Oil Regulation

in 29 jurisdictions worldwide

Contributing editor: Ron Deyholos 2010

Published by Getting the Deal Through in association with: Adly Bellagha & Associates Æ´LEX Legal Practitioners and Arbitrators Aequitas Law Firm Al Busaidy, Mansoor Jamal & Co Ali & Partners Baker & McKenzie – CIS, Limited Bech-Bruun Blake, Cassels & Graydon LLP Borgia & Co Chandler and Thong-ek Law Offices Limited CMS Adonnino Ascoli & Cavasola Scamoni CMS Bureau Francis Lefebvre CMS Cameron McKenna Dr Jamal Seifi & Associates Dr Kamal Hossain and Associates Hoet Peláez Castillo & Duque Abogados Kelemenis & Co Martelli Abogados Moreno Baldivieso Estudio de Abogados Pillsbury Winthrop Shaw Pittman LLP Rex Attorneys Saah Partners Skrine Thompson & Knight LLP TozziniFreire Advogados contents

Oil Regulation Algeria Samir Sayah CMS Bureau Francis Lefebvre 3 2010 Argentina Hugo C Martelli Martelli Abogados 8 Contributing editor: Azerbaijan Aykhan Asadov and Mahmud Yusifli Baker & McKenzie – CIS, Limited 13 Ron Deyholos Blake, Cassels & Graydon LLP Bangladesh Sharif Bhuiyan and Abdullah Mahmood Hasan Dr Kamal Hossain and Associates 18 Business development manager Joseph Samuel Bolivia Luis Moreno Gutiérrez Moreno Baldivieso Estudio de Abogados 22

Marketing managers Brazil Pedro G Seraphim and Heloisa F Andrade Scaramucci TozziniFreire Advogados 27 Alan Lee George Ingledew Canada Dufferin Harper and Taryn Petrovich Blake, Cassels & Graydon LLP 32 Robyn Hetherington Dan White Denmark Per Hemmer, Johan Weihe, Per Vestergaard Pedersen and Rania Kasis Bech-Bruun 39 Tamzin Mahmoud Ellie Notley Faroe Islands Per Hemmer, Johan Weihe, Per Vestergaard Pedersen and Rania Kasis Bech-Bruun 44

Subscriptions manager France Denis Borgia Borgia & Co 50 Nadine Radcliffe Subscriptions@ Ghana Jacob Arko Saah Saah Partners 54 GettingTheDealThrough.com Greece Yannis Kelemenis Kelemenis & Co 58 Assistant editor Adam Myers Greenland Per Hemmer, Per Vestergaard Pedersen, Johan Weihe and Rania Kassis Bech-Bruun 63 Editorial assistant Nina Nowak Iran Jamal Seifi and Shahbiz Shafe Dr Jamal Seifi & Associates 70

Senior production editor Italy Pietro Cavasola and Matteo Ciminelli CMS Adonnino Ascoli & Cavasola Scamoni 77 Jonathan Cowie Kazakhstan Olga Chentsova, Natalya Braynina and Valikhan Shaikenov Aequitas Law Firm 84 Chief subeditor Kuwait Reema Ali and Khaled Al-Qaneh Ali & Partners 91 Jonathan Allen Senior subeditor Malaysia Faizah Jamaludin Skrine 96 Kathryn Smuland Subeditors Mexico Mayuca Salazar Canales and Gabriel Ruiz Rocha Thompson & Knight LLP 102 Ariana Frampton Charlotte Stretch Nigeria Soji Awogbade and Sina Sipasi Æ´LEX Legal Practitioners and Arbitrators 108

Editor-in-chief Oman Rory Gilchrist and Mansoor J Malik Al Busaidy, Mansoor Jamal & Co 113 Callum Campbell Publisher Russia Alexey Frolov and Alexander Gomonov Baker & McKenzie – CIS Limited 118 Richard Davey Tanzania Alex T Nguluma and Zaharani O Sinare Rex Attorneys 122 Oil Regulation 2010 Thailand Albert T Chandler and Chantima Limpananda Chandler and Thong-ek Law Offices Limited 127 Published by Law Business Research Ltd Tunisia Adly Bellagha Adly Bellagha & Associates 132 87 Lancaster Road London, W11 1QQ, UK Ukraine Svitlana Romanova Baker & McKenzie – CIS, Limited 136 Tel: +44 20 7908 1188 Fax: +44 20 7229 6910 © Law Business Research Ltd United Kingdom Bob Palmer and Matthew Culver CMS Cameron McKenna 143 2010 United States Robert A James, Stella Dorman and Joseph H Fagan No photocopying: copyright licences do not apply. Pillsbury Winthrop Shaw Pittman LLP 150 ISSN 1744-0939 Venezuela Miguel Rivero and José Alberto Ramírez Hoet Peláez Castillo & Duque Abogados 158 The information provided in this publication is general and may not apply in a specific situation. Legal advice should always be sought before taking any legal action based on the information provided. This information is not intended to create, nor does receipt of it constitute, a lawyer–client relationship. The publishers and authors accept no responsibility for any acts or omissions contained herein. Although the information provided is accurate as of July 2010, be advised that this is a developing area.

