An increased number of corporate transactions and mergers have been observed in the oil and gas sector on the Norwegian Continental Shelf (NCS) in recent years. Several oil majors and traditional utilities and downstream companies have reduced their presence and, to some extent, been replaced by smaller companies, including start-ups backed by private equity. Broad portfolio sales and swaps of NCS licences, as well as transfers of licences as part of international deals, have also become increasingly common. These changes in trends are highly relevant for the Norwegian government, which aims to maintain a high level of activity on the NCS and thus must keep attracting and retaining strong and competent industrial players. The key ways in which the government maintains the high performance standards of petroleum activity on the NCS are by selectively awarding petroleum rights and controlling petroleum licence transfers.

This update looks at the applicable law and the government's practice regarding the approval of petroleum rights transfers, as well as the latest regulatory amendments and initiatives.

Approval of petroleum licence transfers

Approval requirement Under Section 10-12(1) of the Petroleum Act (Act 72/1996), the transfer of a petroleum licence (or a participating interest in such a licence)(2) cannot occur without the Ministry of Petroleum and Energy's approval. The approval requirement applies to all types of petroleum licence transfer – irrespective of the amount or type of consideration (including swaps) or the title, structure or type of agreement – as long as it results in a transfer of any participating interest in the licence. The approval requirement applies to all types of petroleum licence, but transfers of production licences are the most common.(3) Without the ministry's approval, a licence transfer is not legally effective (contractually or otherwise) and the intended transferee does not become a licensee.

The approval requirement also applies to transfers of an indirectly held interest or participation in a licence (eg, the transfer of ownership of a licensee company). This update focuses on the rules and approval practice relating to such transfers.

Approval threshold for indirect transfers of production licences Paragraph 1 of Section 10-12 of the Petroleum Act states that the approval requirement also applies to:

"other direct or indirect transfer of interest or participation in a petroleum licence, including, inter alia, assignment of shareholdings and other ownership shares which may provide decisive control of a licensee possessing a participating interest in a licence."

Such transfers of indirectly held or controlled petroleum rights are regularly referred to as 'indirect transfers'. The threshold for the ministry approval requirement in such transfers is thus whether the agreement in question results in the transferee obtaining "decisive control of a licensee". The rationale behind the provision is the government's objective of having full insight into and control over which parties are licensees and which parties control them.

Most NCS licensees are Norwegian private limited companies. For transfers involving such companies, the ministry applies the Public Limited Company Act to determine the levels of control. According to the act, an entity holding or controlling more than 50% of the shares or a shareholding representing a majority of voting rights in the company has what is referred to as 'positive control'. A transfer resulting in a change of positive control of the licensee will always constitute 'decisive control' pursuant to Section 10-12 of the Petroleum Act. However, the preparatory works to Section 10-12(4) and the ministry's May 19 1998 guidance letter determine that the term 'decisive control' will also include what is referred to as 'negative control'. Under the Public Limited Company Act, negative control of a private limited company is achieved by holding shares or controlling shareholdings representing more than one-third of the voting rights. If the licensee is not a private limited company, the ministry will consider the control thresholds based on the relevant governing rules applicable to such legal entity.

Indirect control of a petroleum licence may also be established through multiple companies in a group or corporation – for example, by ownership or control of:

  • a direct line of subsidiaries; or
  • related companies in a corporate structure.

Consequently, transfers of ownership interests in or control of a licensee's parent company or one or more companies controlling the licensee will frequently require ministry approval. Where a legal entity subject to a transfer is registered in a foreign jurisdiction, the assessment of whether such transfer will result in a change of control must be determined according to the applicable corporate law of said foreign jurisdiction.

The approval requirement is not limited to transfers of shareholder or ownership rights, but may also apply to transfers of individual rights in the licensee or controlling company in question (eg, special voting or veto rights). The approval requirement further applies to transfers resulting in a change to the level of control (eg, from negative to positive control). It will also apply to transfers with no immediate direct effect if circumstances show that the transfer is part of a strategy to achieve or increase the level of control of the licensee over time.

The ministry has traditionally been strict in applying the approval requirement in cases of indirect transfers to ensure complete transparency and control of which parties own and control the licences on the NCS. However, the ministry seldom commences a transfer approval procedure on its own initiative. As such, parties to a transfer agreement must consider the effect of the transfer and apply for necessary ministry approval pursuant to Section 10-12.

