Sale of E&P companies on the NCS

- New decommissioning guarantee

Statutory decommissioning liability for asset sales

Section 5-3 (3) of the Norwegian Petroleum Act (NPA) introduced alternative decommissioning liability for sellers of participating interests in oil and gas fields on the Norwegian continental shelf (NCS) from July 2009. The rules make the seller secondary liable for future decommissioning costs related to the field assets sold if the buyer fails to pay its share of the costs incurred. In such event the other license partners are required by the provisions of the license joint operating agreement to fund, on a proportionate basis, the defaulted amount to the field operator. Pursuant to NPA section 5-3 (3) the license partners may subsequently claim the seller for a refund, limited to the after tax value of the defaulted costs.

The statutory decommissioning liability only applies to asset sales, not to the sale of all or part of the shares of a company holding production license interests on the NCS. However, the Norwegian Ministry of Petroleum and Energy (MPE) stated in 2009 that similar liability arrangements under certain circumstances could be imposed as a condition for granting statutory regulatory consent to share transactions.

By letter to the Norwegian Oil and Gas Association (NOROG) of 8 November 2016 the MPE notified the industry that it would consider imposing decommissioning liability in sales of companies with interests in fields under development or production. The new policy was implemented in two transactions (Dong/Ineos and Bayerngas/Centrica) during the second half of 2017. 

New decommissioning liability for share sales

Unlike the decommissioning liability for asset sales which is based on statutory regulation, the decommissioning liability for share sales is imposed in the form of a guarantee to be given by the parent company of the seller group. The guarantee extends to the benefit of the license partners in the applicable fields as well as the Norwegian state (Decom PCG). Such Decom PCG will be required as a condition for the MPE's consent to the share transaction pursuant to sections 10-12 and 10-18 of the NPA.

If the parent company of the seller group has previously given a guarantee to the Norwegian state for the license obligations of the Norwegian affiliate (State PCG), the Decom PCG will enable a release of the State PCG by the MPE. The share buyer will have to provide a replacement State PCG from the parent of the buyer group, covering the obligations and liabilities under the NCS production licenses of the target company. In the event only some of the target company's shares are being divested, reducing the shareholding to below 50% will trigger an exchange of the State PCG with a Decom PCG.

The terms of the Decom PCG are, like the State PCG terms, set out in standard form by the MPE. The main features of the Decom PCG are:

  • The liability covers decommissioning of facilities, including wells, existing at fields where the target company holds participating interests when the buyer is registered as new shareholder in the target company's shareholder register. Decommissioning of facilities and wells added to the relevant fields after this point in time, are not covered. The same applies to field interests acquired by the target company after such time.
  • The liability is prorated to the participating interest held by the target company in the relevant fields at the time of share transfer registration. Subsequent changes of the target company's participating interest (including sales to third parties) will not impact the liability.
  • The liability includes any statutory decommissioning liability the target company is subject to as a result of sales of field interests (asset sales) concluded prior to being sold.
  • Unlike the statutory decommissioning liability, the Decom PCG is not limited to the after-tax value of the defaulted decommissioning cost.
  • Default occurs if the decommissioning cost has not been paid within 3 months of a claim for payment.
  • The Decom PCG shall be in force until all decommissioning liabilities for the relevant field interests have been finally settled.
  • The Decom PCG shall be in force even if the shares of the target company are subsequently sold to a new buyer.
  • If the target company and/or the relevant field interests have been resold, the claim under the Decom PCG shall first be made against the latest successor in interest and then further up the successor chain.
  • The Decom PCG is governed by Norwegian law and all disputes related to the guarantee are under the jurisdiction of Norwegian courts.

The new Decom PCG imposes a more extensive decommissioning liability on share sellers than section 5-3 (3) of the NPA imposes on sellers of field interests (asset sales).

The MPE has announced that they are still reviewing a number of related issues, such as whether the guarantee will be sufficient to ensure financing of future decommissioning costs, the fact that the guarantee does not provide any control with respect to future events impacting the guarantor, alternative forms of decommissioning security, information to the field partners and tax treatment.


Sverre B. Bjelland
Peter Hiorth
Nils Ludvig Dahl


29. January 2018