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Law Business Research Bech-Bruun greenland

Greenland

Per Hemmer, Per Vestergaard Pedersen, Johan Weihe and Rania Kassis Bech-Bruun

General the Kângamiut-1 well. A licensing round for areas offshore West Greenland was held 1 Describe, in general terms, the key commercial aspects of the oil in 1992 to 1993. As no applications were submitted, an open-door sector in your country. licensing policy was introduced in 1994. It covered both onshore and Greenland is the world’s largest island. Its land area is 2.2 million offshore areas south of 70°30’N in West Greenland and Jameson square kilometres, but 1.8 million square kilometres are covered by Land in East Greenland. the Greenland ice sheet. The northernmost extremity of Greenland Subsequent investigations were carried out by Nunaoil – a com- is Cape Morris Jessup which is also the northernmost land area in pany then owned jointly by Greenland under home rule and the Dan- the world, situated less than 730 kilometres from the North Pole. ish state and now owned by Greenland as part of its self-government. Greenland has a population of 56,000 inhabitants. The investigations confirmed the existence of cross-cutting reflectors Greenland is an autonomous part of the Kingdom of Denmark (CCR’s). Based on these discoveries, a licence was awarded in 1996 (the ‘Community of the Realm’) which comprises Denmark proper, to a consortium consisting of Statoil, Phillips Petroleum, DONG Greenland and the Faroe Islands (an island group situated about half and Nunaoil. In 1998, a new licence was awarded to the same way between Scotland and Iceland). participants. Greenland had home rule from 1979 to 21 June 2009 when Licensing rounds were held in 2001, 2002, 2004, 2006 and 2007. it obtained self-government after a referendum and negotiations In April 2008, an open-door licensing procedure was launched. It with the Danish government. The Danish Act No. 473 of 19 May covered offshore areas in West Greenland and around Cape Farewell, 2009 on Greenland Self-Government entered into force on 21 June the southernmost extent of Greenland. On 1 January 2010, it was 2009. Greenland has extensive self-government under the act, succeeded by an open-door licensing procedure under the present which for most areas of government either transferred or provides Greenland Mineral Resources Act. The 2010 open-door licensing for the transfer of the legislative power from the Danish parlia- procedure covers offshore areas in the southern part of West Green- ment to the Greenland parliament (Inatsisartut) and the executive land and around Cape Farewell and onshore areas in Jameson Land power from the Danish government to the Greenland government in East Greenland. (Naalakkersuisut). In October 2009, the Greenland government issued an invitation As part of its self-government, Greenland owns and has the right to apply for licences for exploration and exploitation of oil and gas of disposal of all mineral resources, including oil and gas, in its land, in two licensing rounds: the Baffin Bay Licensing Round 2010 cov- territorial sea and continental shelf areas. Under the Greenland Self- ers offshore areas of 151,358 square kilometres in West Greenland. Government Act, it may determine that all legislative and executive The areas are three times the area of Denmark proper. The areas powers in the mineral resources area including oil and natural gas have been divided into 14 blocks of sizes between 8,000 km2 and shall be transferred from the Danish state. The transfer was decided 15,000 km2. By the application deadline on 1 May 2010, the Bureau by the Greenland Parliament on 23 October 2009 and became effec- of Minerals and Petroleum had received 17 applications from 12 tive on 1 January 2010. In connection with the transfer of powers, international oil companies, including some of the world’s major the former Danish Act on Mineral Resources in Greenland – which oil companies. regulated prospecting, exploration and exploitation of oil, gas and The Greenland Sea Licensing Round 2012-13 covers offshore minerals – was repealed and replaced by the present Greenland Par- areas of 50,000 square kilometres in East Greenland. Companies liament Act No. 7 of 7 December 2009 on Mineral Resources and which are members of the Kanumas Group (Statoil, BP, Esso, Chev- Activities of Importance Thereto (Mineral Resources Act). The main ron, Shell, JOGMEC and Nunaoil) may submit applications for provisions on oil and gas licences in the present Greenland mineral licences in a special pre-round no later than 15 December 2012. resources act are based on and correspond to the provisions on such The pre-round covers areas of 30,000 square kilometres designated licences in the former Danish Mineral Resources Act. All prospect- by the Greenland government in the ordinary round area of 50,000 ing, exploration and exploitation licences granted under the former square kilometres. After licences have been granted in the pre-round, Danish act are still effective but are now governed by the present any company may submit applications for licences in the remaining Greenland act (see section 98(4)). parts of the ordinary round areas in a subsequent ordinary licence Exploration for oil and gas began in the early 1970s in areas round. The deadline for submission is 15 October 2013. offshore West Greenland. Comprehensive seismic surveys were car- So far the exploration activities have not led the licensees to ried out, and almost 21,000 line kilometres of reflection seismic data initiate any exploitation (production) activities and many parts of were acquired. In 1976 and 1977, five exploratory wells were drilled. the Greenland continental shelf area remain relatively unexplored. Exploration was discontinued in late 1978. All wells were declared Exploration for oil and gas has increased considerably in recent dry by the operators. But in 1997, the Geological Survey of Denmark years, and a large number of licences for exploration and exploita- and Greenland (GEUS) began to carry out re-investigations of the tion of oil and gas have been granted. In June 2009, an offshore well data and found that they suggested a hydrocarbon discovery in area of approximately 130,000 square kilometres (approximately www.gettingthedealthrough.com 63 greenland Bech-Bruun three times the size of Denmark proper) was covered by hydrocar- Interests of oil and mineral companies are catered for in various ways bon exploration and exploitation licences. In the summer of 2010, and respects. a licence group comprising Capricon Greenland Exploration (Cairn A proper, effective and stable hydrocarbon regulation – to some Energy), Petronas and Nunaoil will drill two and maybe even four extent similar to the Danish regulation – is established by the mineral exploratory wells in a licence area in the Disco West area. resources act and the model terms for hydrocarbon licences. As of 1 June 2010, 13 hydrocarbon exploration and exploita- The general policy principles governing prospecting, exploration tion licences and 23 hydrocarbon prospecting licences are in