Approval assessment of indirect transfers of production licences Ministry's mandate The ministry has substantial administrative discretion with regard to approving transfers. In cases where the ministry has grounds to decline a transfer it may, at its discretion, approve the transfer subject to conditions. The requirement for approving a transfer is based on and closely related to the government's prerogative of awarding petroleum licences. The awarding of a petroleum licence is an administrative act (ie, a concession) by the government conferring an exclusive right to a specific legal person based on an individual assessment of qualifications and other specific factors. Thus, such awarded rights cannot be transferred to another party without the awarding party's approval. Further, the ministry's general objective of achieving efficient resource management of Norwegian petroleum resources is largely met through the selection of the right industry players. The assessment and decision of whether such objectives are achieved or influenced by an individual transfer is well within the ministry's mandate.

However, the ministry will always consider an application for the approval of a transfer based on the individual merits of the case and general administrative law principles (eg, predictability, transparency, accountability and reasonable treatment) apply to the procedure. The ministry's decision may be appealed to the Council of Ministers and ultimately, with some limitations, be subject to judicial review. Further, the assessment and decision must be reasonable, based on law and conducted in a non-discriminatory manner, as reflected in Section 3-5 of the Petroleum Act and Section 10 of the Petroleum Regulations.(5) Prior administrative practice sets out a system of precedents affecting future assessments with similar merits. Arguably, the ministry's strict practice regarding what constitutes reasons for approval is not reflected in its actual practice of approval. As far as is known, few indirect transfers have been denied over the years.

A fundamental characteristic of the Norwegian petroleum regulatory model is that production licences are almost always awarded to a group of licensees, which are compelled to form a joint venture governed by the standard mandatory petroleum agreement.(6) The petroleum agreement is prepared by the ministry and is not negotiated. The entering into of this agreement is a condition for the licence award and the agreement can be amended only with the ministry's approval. The key objective of awarding licences to groups of companies is to ensure that activity is conducted and decisions are made based on the sum of the participants' experience, capacity and competence. This is also reflected in the voting rules of the licence joint venture, which are stipulated by the authorities, and provides relatively strong protection for minority rights. The legal regime requires non-operating participants to take a more active role in decision making than in other petroleum provinces. This also has a bearing on the authorities' assessment of transfers, as transferees will normally be subject to more detailed scrutiny than is common for such transfers internationally.

Scope of ministry's assessment According to Section 72 of the Petroleum Regulations, the specific conditions for an award of petroleum rights(7) will apply mutatis mutandis in the assessment of a transferee. This interpretation guidance is even more important when assessing a transferee in case of indirect transfers. The provision indicates that an overall assessment must be made in such cases, including with regard to the resource management objectives described in Section 1-2 of the Petroleum Act.(8)

For indirect transfers, the ministry's assessment will comprise not only the licensee and the transferee, but also the corporation or group of which the licensee will become a part. The robustness of the organisation and technical competence of the licensee being transferred will also affect the extent of the assessment of the transferee and its group and the impact of the findings of such assessment.

A licensee is often controlled by a company holding a majority ownership position in the licensee through one or more subsidiaries. In awarding licences, and when considering approvals of transfers, the ministry may consider and assess all relevant companies in the corporation up to and including the ultimate parent company. However, minority owners of an ultimate parent and shareholders of a parent company listed on a stock exchange will not be individually assessed unless special circumstances warrant.(9) Where a licensed company is directly or indirectly owned or controlled by a group or investment agreement structure which is not a legal person, such as equity funds or a similar legal structure, the ministry will consider the licensee's ownership structure and financial means, but not assess the individual participant in the investment set-up.

Technical competence, experience and capacity Sections 10 and 11 of the Petroleum Regulations detail the main criteria for awarding production licences and approval of direct and indirect transfer of licences. Sections 10 and 11 were amended with effect from June 26 2017,(10) but the main assessment criteria reflected in Paragraph 1 of Section 10, which reads as follows, were not amended in substance:

"In the interest of furthering the best possible resource management, production licences are granted on the basis of the applicant's technical competence, financial capacity and the plan for exploration and production in the area for which a production licence is sought."

The competence, capacity and experience of the transferee and its group is of interest to the ministry when considering a transfer. It is considered normal and accepted that a licensee is subject to its parent company's decisions relating to matters of importance, such as exploration campaigns and development. Further, most licensees are subsidiaries dependent on their parent company's funding.

