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Arntzen de Besche - Clear rules built on dialogue and cooperation

Updated: Feb 6, 2019

Tonje P. Gormley, Partner at Arntzen de Besche

While the oil and gas sector in Norway is relatively young compared to markets such as the United States or the Middle East, a number of Norwegian law firms have been around for many years. Such is the case with Arntzen de Besche, a law firm that has been helping shape the theory and practice of law in Norway since 1870 and has more than 40 years of experience in the Norwegian oil and gas industry. In the present, the firm’s practice covers Norwegian and international competences; furthermore, it has been acquiring experience abroad for 10-15 years. However, the company keeps its main pool of competence and base in Norway, its country of origin.

Since the beginning, together with oil and gas activities, the operating framework in Norway has been gradually evolving, oil and gas becoming a market that sets the standards for best international practices. However, Tonje P. Gormley, believes that there is always room for improvement. “It all started with a small, enabling law and regulation that matured into a comprehensive petroleum law in 1985. Currently, the valid law is from 1996 and the challenge is, as always, to follow the industry and its needs,” says T. P. Gormley.

The legal framework has, despite changes over time, nevertheless been perceived as stable and predictable. ”Despite the increased degree of regulation and the development of a comprehensive regulatory framework, the main policy considerations underpinning the law and regulations remain pretty much the same,” adds T. P. Gormley.

In the early 2000s, the Norwegian government saw that there was a lack of interest in exploration because, even back then, people regarded the Norwegian Continent Shelf as a very mature area. “The government made it possible to apply for a refund of a certain percentage of exploration costs in order to attract new investments instead of having companies taking the full risk,” says T. P. Gormley. In addition, measures were taken to open the market for smaller companies because, traditionally, only big companies had been operating in Norway. In recent years, the number of active oil companies has increased from approximately 20 to 50.

To achieve improvement, it is crucial to consider the effectiveness of cooperation between the public and private sectors in Norway. “The Norwegian authorities believe that the dialogue between the government and the industry must be open and dynamic, and that is how we have promoted the development of the regulatory framework,” says T. P. Gormley. “The government is quite sensitive to the input from the industry and ensures that the framework suits the market by making changes to regulations when it is needed,” she adds. In an example, T. P. Gormley mentions that the Petroleum Safety Authority has developed a dialogue-based approach to supervision and considers this cooperation to be effective.

In the beginning of the Norwegian oil and gas industry, the knowledge in the sector was limited, but the country was experienced in offshore activities such as shipping and fishing. In addition, Norway had a high percentage of educated people, but needed knowledge in the petroleum industry. “We build our competence through dialogue with companies,” emphasizes T.P. Gormley. Furthermore, the transparency of the Norwegian governmental system, supported by the Access to Information Act, has been a crucial driver for cooperation. “Public hearings are held before creating or modifying laws and regulations. The system is transparent and decision-makers are held accountable for their actions”, she adds.

In order to maintain host country control of the petroleum resource management, a license system was established and collaboration between private companies as licensees was ensured through Joint Operating Agreements (JOAs). The Norwegian state has provided the JOAs as a standard. Entering into the standard JOA is a condition for granting licenses. “When the Norwegian government issues a production license, the licensee is awarded the area, work obligations are established, and, possibly, a few clauses are slightly amended. Only the voting rules are adapted, which is highly important,” says T. P. Gormley. Within a license group, the Norwegian government can set the voting rules that are usually adjusted to the relative composition of the group. "To set the voting rules, the Norwegian government takes into consideration the number of partners and the interest shares of the participants and adopt the JOAs,” adds T. P. Gormley. On the other hand, the government in Norway may require companies to work together; it is possible to apply for a specific block together with other companies, but the government decides the actual participants.

Despite the active participation of the state, standard JOAs are predictable and allow smaller players to enter the market without the need to fight or negotiate with larger companies to maintain their rights. “The JOA is an instrument that regulates the relationship between companies in a license group. Furthermore, law practitioners easily understand what a JOA entails and it is also easy for companies to get advice on how to act under it,” says T. P. Gormley.

However, due to the down-cycle of the industry, more companies have focused on the sole risk provisions of the JOAs. Whenever a license group is awarded a license, the participants are meant to work together to carry out all the obligations. “Many companies are reluctant to spend more money than necessary. We have seen a strong focus on sole risk provisions; if a member of the license group votes against performing certain activities, they can choose, under certain conditions, to do the work themselves,” says T. P. Gormley. “What we see, however, is that whereas companies in a low price scenario may suggest to go sole risk, the result is often that the activities in question are nevertheless carried out as joint operations ” T. P. Gormley mentions that interest in these clauses has been renewed and sole risk has been one of the main topics as of late.

Due to the recent changes in the industry, larger oil and gas companies have divested their Norwegian assets, which has allowed smaller players to enter the market. “It is just a matter of following the applicable law, there is no formality involved in leaving the Norwegian Continental Shelf. It is possible to leave when a company has fulfilled its obligations,” says T. P. Gormley. If a production license expires, the obligations for decommissioning must be met before leaving and dissolving a joint venture.

Arntzen de Besche is optimistic about the future of the oil and gas sector. The Norwegian Petroleum Directorate estimates that Norway still has around half of the total resources available. “Currently, 77 discoveries have been evaluated for development, which is very exciting,” says T. P. Gormley. The market has shown interest in the new areas of the North-Eastern Barents Sea and its environmental issues. “Opportunities will arise for all types of companies; larger oil companies are moving out of the Norwegian Continental Shelf, but huge discoveries such as Edvard Grieg and Johan Sverdrup have recently been made and there might be more to come in the North,” says T. P. Gormley. In addition, she believes that there is a window of opportunity for companies specializing in increasing recovery from existing fields, but the service market may have to consider price competitiveness to promote efficient operations. “They live in synergy with the oil companies and their developmental activities and, lately, companies have been under pressure because of the oil prices. Before, excessive amounts of money were being spent; the adjustment period is tough, but I believe that the industry will be able to cope with this challenge,” says T. P. Gormley.

In the Norwegian Continental Shelf, Arntzen de Bescheis involved in E&P activities, supporting oil companies and contractors in the offshore industry and providing advice to governments. Currently, the firm also supports foreign governments such as the government of Mozambique. In Norway, Arntzen de Besche mainly provides advisory services to oil companies and offshore contractors. The firm has a strong team of petroleum lawyers and has gathered considerable experience throughout the years. “Arntzen de Besche is able

to assist companies with targeted value creation based on our experience. Furthermore, the firm has learned from its global experiences; we are experts both in Norwegian petroleum law and contracts and modern international petroleum law,” says T. P. Gormley.

In Norway, the political risk is low and the degree of transparency, predictability, and stability is high. Players can be certain that issues will be handled in a sensible manner because the system offers clear legal paths to guarantee fairness. “Norway has been very lucky and managed to build a strong oil and gas sector and a supply industry for it. Now, Norwegian service companies should consider engaging in the international market in order to diversify and Arntzen de Besche has the necessary international experience to support companies in their journey,” concludes T. P. Gormley.

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