force. and exploitation of mineral resources, including oil, are stated in Operators for the exploration and exploitation licences are: EnCana section 1 of the Mineral Resources Act. The purpose of the act is to Corporation (two licences), Husky Oil Operations (two licences), ensure appropriate exploitation of mineral resources and use of the DONG, Esso Exploration Greenland, Capricon Greenland Explora- subsoil for storage or purposes relating to mineral resource activi- tion (Cairn Energy) (six licences) and PA Resources. Other partici- ties. The act shall also ensure an appropriate regulation of matters pants in these licences are Chevron and Nunaoil. Operators for the of importance to mineral resource activities and subsoil activities. prospecting licences are Geophysical Service, Norsk Hydro, Cam- The act further aims to ensure that activities under the act are per- bridge Arctic Shelf programme (two licences), Husky Oil Opera- formed properly as regards safety, health, the environment, resource tions, TGS-NOPEC Geophysical Company (three licences), Cairn exploitation and social sustainability as well as appropriately and in Energy, Greenland Resources Company (two licences), StatoilHydro accordance with acknowledged best international practices under (two licences), GX Technology (three licences), DONG Energy, PGS similar conditions. Offshore, Capricorn Greenland Exploration (two licences), EnCana The Greenland government and a single government authority, Corporation, Esso Exploration and Western Geco. Other partici- the Bureau of Minerals and Petroleum, are responsible for all main pants in these licences are BP, Chevron, Shell, JOGMEC, ExxonMo- legal and administrative matters concerning prospecting, explora- bile and Nunaoil. tion and exploitation of mineral resources, including hydrocarbon International oil companies from Europe, the United States, (oil and gas). This ‘one-stop-shop’ administration is user-friendly for Canada and Malaysia have thus been granted offshore oil and gas oil companies and supports an administration based on overall and licences in Greenland. These companies are interested in oil and gas integrated assessments, decisions and actions. exploration and exploitation in Greenland for a number of reasons, The Greenland government and its Bureau of Minerals and Petro- one of them probably being the assessments of the petroleum poten- leum have not published an official hydrocarbon or energy policy. tial in both West and East Greenland made by the US Geological Survey (USGS). For example, one assessment was issued in 2007 Regulation overview (Fact Sheet 2007-3077, August 2007) when the USGS completed an assessment of the potential for undiscovered, technically recoverable 4 Describe the key laws and regulations that make up the general legal oil and gas resources in the East Greenland Rift Basins Province. framework regulating oil activities? The USGS estimated the mean undiscovered, conventional petroleum The Greenland regulatory regime for oil activities, including in par- resources in that province to be approximately 31,400 Mboe (million ticular the Mineral Resources Act, covers the Greenland land, ter- barrels of oil equivalent) of oil, gas and natural gas liquids. ritorial sea and continental shelf areas. The main statutory rules regarding prospecting, exploration 2 What percentage of your country’s energy needs is covered, directly and exploitation (production) of oil are laid down in the Mineral or indirectly, by oil as opposed to gas, electricity, nuclear or non- Resources Act. Its part 4 (section 15) contains general rules on pros- conventional sources? What percentage of the petroleum product pecting regarding oil, gas and minerals. Part 5 (sections 16 to 21) needs of your country is supplied with domestic production? What are contains general rules on exploration and exploitation (production) of your country’s energy demand and supply trends, especially as they oil, gas and minerals. Part 6 of the act contains special rules on explo- affect crude oil usage? ration and exploitation (production) of hydrocarbon (oil and gas). The Mineral Resources Act contains rules on the granting, terms In 2008, Greenland consumed 10,073 terajoules (TJ) of energy, and effects of licences for prospecting, exploration and exploitation, which was a 4.6 per cent increase from 2007. In 2007, nine per on activities under such licences and on approval and supervision of cent of the consumed energy was domestically produced sustainable such activities. The act also sets out requirements in order to ensure energy, mainly from hydropower and waste incineration plants. The that activities under licences are performed properly as regards safety, production of renewable energy slightly decreased in 2008 as a new health, the environment, resource exploitation and social sustain- turbine was installed on the Buksefjord hydro power plant. A fourth ability as well as appropriately and in accordance with acknowl- hydro power plant is under construction in Sisimiut. edged best international practices for such activities under similar From 2007 to 2008, the consumption of petroleum-based fuels conditions. The main overall purpose of the act is to support and (petrol (gasoline), diesel and other fuel oils) increased by 5.6 per ensure proper and effective exploration and exploitation of mineral cent from 7,215TJ to 7,619TJ – equivalent to an increase from 201 resources, including oil and gas, and use of the subsoil for storage million litres to 212 million litres. This means that 74.4 per cent of or purposes relating to mineral resource activities. The act shall also Greenland’s energy requirements were covered by petroleum-based support and ensure an appropriate regulation of matters of impor- fuels. tance to mineral resource activities and subsoil activities. All petroleum-based fuels used in Greenland are at present sup- Under the provisions of the act, the Greenland government has plied by foreign sources. issued government order No. 24 of 30 December 2003 on reimbursement of expenses in connection with administration con- 3 Does your country have an overarching policy regarding oil-related cerning mineral resource activities (‘reimbursement order’). The activities or a general energy policy? order applies when it is provided in a licence that the licensee shall reimburse expenses in connection with administration, including The Greenland government and its Bureau of Minerals and Petro- supervision, concerning mineral resource activities under the licence. leum apply some general policy principles for activities concerning The reimbursement requirements cover such expenses of the Green- hydrocarbon (oil and gas) and mineral resources. The main objec- land government and the Bureau of Minerals and Petroleum, includ- tives of the policy are to establish and maintain an attractive envi- ing expenses in connection with use of external advisers and service ronment for prospecting, exploration and exploitation activities providers (irrespective of whether they are employed in another concerning hydrocarbon and other mineral resources in Greenland.

