Changes in the Norwegian Petroleum Act – Abandonment Costs
Until recently, it has been a general consensus in the industry that the abandonment provisions in the Norwegian Petroleum Act could not form basis for imposing a secondary liability for transferors of a licence interest for future uncovered abandonment costs. Following the introduction and prequalification of a number of smaller petroleum companies on the Norwegian Continental Shelf over the course of the last few years, the questions as to how such uncovered costs should be distributed if one or more of the licensees should later prove to be financially incapable of fulfilling its abandonment obligations has been a topic for discussion in various forums both within the industry and with the Norwegian Government.
Following a hearing round in which various private and public bodies were given the opportunity to express their views, the Norwegian Parliament passed an act to amend the Petroleum Act on 19 June 2009, introducing a new third paragraph in the Act § 5-3. Under the new third paragraph, a transferor of a licence will remain liable for future costs relating to the removal of installations that existed upon the date of the transfer. Furthermore, such liability will attach to the transferring party even if the transferee re-transfers the relevant ownership interest. However, the liability can be invoked only after it is clear that the transferee(s) has failed to meet its obligations. An important victory for the industry was the Norwegian Parliament’s adoption of the proposal that the liability for each transferring party should be limited to the future net removal cost after the assessed (tax) value has been deducted from the costs.
The new third paragraph of the Petroleum Act § 5-3 entered into force on 1 July 2009.
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