• Professional News
  • 06 July 2018

8th North Sea Licensing Round initiated

The Danish Energy Agency now invites applications for new licences to explore oil and gas in the North Sea. Interested oil and gas companies are invited to apply for licence shares no later than on 1 February 2019.

The area offered for licensing in the 8th Licensing Round includes the Central Graben and adjacent areas. Applications may also be submitted for any areas that change status from licensed to unlicensed areas up to 90 days prior to the application deadline.

The licences granted will be conditional upon companies holding shares in the same licence enter into a Joint Operating Agreement (JOA). Nordsøfonden, on behalf of the Danish State, will be holding a share of 20% in all licences granted. 

The changes to the model licence for the 8th Licensing Round, among other things, pertain to terms and conditions regarding the decommissioning plan for facilities and installations and ensuring sufficient technical and financial capacity following from amendments to the Danish Subsoil Act in 2015 in connection with the implementation of the Offshore Safety Directive.

The terms of the 8th Licensing Round can be found here.

Reduction of hydrocarbon tax from 2017 to 2025

Licensees must pay Danish corporate tax and hydrocarbon tax of 25% and 52%, respectively. During the period from 2017 to 2025, the licensees may, however, apply for an optional scheme implying a tax reduction on certain types of investments to be approved by the Energy Agency.

Under the optional scheme, the hydrocarbon allowance is raised over a six-year period from 5% to 6.5% on an annual basis (totalling 39%). In addition, according to the letter of invitation from the Danish Energy Agency, the rate of reducing balance depreciations in the hydrocarbon tax is raised from 15% to 20%, and the time of deduction for the two deductions is changed from the date on which the investments are put into use to the date of payment. However, the deduction is subject to the condition that oil prices remain below USD 75/barrel (2017 figures, rising by 2% p.a.). If the price is higher, the tax deduction must be repaid.

New guidelines
The Danish Energy Agency has prepared guidelines on decommissioning plans for offshore oil and gas installations as well as guidelines on technical capacity concerning the use and exploitation of the Danish subsoil. Both guidelines are available on the website of the Danish Energy Agency.

In addition, it appears from the guidelines on decommissioning plans that, in 2018, the Danish Energy Agency has drafted or will draft guidelines on financial capacity and drilling. These guidelines are not yet available on the website of the Danish Energy Agency.

More flexible approach towards security

Companies granted a licence must within 30 days provide the Danish Energy Agency security for the fulfilment of their obligations under the licence.

The Danish Energy Agency has drafted new guidelines on security and insurance for companies holding exploration and production licences pursuant to the provisions of the Danish Subsoil Act. The guidelines suggest a more flexible approach to the provision of security. The more flexible approach implies that, in special circumstances, the companies will be allowed to provide another type of security than the traditional unlimited parent company guarantee.

The guidelines are available on the website of the Danish Energy Agency.

Applications from groups of companies must designate a proposed operator. The Danish Energy Agency appoints the operator after consultation with the Danish Working Environment Authority. The appointment is based on the qualifications of the operator, including the capacity to meet the safety and environmental requirements within the Offshore Safety Act and the Act on the Protection of the Marine Environment in relation to offshore activities.

Improved third party access
The terms of third party access to the infrastructure within the Danish part of the North Sea have been improved as a consequence of the political agreement on the exploration of the North Sea which was concluded on 22 March 2017.

Advice on hydrocarbon licences, the Subsoil Act and the terms governing licensing rounds

Bech-Bruun has long-term experience in advising Danish and international companies on hydrocarbon activities in the North Sea, including the drafting of applications for hydrocarbon licences both in licensing rounds and open door procedures. We are therefore able to assist companies in connection with the 8th Licensing Round and on the requirements to be fulfilled by applicants in respect of the Subsoil Act and the terms governing the licensing round.

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