64 Getting the Deal Through – Oil Regulation 2010 Bech-Bruun greenland governmental agency or public institution or are professional (pri- The Bureau of Minerals and Petroleum approves activities under vate) advisers or service providers). prospecting, exploration and exploitation licences (to the extent Other main parts of the regulation concerning prospecting, approval is required), licensees’ provision of security for performance exploration and exploitation (production) of oil are set out in the of their obligations, and plans for exploration, drilling, exploitation Greenland government’s licence terms (which are issued pursuant to (production) and decommissioning. In cooperation with the Green- the Mineral Resources Act): land minister of mineral resources, the Bureau of Minerals and Petro- • standard terms for prospecting licences – hydrocarbons (March leum also approves appointments of operators and environmental 2009); impact assessment reports. Furthermore, the Bureau of Minerals and • model licence for exploration and exploitation of hydrocarbons Petroleum supervises and inspects activities under licences and other – open door areas in Greenland (January 2010); activities covered by the Mineral Resources Act. • model licence for exploration and exploitation of hydrocarbons in an offshore area in North West Greenland – the Baffin 6 How does your country manage appeals of government regulatory Bay Licensing Round (October 2009, licensing round is held in decisions? 2010); and • model licence for exploration and exploitation of hydrocarbons Administrative and regulatory decisions of the Bureau of Minerals in an offshore area in North East Greenland – the Greenland Sea and Petroleum may be appealed to the Greenland minister of mineral Licensing Round 2012-13 (October 2009, licensing round will resources. be held in 2012 to 2013). Administrative and regulatory decisions of the minister of mineral resources cannot be appealed to any other public authority. Companies that are co-licensees – members of a licence group – must Decisions of the Bureau of Minerals and Petroleum and the min- make and use a joint operating agreement (JOA) which is subject to ister may be brought before Greenland courts which may revoke or approval of the Bureau of Minerals and Petroleum. The Greenland amend such decisions. government has issued a model joint operation agreement which generally must be used with only minor amendments. The standard terms for prospecting licences, the model explora- 7 What standards are employed for oil measurement and oil facility tion and exploitation licences and the model JOA are all available at equipment? Are these voluntary or involuntary? Are they established the website of the Bureau of Minerals and Petroleum: www.bmp.gl. by a government body? Prospecting, exploration and exploitation of hydrocarbon (oil Standards for measurements of oil exploited (produced) in Greenland and gas) in Greenland may only be carried out under licences granted may be laid down by the Greenland government under the Mineral by the Greenland government. This follows from sections 2, 15, 16 Resources Act and are to some extent set out in the model explora- and 22 of the Mineral Resources Act. tion and exploitation licences and their appendices with accounting Prospecting, exploration and exploitation licences are gener- principles. These standards may not be disregarded or departed from ally granted as hydrocarbon licences which cover both oil and gas. by contract. Prospecting licences are non-exclusive. Exploration and exploitation Oil facility equipment used in connection with exploitation (pro- licences are exclusive. duction) or connected storage or transport of oil must be in accord- The general selection criteria for granting exploration and ance with the Mineral Resources Act and rules laid down by the exploitation licences are the company’s technical capability and expe- Greenland government under the act. The act provides that a licensee rience; financial capability; and intended exploration and exploita- must carry out activities under the licence properly as regards safety, tion activities (including its environmental protection practice and health, the environment, resource exploitation and social sustainabil- procedures). ity as well as appropriately and in accordance with acknowledged Pursuant to the Mineral Resources Act and the various licence best international practices for such activities under similar condi- terms, licensees must pay certain fees. As mentioned below in questions. These general requirements also apply to oil facility equipment. tion 12, licensees under exploitation licences must also pay a ‘surplus More specific requirements are set out in the model licences and royalty’ to the Greenland government. And Nunaoil A/S, owned by joint operating agreements. These requirements may generally not the Greenland government, is a mandatory participant in any hydro- be disregarded or excluded by agreement. carbon exploration and exploitation licence – with a participating interest between 8 per cent and 12.5 per cent and a ‘carried’ interest during the exploration period. 8 What government body maintains oil production, export and import statistics? The Bureau of Minerals and Petroleum is responsible for compiling 5 Identify and describe the government regulatory and oversight bodies and keeping information provided by licensees in connection with principally responsible for regulating oil activities. prospecting, exploration, exploitation (production) and subsequent The Greenland government is generally responsible for all legal export of mineral resources, including oil. and administrative matters concerning prospecting, exploration In connection with this, the Bureau of Minerals and Petroleum will and exploitation (production) of oil, storage of exploited oil and also make and keep statistics regarding oil production and export. establishment and operation of oil pipelines for transportation of Greenland Statistics maintains statistics on oil import and energy oil in connection with the said other activities governed by the Min- consumption. Greenland Statistics is an independent institution eral Resources Act. All these activities are governed by the Mineral under the Greenland finance minister. Resources Act. Prospecting, exploration and exploitation licences may only be Natural resources granted, amended and revoked by the Greenland government which also must approve any direct or indirect transfer of a licence or a 9 Who holds title over oil reservoirs? To what extent are mineral rights share of (participating interest in) a licence. on private and public lands involved? Is there a legal distinction Administration of the Mineral Resources Act and all activities between surface rights and subsurface mineral rights? under it is generally carried out by the Bureau of Minerals and Petro- As part of its self-government, established by the Danish Act No. 473 