The Norwegian licensing system consists of two equally important types of licensing rounds: numbered licensing rounds for the least explored parts of the shelf (frontier areas), and awards in predefined areas (APA) for mature parts. This ensures that all parts of the Norwegian continental shelf can be adequately explored. All areas that are open and therefore available for petroleum activities may be announced in numbered licensing rounds or through the system of awards in predefined areas (APA).
Numbered licensing rounds
The numbered licensing rounds are used for frontier areas, in other words areas where there is limited knowledge of the geology and a lack of infrastructure, and where there may be greater technical challenges than in mature areas. There is more uncertainty about whether petroleum deposits will be found in such areas, but at the same time there is greater potential for making large discoveries. Exploration should be carried out step by step to prevent unnecessary drilling of dry exploration wells.
Numbered licensing rounds have been held since 1965, and in recent years they have normally been announced every other year. The round is opened by inviting oil companies to nominate blocks. On the basis of the authorities’ assessments of the nominations, a proposed announcement is submitted for public consultation. The advantages of step-by-step exploration are also taken into account in the proposal. Finally the Ministry of Petroleum and Energy announces the round.
Awards in predefined areas (APA)
The system of awards in predefined areas (APA) was introduced in 2003 for mature areas of the continental shelf. In these areas the geology is well known, the technical challenges are generally fewer and less difficult to deal with, and there is well developed or planned infrastructure. In mature areas, rapid exploration conducted at the right time is far more important than step-by-step exploration.
In the APA system, all mature acreage on the shelf is designated as predefined exploration areas, and companies can apply for licences for all acreage not already covered by licences. As new areas mature, the APA areas are expanded, but no acreage is withdrawn. Proposals for expanding APA acreage are submitted to public consultation. Licensing rounds in mature areas follow a fixed annual cycle, and so far, 15 rounds have been initiated (APA 2003–2017). There is no nomination step in APA rounds.
The APA system was introduced to ensure that profitable resources in mature areas are proven and recovered before existing infrastructure is shut down.
Award of licences
Companies may apply for a licence individually or as a group. Companies intending to submit a group application conclude a cooperation agreement that remains in force up to the time of application.
The Ministry of Petroleum and Energy awards production licences to the companies or groups that submit the strongest applications on the basis of fair, objective and non-discriminatory criteria that are announced in advance. The Ministry also designates an operator for each joint venture to be responsible for operational activities authorised by the licence.
A production licence is valid for an initial period of up to 10 years, which is reserved for exploration activity.
Petroleum activities on the Norwegian continental shelf started in the North Sea and have gradually expanded northwards, following the principle of step-by-step exploration. Almost the whole of the North Sea is now considered to be mature. The same applies to the Halten Bank, northwards towards the Nordland Ridge, the areas around Ormen Lange and Aasta Hansteen in the Norwegian Sea, and Snøhvit and Goliat in the Barents Sea.
In mature areas, the geology is well known and there is well developed or planned infrastructure. New discoveries are likely to be made but they will probably not be large. However, there are exceptions, such as the major Johan Sverdrup oil field discovered in the North Sea.
It is important to prove and recover resources in mature areas before existing infrastructure is phased out or shut down. If this is not done, new discoveries may be too small to justify the building of separate infrastructure, and resources that could have been profitable may remain unrecovered.
Additional resources in the area surrounding a planned or producing field may increase profitability, for example by extending the lifetime of the main fields so that more resources can be recovered.
The authorities have therefore adapted their licensing policy for the mature parts of the Norwegian shelf to encourage production of resources where timing is critical. The introduction of the APA system in 2003 was part of this strategy. Another measure was to open the shelf to companies that see commercial opportunities in these resources.
The map above shows the acreage announced in the APA 2016 round. The APA area is gradually expanded as new areas mature, but no acreage is withdrawn. APA licensing rounds are held every year.
The authorities consider it important that companies work their licences actively. A production licence therefore includes a mandatory work programme, and a licence only covers the area that the licensees have specific plans to explore.
