By allowing oil companies to drill in the Arctic, the Norwegian government puts homes, health and families everywhere at risk.
Truls Gulowsen, Head of Greenpeace Norway.
The Norwegian government has an obligation to protect people’s right to a healthy environment. This court just gave us the critical opportunity to protect our futures. This is a major step towards the solutions of the climate problem. Together we can be the generation that ends oil.
Ingrid Skjoldvær, Head of Nature and Youth.
This is the first time attempts are made to restrict the drilling for new oil and gas through a court case on the basis of the Paris Agreement, but it is part of a global trend whereby individuals institute legal proceedings against governments and big polluters. Examples of other such cases are the Climate Justice case (Philippines), the Our Children’s Trust case (USA) and the Climate Grannies case (Switzerland).
Greenpeace released a press letter about the lawsuit in february – read it here.
4. Large companies exiting the Norwegian market – and other key transactions
ExxonMobil sells its operational upstream business
ExxonMobil announced in March that they are selling their operational upstream business in Norway to the HitecVision controlled company Point Resources. The transaction includes the majority of ExxonMobil’s offshore and onshore E&P staff in Norway, a significant package of operational production assets on the Norwegian continental shelf, field assets, such as platforms and Floating Production Storage and Offloading vessels (FPSOs) and the office building in Sandnes, near Stavanger. The transaction is expected to be completed in Q4 2017 with an effective date of January 1st 2017.
Read the press release from Point Resources here.
DONG Energy divests its upstream oil and gas business
DONG Energy announced in May that they have entered into an agreement with INEOS to divest their upstream oil and gas business from Dong E&P A/S. INEOS will take over decommissioning liabilities of approx. DKK 7 billion.
Read the press release from DONG Energy here.
Engie sells 70% of the company’s oil and gas operations
Engie, which among other things is an operator in the Gjøa field, has reached an agreement with Neptune for the sale of 70% of the company’s oil and gas operations. The price is NOK 44 billion. It is former Centrica chief executive Sam Laidlaw who heads Neptune, and the company is financed by private capital.
Read more about the deal at reuters.com.
5. Other developments in the oil and gas market
Proposed amendments to the petroleum regulations
The Norwegian Ministry of Petroleum and Energy (MPE) are preparing amendments to the Norwegian petroleum regulations. If the amendments are approved, then the MPE may deny companies and individuals domiciled outside of the EU access to the Norwegian continental shelf for national security reasons. This applies both to the award of new licences and to the transfer of existing licences, which require the consent of the MPE. The consultation period ended on June 13th and a conclusion is expected to be reached after the summer.
Read more about the proposed amendments on the MPE’s website (in Norwegian only).
The Polarled Pipeline
The Polarled Pipeline, which is the first subsea pipeline on the Norwegian continental shelf to cross the Arctic circle, has now been completed. Statoil transferred the operatorship for the pipeline to Gassco on 5 May 2017. The pipeline will transport gas from the Asta Hansteen field in the Norwegian Sea to the Nyhamna gas-processing facility in Møre og Romsdal county. The 481 km long pipeline is owned by the joint venture company Polarled JV.
Read a summary of the project in Offshore Energy Today.
Full-scale carbon capture and storage under the Norwegian continental shelf
Following the positive results from the feasibility studies presented in July 2016, the state-funded project for full-scale carbon capture and storage under the Norwegian continental shelf is progressing. Contracts have been awarded for concept/FEED studies which should be completed by the end of 2018. The full-scale CO2 capture and storage project, which is the first in Norway and also the first of its kind worldwide, could be operational by 2022.