leum under the Greenland government. of 12 June 2009 on Greenland Self-Government, Greenland owns www.gettingthedealthrough.com 65 greenland Bech-Bruun and has the right of disposal of all mineral resources, including oil 13 What is the customary duration of oil leases, concessions or and gas, within its land, territorial sea and continental shelf areas. licences? Under the Mineral Resources Act, prospecting, exploration and Prospecting licences are granted for periods of up to five years at a exploitation (production) of all mineral resources, including oil and time. gas, in Greenland may only be carried out under licences granted by Licence periods for exploration licences are generally 10 years, the Greenland government. but may be up to 16 years if justified by special circumstances. An An exploitation licence only allows the licensee to exploit and exploration licence period may be extended by periods of up to three sell or use the covered mineral resources, for example oil and gas. years at a time with a purpose of further exploration. The licence does not grant any kind of ownership or other similar An exploration licence will be extended as an exploitation (pro- legal title over the covered mineral resources (until exploited) or the duction) licence with a purpose of exploitation if the licensee has covered licence area. complied with the terms of the exploration licence, including the There is no legal distinction between surface mineral rights and requirement to demonstrate a commercially exploitable deposit subsurface mineral rights under the Mineral Resources Act. which the licensee intends to exploit. The licence periods for exploitation licences are generally 30 years, but may be extended up to 50 10 What is the general character of oil exploration and production activity years if justified by special circumstances. conducted in your country? Are areas off-limits to exploration and production? 14 For offshore production, how far seaward does the regulatory regime Oil activities, including prospecting, exploration and exploitation extend? (production) may be conducted both onshore and offshore. Cur- The Greenland regulatory regime for oil and gas exploitation (pro- rently there are only oil activities offshore. duction) activities, including in particular the Mineral Resources Onshore oil activities will naturally be more difficult in those Act, covers the Greenland land, territorial sea and continental shelf major parts of Greenland which are covered by the Greenland ice areas. sheet. The ice sheet covers 1.8 million square kilometres of the total land area of 2.2 million square kilometres. Some minor areas in Greenland are off-limits for oil activities due 15 Who may perform exploration and production activities? What criteria to environmental or military purposes. and procedures apply in selecting such entities? Any Greenland or foreign person or company may perform oil pros- 11 What government body regulates oil exploration and production in your pecting or exploration activities under a prospecting licence or an country? What is the character of that regulation? exploration licence, respectively, if the requirements for licensees and operators under such licences are met. As mentioned above in question 9, prospecting, exploration and Under section 16(3) of the Mineral Resources Act, an exploita- exploitation of oil may only be carried out under licences granted by tion (production) licence may only be granted to a public limited the Greenland government. company which only carries out activities under licences granted pur- The responsible government authorities and the general regula- suant to the act. The company must, as a main rule, be domiciled in tion of licences are described above in questions 4 and 5, and below Greenland. The company must have the necessary (adequate) techni- in questions 12 to 17. cal capability and experience and financial capability. The general selection criteria for granting exploration and 12 If royalties are paid, what are the royalty rates? Are they fixed? Do exploitation licences are the company’s technical capability and expe- they differ between onshore and offshore production? rience; financial capability; and intended exploration and exploitation activities (including its environmental protection practice and Pursuant to the Mineral Resources Act, licences for exploitation procedures). (production) of oil and gas may contain provisions on payment of a ‘surplus royalty’. This is a payment to the Greenland government of an amount equal to a specific share of the licensee’s profit from the 16 What is the legal regime for joint ventures? activities under the licence. Companies which are co-licensees – members of a licence group Under the Mineral Resources Act and the terms of exploitation – must enter into a JOA which is subject to approval of the Bureau licences, licensees must pay certain fees and a surplus royalty to the of Minerals and Petroleum. The Greenland government has issued a Greenland government. Comprehensive provisions on calculation model joint operation agreement which generally must be used with and payment of the surplus royalty are set out in the licences and only minor amendments. their appendices containing accounting principles. Nunaoil A/S – a Greenland public limited company owned by the Greenland government – is a mandatory participant in any hydro- 17 How does reservoir unitisation apply to domestic and cross-border carbon exploration and exploitation licence. Nunaoil’s share of a reservoirs? licence is set out in the licence and varies between 8 per cent and If a hydrocarbon deposit covers areas covered by several licences, the 12.5 per cent. The participating interest of Nunaoil in an explora- licensees must coordinate their exploration and exploitation activi- tion licence is ‘carried’. This means that Nunaoil’s share of costs, ties and make an agreement on this coordination and connected mat- expenses, obligations and liabilities under the licence is borne solely ters. The agreement is subject to approval of the Bureau of Minerals by the other participants in the licence. If an exploration licence is and Petroleum. If no agreement on a coordination agreement can be extended as an exploitation licence, Nunaoil’s participating interest reached within a reasonable time, the Greenland government may is no longer ‘carried’. stipulate the terms of such coordination. There is generally no difference between onshore and offshore If a hydrocarbon deposit covers areas situated in Greenland exploitation of oil and gas as regards fees, surplus royalties and the and another state, the Greenland government may, if an agreement mandatory participation of Nunaoil with carried interest during the is made with such other state on coordination of exploration and exploration period. exploitation, order the licensee for the Greenland part of the deposit to participate in such agreement and stipulate the terms thereof.