Although the authorities may accept that a licensee draws on the competence and experience of its corporate siblings, the licensee company must have the necessary delegated authority and available capacity in place with regard to all relevant functions to fulfil its obligations under the law and as party to the licence joint venture under the petroleum agreement.

The transferee and its group – together with the licensee – must, at a minimum, fulfil the requirement of the pre-qualification procedure for licensees. Additional requirements may apply where particular circumstances warrant it (eg, for the transfer of licensees which hold licences in particularly demanding areas, have large and complex work obligations or conduct complex or large developments or production activities). The ministry will evaluate:

  • the potential contribution of the transferee and the group to the relevant licences held by the transferor; and
  • whether the transferee (and its group) has sufficient technical capabilities to participate actively in such licences.

The assessment of the transferee group also depends substantially on the licensee's capacities.

With indirect transfers resulting in less than positive control of the licensee, the comprehensiveness of the assessment of the transferee will be adjusted accordingly. In such situations, the capability and capacity of the company holding positive control of the licensee will be highly relevant for the approval process.

Applicant's record When considering an award of licences, the ministry may, under Section 10 of the Petroleum Regulations, consider "any form of inadequate efficiency or inadequate responsibility that may have been demonstrated by the applicant as a licensee".

This provision also applies to approvals of indirect transfers of licences (Section 72 of the Petroleum Regulations). The provision focuses on the technical competence and experience requirement, but also includes relevant actions or omissions by the applicant (whether wilful or not). The ministry may decline an award or a transfer to a company which, for example, has insufficiently fulfilled its health and safety obligations in the past or shown other forms of inadequate responsibility. It is unclear whether the ministry may also consider an applicant or a transferee's record outside the NCS, given that the provision refers to such actions "as a licensee". Arguably, the generality of the wording and the rationale behind the provision indicate that relevant actions or inactions outside the NCS may be considered. Further, previous conduct of any part of the transferee's group or corporation relevant to the transfer approval decision may be considered in such an assessment.

Financial strength and security A licensee's financial strength is a key element in the ministry's assessment – for both the award of licences and the approval of transfers. When the licensee is a local subsidiary of a corporation or group, the financial strength of its parent company and the corporation or group form part of the assessment. If the ministry considers that the transfer may result in the licensee's reduced financial strength, it may decline to approve the transfer or approve it on the condition of additional security being provided by the licensee or its parent.

Pursuant to Section 10-7 of the Petroleum Act, the ministry may, as a condition for award and at a later date, "decide that the licensee shall provide such security as approved by the Ministry for fulfilment of the obligations, which the licensee has undertaken, as well as for possible liability in connection with the petroleum activities".

The ministry may choose any type of security instrument or requirement as long as it is relevant, proportional and adequate for the purpose. The ministry will regularly oblige any licensee that has a parent company to provide an unlimited parent company guarantee (PCG) from its ultimate parent company. Such PCG must conform to the standard mandatory PCG (the general PCG) prepared by the ministry in Norwegian.

The ministry's practice on what constitutes a 'parent company' for PCG purposes is based on the determination of which company holds positive control of the licensee if assessed according to Norwegian law. Thus, a company is regarded as a parent company if it holds or controls, directly or through subsidiaries:

  • a more than 50% participating interest; or
  • shareholdings representing a majority of the voting rights in the licensee.

If an approved transfer results in a change of control over the licensee, the existing general PCG will be returned to the former parent and the new ultimate parent company will be required to issue to the ministry a similar general PCG based on the standard model. If a transfer does not result in a change of positive control over the licensee in question, the existing parent company will be liable for 100% of the licensee's obligations under the existing general PCG. If the licensee has no parent company or a corporate transaction results in no one owner having positive control over the licensee, no mandatory general PCG will be required and previously issued PCGs will be returned.

Some licensees on the NCS are owned or controlled by private equity funds or similar financial investor structures not constituting a legal person. In such cases, the ministry has accepted that the holding company owned or controlled by such fund, directly or indirectly controlling the licensee company, issues the general PCG.

Where the ultimate parent company is a fully state-owned company, there might be constitutional limitations to the company's ability to present a guarantee. The ministry has in some such cases accepted that the general PCG is presented by a parent company at a lower level than the ultimate parent company.