If a group of licensees no longer wishes to explore the area for which it has a production licence, the area must either be transferred to companies that are willing to continue with the work programme, or be relinquished. Other companies that see different possibilities in the geology may then continue to work the licence or apply for a licence for the relinquished acreage. This leads to circulation of acreage and more efficient exploration of mature areas.
The parts of the Norwegian shelf that are currently designated as frontier areas include large parts of the Barents Sea, the deep-water areas of the Norwegian Sea and some small areas of the North Sea.
In frontier areas, there is limited knowledge of the geology, the technical challenges may be greater than in mature areas, and there is a lack of infrastructure. This means that operators wishing to explore frontier areas require broad experience and technical and geological expertise and the necessary financial capacity to explore such areas.
The rules on relinquishment of acreage in frontier areas were altered in the 18th licensing round in 2004 to make them identical to those that apply in mature areas. Exploring for resources in frontier areas is a time-consuming process.
The general rule is that companies must relinquish areas where no discoveries have been proven through drilling at the end of this period. The rules for determining the area to be covered by a production licence and for mandatory work programmes were also changed to harmonise them with the rules for mature areas.
The 23rd licensing round was announced in January 2015, and offered 57 blocks or part blocks: 54 blocks in the Barents Sea, 34 of which are situated in the southeastern part in the previously disputed area west of the delimitation line between Norway and Russia, and three in the Norwegian Sea. The round included completely new acreage for exploration on the Norwegian shelf for the first time for over 20 years. In May 2016, the Norwegian Ministry of Petroleum and Energy issued an offer of new production licences after the assessment of applications from 26 companies. All ten production licences are located in the Barents Sea.
The system of area fees provides an incentive for companies to move from discoveries to development and production in the areas for which they have been awarded licences. The Petroleum Act (section 4-10, first paragraph) provides the legal authority for area fees, which are payable each year per square kilometre of the area covered by a production licence.
No area fee is payable for areas that are being actively explored or where there is production. This means that companies do not pay an area fee during the initial period, while they are following the mandatory work programme. Companies can also apply for exemption from the area fee if they submit a plan for development and operation (PDO) or if extra exploration wells are drilled in addition to those required under the work programme. It is also possible to apply for exemption if there is a lack of infrastructure in an area or if there is substantial ongoing work within the licence. The current rates for area fees are NOK 34 000 per km2 for the first year, NOK 68 000 per km2 for the second year and NOK 137 000 per km2 each year thereafter.
There are still large areas of the Norwegian continental shelf that have not been opened for oil and gas activities by the Storting. These include the whole Barents Sea North, the northeastern part of the Norwegian Sea (Troms II, Nordland VII and parts of Nordland IV, V and VI), the Skagerrak and the area around Jan Mayen.
Before licensing rounds can be held for these areas, the Storting has to make an official decision to open them. Such decisions are based on a combination of impact assessments and resource mapping. An impact assessment includes an evaluation of the possible economic, social and environmental impacts of the activities. Resource mapping involves surveying the geology of the area to identify its resource potential.
More than NOK 4 000 billion at the current monetary value has been invested in the Norwegian continental shelf. The infrastructure financed by these investments is used to produce and transport oil and gas and makes it possible to produce further resources cost effectively.
Declining production from a field releases infrastructure capacity, which can be used by tying in new resources to the same infrastructure. In some cases, new smaller deposits can only be profitably developed and produced by using existing infrastructure.
Discoveries and the subsequent development of resources close to existing infrastructure can result in substantial value creation for Norwegian society. The authorities encourage cooperation between companies, and there are a number of effective area forums on various parts of the Norwegian shelf.
In order to promote the effective use of existing infrastructure, including platforms and pipelines, the Ministry of Petroleum and Energy adopted regulations relating to the use of facilities by others (the Third-party Access Regulations), which entered into force in 2006.
The objective of the regulations is to promote the efficient use of facilities and thereby provide incentives for licensees to conduct exploration and production activities close to existing infrastructure. To this end, they set out a framework for negotiations and for tariffs and conditions in agreements on the use of facilities by others. The regulations do not alter the principle that negotiating good solutions is the task of the commercial actors themselves.