66 Getting the Deal Through – Oil Regulation 2010 Bech-Bruun greenland

Where resource, economic or social considerations mean (justify) activity subject to the act. In practice, this may for instance be the that two or more hydrocarbon deposits should be exploited together, operator. If the said party is a party other than the licensee under the Greenland government may issue an order to this effect following a licence relating to the activity, the licensee is also responsible for negotiations with the licensees. Under such order, a licensee may be the activity. The two parties are then jointly (jointly and severally) ordered, against payment, to make processing and transport facilities liable and responsible and also the so-called ‘responsible party’ or available for such coordination. In the event of lack of agreement ‘party responsible’ under the rules on environmental liability and between the licensees on payment, the Greenland government deter- responsibility. mines the amount of such payment. Pursuant to the act, the party responsible for an imminent danger of environmental damage must immediately initiate necessary pre- Transportation ventive measures which can avert the imminent danger of environmental damage and notify the Greenland government of the danger 18 How is transportation of crude oil and crude oil products regulated and the measures taken. The party responsible for environmental within the country and across national boundaries? Do different damage must immediately initiate any practically feasible measures government bodies and authorities regulate pipeline, marine vessel that can limit the scope of the damage and prevent any further dam- and tanker truck transportation? age, and notify the Greenland government of the damage and the Pursuant to the Mineral Resources Act, all main activities under measures taken. The Greenland government supervises the perform- hydrocarbon (oil and gas) exploration and exploitation licences ance of these obligations and may issue enforcement notices concern- require approval from the Greenland government. ing the performance of the obligations and the adoption of measures Approval is therefore also required for the establishment and in relation thereto. operation of any installations, including transportation pipelines, in The Mineral Resources Act provides that the party responsible connection with oil and gas activities under a licence. for pollution or other environmental damage in connection with an Establishment and operation of offshore pipelines, which are not activity under the act must compensate damage and loss caused by used in connection with licence activities, require approval of the the pollution or environmental damage even if the damage or loss is Greenland government under the Continental Shelf Act. accidental (with a few minor and restricted exceptions). Pursuant to The Maritime Act applies to transportation of crude oil by ves- licences and to terms of governmental approvals of activity plans, the sel. Activities covered by the act may be supervised by the Danish licensee’s liability and responsibility for pollution and other environ- Maritime Authority and local authorities in Greenland. mental damage and loss must be covered by insurance with sufficient Road transportation and traffic in Greenland are regulated by and adequate cover. the Greenland Road Traffic Act. There is generally no road transportation or rail transporta- 21 What health, safety and environmental requirements apply to oil and tion between towns in Greenland due to its geography and climate oil product composition? What government body is responsible for this (including the Greenland ice sheet covering most parts of Greenland). regulation; what enforcement authority does it wield? Is certification Towns and settlements are generally situated in the vicinity of the sea or other approval required? What kind of record-keeping is required? or fiords, and most oil and oil products are transported by ship. What are the penalties for non-compliance? The Mineral Resources Act sets out requirements in order to ensure 19 What are the requisites for obtaining a permit or licence for that activities under licences are carried out properly as regards safety, transporting crude oil and crude oil products? health, the environment, resource exploitation and social sustainabil- There are no requirements for obtaining a permit or licence for trans- ity as well as appropriately and in accordance with acknowledged porting crude oil and crude oil products. best international practices for such activities under similar conditions. These general requirements also apply to oil and oil products Health, safety and environment produced in connection with activities under the act. At present there is no specific regulation regarding health, safety and environmental 20 What health, safety and environment requirements apply to oil-related requirements applicable to oil and oil product composition, but such facility operations? What government body is responsible for this regulation may well be established in the future. The responsible regulation; what enforcement authority does it wield? Are permits or authorities are the Bureau of Minerals and Petroleum and the Green- other approvals required? What kind of record-keeping is required? land government. What are the penalties for non-compliance? Other general requirements for oil and oil products are set out in general environmental and health protection acts. The Mineral Resources Act sets out requirements in order to ensure that activities under licences are carried out properly as regards Labour safety, health, the environment, resource exploitation and social sustainability as well as appropriately and in accordance with acknowl- 22 What government standards apply to oil industry labour? How is edged best international practices for such activities under similar foreign labour regulated? Are there anti-discrimination requirements? conditions. What are the penalties for non-compliance? Environmental impact assessments must be made and reports on such assessments must be submitted to and approved by the The ordinary government labour standards are generally also appli- Greenland government before licences are granted and major activi- cable to oil industry labour. ties under licences are commenced. Health, safety and environment The general working environment rules in the Mineral Resources plans must be made and implemented by the licensee and approved Act apply to oil and gas activities. It is uncertain whether the Working by the Bureau of Minerals and Petroleum. Environment Act also applies to oil and gas activities, both onshore Non-compliance with health, safety or environment protection and offshore. The act regulates issues such as working periods, rest rules or provisions may be sanctioned with fines, etc, under the periods and personal protection equipment. It also sets out general requirements concerning the working environment, such as require- Greenland Criminal Act. ments regarding noise reduction, health service and emergency medi- Under the rules on environmental liability and responsibility in cal response. the Mineral Resources Act, the responsible party means the party Under the Mineral Resources Act, it may be stated in a hydro- performing, being in charge of or supervising the performance of an carbon licence to what extent manpower from Greenland shall be www.gettingthedealthrough.com 67 greenland Bech-Bruun