In its assessment of indirect transfers, the ministry will consider whether and to what extent the transfer may result in a reduction or lapse of the PCG security. If an indirect transfer results in a security reduction, the ministry may:

  • decline the transfer; or
  • make the approval conditioned on establishing the necessary security in another form.

By law, the ministry has considerable discretionary power in individual cases with regard to determining what constitutes 'sufficient security'. The assessment must consider:

  • the licensee's obligations and liabilities;
  • the licensee's financial strength; and
  • the activity in which the licensee is involved.

Thus, any reduction in security does not necessarily allow the ministry to decline or impose conditions for an approval. Nonetheless, in most cases, the general and substantial obligations and potential liability relating to petroleum activities will give the government grounds to require substantial security. Decisions on this matter will always closely relate to the facts of each case, such as the nature, level and complexity of activities covered by the licences and future licence obligations. However, practice indicates that the ministry will generally require as much relevant security as is available for the transferee from its group or corporation (through parent guarantee), but only require additional third-party guarantees where special circumstances warrant it.

National security In the June 26 2017 amendment to the Petroleum Regulations, a new fourth paragraph relating to a national security interest was included in Section 10. The provision states that "the Ministry may refuse on grounds of national security to allow access to and exercise of petroleum activities if the applicant or licensee is controlled by a state outside the EEA or by nationals of such nation state" (unofficial translation).

A rule with similar content is included in Article 2.2 of the EU Licensing Directive (94/22/EC).(11) However, the directive's provisions were not introduced through a separate provision in the amended Petroleum Act 1985 as part of the European Economic Area (EEA) legislative implementation process. According to the preparatory works,(12) the rationale for introducing this provision at the later date was that most EEA members have implemented this rule through their national regulations.

National security is a core concern for any state and the relevance of national security is already included in Section 11 of the Petroleum Regulations with regard to decisions on licence awards or transfer approvals. The ministry also states that the new provision merely specifies an issue that might otherwise be included as a relevant component in the judicial assessment pursuant to the general principles set out in Section 3-5 of the Petroleum Act and the appurtenant Petroleum Regulations provisions. The question is therefore whether this provision entails anything new.

The wording of the new provision and the preparatory work does not clarify or provide guidance as to what type of national security reason may be considered or result in a refusal of transfer. Further, no available administrative practice concerns the provision. What constitutes 'national security' must be based on Norwegian law. Relevant national legislation other than petroleum law may be used to guide the interpretation and application of the term. EU law and practice relating to the EU Licensing Directive's provision may provide further guidance, as amendments to Norwegian law in this respect were intended to make Norwegian law EEA compliant. The wording "reasons of national security" indicates a high threshold before the provision may be invoked. Certainly, something more than what will follow from the general expression of 'national interests' is required. Thus, the assessment must be based on established national security objectives.

If the ministry refused an award or a transfer application on national security grounds, it would, under general administrative law, have to give grounds for its decision. At a minimum, the government would have to describe the nature of the national security interest or objectives and arguments for the relevant award or transfer involving a threat or risk of threat to such interests or objectives. That said, Norwegian law and the courts generally give the government wide administrative discretionary powers in individual cases and are unlikely to overrule its assessment of whether national security reasons exist and whether an award or transfer may be refused on such grounds.

The provision's wording indicates that the national security consideration may be different in cases where non-EEA states or nationals are involved. Even though it could be argued that national security issues may arise more frequently in individual cases where, for example, non-North Atlantic Treaty Organisation or non-Western companies or states are involved, it is difficult to see how and why this should apply in general. Further, Norway's obligations as a World Trade Organisation member and as party to several bilateral investment treaties may also limit the government's ability to apply the rule differently to non-EEA states or nationals.

Irrespective of how the new provision may be interpreted, its inclusion may indicate a heightening of the government's awareness of such challenges. This is underscored by:

  • the speed at which proposals move from inception to amendment; and
  • the ministry's decision that the amended provisions will also apply to applications for transfer approvals that were received, but not decided, before the amendments took effect.

Security requirement for secondary decommissioning liability In 2009 Section 5-3 of the Petroleum Act was amended to establish secondary liability for sellers of petroleum licences in relation to future decommissioning costs. This mandatory secondary liability covers the direct transfer of petroleum licences or a participating interest in such licences, but does not apply to the transfer of a company holding petroleum licences.