Update and trends

The Danish Act No. 473 of 12 June 2009 on Greenland Self- December 2009 on Mineral Resources and Activities of Importance Government entered into force on 21 June 2009. Greenland has thereto. The main provisions on oil and gas licences in the present extensive self- government under the act, which for most areas of Greenland Mineral Resources Act are based on and correspond to the government either transferred or provides for the transfer of the provisions on such licences in the former Danish Mineral Resources legislative power from the Danish parliament to the Greenland Act. All prospecting, exploration and exploitation licences granted parliament (‘Inatsisartut’) and the administrative (executive) under the former Danish act are still effective but are now governed by power from the Danish government to the Greenland government the present Greenland act. (‘Naalakkersuisut’). As part of its self-government, Greenland owns In October 2009, the Greenland government issued an invitation and has the right of disposal of all mineral resources, including oil and to apply for licences for exploration and exploitation of oil and gas gas, in its land, territorial sea and continental shelf areas. in the Baffin Bay Licensing Round 2010. It covers offshore areas of Pursuant to the act, the Greenland parliament has decided that 151,358 square kilometres in West Greenland. The areas are three all legislative and administrative powers in the mineral resources times the area of Denmark proper. By the application deadline on 1 area, including oil and gas, shall be transferred from the Danish state May 2010, the Bureau of Minerals and Petroleum had received 17 to the self-government authorities. The transfer became effective on 1 applications from 12 international oil companies, including some of January 2010. the world’s major oil companies. In connection with the transfer of powers, the former Danish Act In the summer of 2010, a licence group comprising Capricon on Mineral Resources in Greenland – which regulated prospecting, Greenland Exploration (Cairn Energy), Petronas and Nunaoil will drill exploration and exploitation of oil, gas and minerals – was repealed two and maybe even four exploratory wells in a licence area in the and replaced by the present Greenland Parliament Act No. 7 of 7 Disco West area.

employed, when personnel is hired. This is in accordance with a Competition, trade and merger control general Greenland Act on Employment, which gives preference to manpower from Greenland. 25 What government bodies have the authority to prevent or punish anti- The Mineral Resources Act also states that to the extent nec- competitive practices in connection with the extraction, transportation, essary, the licensee may employ personnel from other countries, if refining or marketing of crude oil or crude oil products? manpower with corresponding qualifications does not exist or is not Competition, market practice and merger control are generally gov- available in Greenland. erned by the Greenland Parliament Act No. 16 of 19 November Hydrocarbon licences generally contain the said statements on 2007 on Competition and executive orders issued under the act. employment of Greenland manpower. Pursuant to the act, the Greenland Competition Council admin- Foreign employees must obtain a work permit in order to work isters the Competition Act and rules. The Competition Authority in Greenland. The permit is granted on a case-by-case basis. Further- takes care of the daily administration and also acts as a secretariat more, the employer must have a permit from local authorities to hire to the Competition Council. foreign manpower. The Competition Council reviews and prosecutes anti-competitive Only citizens of Denmark, Finland, Iceland, Norway and Swe- and abusive practices on all markets. This includes cases concerning den are not required to obtain a work permit. agreements which restrict competition, abuse of dominant position, state aid and equal treatment of state and public undertakings. Taxation In practice, the Competition Authority assumes many of these responsibilities on behalf of the Competition Council, which only 23 What is the tax regime applicable to oil exploration, production, handles cases concerning principal matters or cases of particular transportation, and marketing and distribution activities? What importance. government body wields tax authority? The Competition Act does not contain any regulation of merger At present there is no specific hydrocarbon (oil and gas) taxation clearance. The merging parties must inform the Competition Authority regulation in Greenland. However, fees and other taxes are payable when a merger has taken place. The notification may not be used by the to the Greenland authorities in accordance with other legislation. Competition Council to render a decision in relation to the merger. The Greenland Tax Act governs both personal and corporate Decisions made by the Competition Council or the Competition taxation. The general corporate income tax rate is 30 per cent. The Authority may be brought before the Greenland courts. Greenland Tax Authority is responsible for collecting taxes and fees, except those governed by the Mineral Resources Act. 26 What is the process for procuring a government determination that a As mentioned above in question 12, licensees under exploitation proposed action does not violate any anti-competitive standards? How licences must pay certain fees and surplus royalties to the Greenland long does the process generally take? government. In addition, the government-owned Nunaoil is a mandatory participant in any licensee group of oil companies and has a Section 6 of the competition act provides that undertakings must not ‘carried interest’ during the exploration period. make agreements which restrict competition and that such agreement for example may be agreements which: Commodity price controls • set buying or selling prices or other business terms; • limit or control production, sale, technical development or 24 Is there a mandatory price-setting regime for crude oil or crude oil investment; products? If so, what are the requirements and penalties for non- • divide markets or sources of supply; compliance? • use different terms for goods or services of the same value in relation to business partners which are thereby put in an inferior There is no statutory price-setting regime for crude oil or crude oil competitive position; products in Greenland. • set as a condition for making an agreement the acceptance of However, price-setting agreements must not be in violation of the delivery of additional goods or services which, based on their general competition regulation in Greenland. nature or commercial practice, have no connection with the object of the agreement;

68 Getting the Deal Through – Oil Regulation 2010 Bech-Bruun greenland

• coordinate the competitive activities of several parties by making International a joint venture; or • set binding resale prices or in any other manner seek to prevent 27 To what extent is regulatory policy or activity affected by international that business partners deviate from guide prices. treaties or other multinational agreements? Regulatory policy and activity are generally not affected significantly Sections 7 to 10 contain various exceptions to the main rules in sec- by international treaties or other multinational agreements. tion 6. Greenland is not a member of the European Union, and EU rules The Greenland Competition Council may exempt agreements generally do not apply to Greenland. which otherwise would be considered anti-competitive. The parties Denmark is a member of the Wold Trade Organization and its to an agreement that wish to procure a governmental approval for rules apply to Greenland. such an agreement must notify the Competition Council. Notification is made by submitting an application to the Competition Authority. In order for an agreement to be exempted, the agreement must 28 Are there special requirements or limitations on the acquisition of oil- contribute to strengthening the efficiency in production or distribu- related interests by foreign companies or individuals? tion of goods or services or promote technical or economic develop- There are generally no special requirements or limitations on the ment. In addition, consumers must be allowed a fair share of the acquisition of oil-related interests by foreign companies or individu- resulting benefit. An agreement must not contain indispensable als. However, a licensee under an exploitation licence must, as a main restrictions. Finally, the agreement must not afford the parties the rule, be a public limited company domiciled in Greenland. possibility of substantially eliminating competition. A notification has effect from the time when the Competition Authority receives a complete application. Any anti-competitive activ- 29 Do special rules apply to cross-border sales or deliveries of crude oil ities which take place after the Competition Authority has been noti- or crude oil products? fied and which is governed by the notified agreement will be exempted There are no specific rules which apply to cross-border sales or deliv- while the Competition Council is considering the notification. eries of crude oil or crude oil products. The terms and conditions Section 11 of the Competition Act states that one or several for such sales and deliveries are generally subject to the terms of the undertakings must not abuse a dominant position in a market and agreement between the parties and Greenland general contract law. provides some examples of such abuse.

Bech-Bruun

Per Hemmer [email protected] Per Vestergaard Pedersen [email protected] Johan Weihe [email protected] Rania Kassis [email protected]

Langelinie Allé 35 Tel: +45 72 27 00 00 2100 Copenhagen Fax: +45 72 27 00 27 Denmark [email protected] www.bechbruun.com

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