In a November 8 2016 letter to the Norwegian Oil and Gas Association, the ministry widened the scope of secondary liability for future decommissioning costs, stating that:

"The ministry will in its assessment of all future transfers of licensee companies with licence field(s) in operation on the NCS, consider stipulating conditions of secondary liability for the parent company for relevant cost of carrying out future decisions on decommissioning." (Advokatfirmaet Simonsen Vogt Wiig AS translation.)

The ministry has also developed a model parent company guarantee document to be issued by the transferor in a corporate transfer. The guarantee establishes a financial security for the licensee's future decommissioning obligations regarding facilities existing in the relevant production licences at the time of the transfer (for further details please see "Parent company guarantee requirement for future decommissioning cost in corporate transfers on NCS").


The government's general objective is achieving a high level of activity in all phases of petroleum activity on the NCS, while at the same time ensuring safe and efficient operations with a long-term perspective. To achieve this aim, the government, as resource owner, traditionally chose large, highly competent international oil companies. Most of these companies had a 'full-cycle' approach to the activity and a long-term perspective more similar to that of the state as resource owner. With a maturing province, and the subsequent exit of oil majors, the government has accepted other types of player on the NCS in order to maintain the activity level. Many of these new players lack the financial strength, technical competence and experience, project implementation capability and long-term activity and investment perspective which characterised the traditional players. Thus, in this new environment, the government must use regulatory and administrative means to a larger extent than before to ensure that the industry activity corresponds to its objectives as resource owner.

The ministry's latest initiative concerning the secondary liability for future decommissioning costs must be viewed from this perspective. This attempt to limit the risk of the substantial future decommissioning cost on the NCS falling out of cover is thus unsurprising. Further, the Petroleum Regulations amendments concerning non-EEA investors may be viewed as a signal of a more stringent practice relating to transfers of both negative and positive controlling interest in licensees on the NCS. The clarification of the regulations regarding the use of awarding requirements also in relation to the approval of transfers points in the same direction.

For further information on this topic please contact Frode Vareberg at Advokatfirmaet Simonsen Vogt Wiig AS? by telephone (+47 21 95 55 00) or email ( The Advokatfirmaet Simonsen Vogt Wiig AS website can be accessed at


(1) An unofficial translation of Paragraph 1 of Section 10-12 reads as follows:

"Transfer of a licence or participating interest in a licence for petroleum activities may not take place without the approval of the Ministry. The same applies to other direct or indirect transfer of interest or participation in the licence, including, inter alia, assignment of shareholdings and other ownership shares which may provide decisive control of a licensee possessing a participating interest in a licence."

(2) Few production licences on the NCS are held by one licensee – thus, the practical situation is transfers of participating interests in such licences.

(3) Production licences are awarded pursuant to Section 3-3 of the Petroleum Act, while licences for the installation and operation of facilities (typically pipelines) are awarded pursuant to Section 4-3. Transfers are impractical for exploration licences (Section 3-1), which are short-term, non-exclusive rights.

(4) In Norway, preparatory works, such as comments on bills, are considered a source of interpretation.

(5) Regulations to the Petroleum Act (FOR 1997-06-14-653), as amended.

(6) This agreement consists of the Special Provisions and two annexes: the Joint Operating Agreement and the Accounting Agreement.

(7) In particular, Sections 8, 10, 11, 28 and 29.

(8) Section 1-2 of the Petroleum Act reads as follows:

"Resource management of petroleum resources shall be carried out in a long-term perspective for the benefit of the Norwegian society as a whole. In this regard the resource management shall provide revenues to the country and shall contribute to ensuring welfare, employment and an improved environment, as well as to the strengthening of Norwegian trade and industry and industrial development, and at the same time take due regard to regional and local policy considerations and other activities."

(9) However, these parties may be individually assessed if a mandatory UN sanction against financial interests is imposed.

(10) E26.06.2017 nr 980 – Regulation on the Amendment of the Regulations to the Petroleum Act.

(11) Article 2.2 of the EU Licensing Directive (94/22/EC) reads as follows:

"Whenever an area is made available for the exercise of the activities set out in paragraph 1, Member States shall ensure that there is no discrimination between entities as regards access to and exercise of these activities. However, Member States may refuse, on grounds of national security, to allow access to and exercise of these activities to any entity which is effectively controlled by third countries or third country nationals."

(12) See

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