Production licence – licence to explore, discover and produce

The seabed off the Norwegian coast still hides significant volumes of oil and gas, and many companies want in on the feast. The production licence is their admission ticket.

The continental shelf is divided into blocks, which represent geographical areas defined by specific geographical coordinates. The block concept is important in the petroleum activities, because a production licence normally comprises part of a block, an entire block, or multiple blocks, and is granted to one or more companies.

Production licences are awarded in ordinary licensing rounds (usually every other year) and Awards in Predefined Areas, so-called APA awards (every year).

The APA scheme comprises so-called mature areas on the shelf. This scheme is intended to ensure that the industry can explore areas close to existing and planned infrastructure, and thus contribute to good utilisation of production and transport capacity on the shelf. 

An ordinary licensing round starts when the Ministry of Petroleum and Energy (MPE) invites the oil companies to nominate blocks which they believe should be included in the announcement. After a thorough review, the MPE – with input from the NPD – prepares a list of blocks that the agencies want to include in the licensing round. After consultation and negotiations with parties including the fishery and environmental authorities, the MPE announces the blocks for which the companies can apply for production licences, including any special environmental and/or fishery conditions that apply to such blocks. Companies can apply individually, or as part of a group.

Based on the applications received, the Government awards production licences. If several companies have applied together (as a group), the composition of the group, recommended operator and joint competence will be assessed. Companies that apply individually may be added to a group; alternatively, several companies that apply individually may be awarded ownership interests in the same licence. When awarding licences, the authorities consider the company's/companies' technical expertise, understanding of geology, financial strength and experience (from the Norwegian shelf or other locations, other activities, etc.).

The production licence governs the companies' rights and obligations vis-à-vis the Norwegian State. The document supplements the requirements in the Petroleum Act and sets out detailed terms and conditions for each individual licence. The production licence is an exclusive right to carry out surveys, exploration drilling and production of oil and gas within the defined geographical area. Each individual licensee owns its share of the petroleum produced.

As a main rule, the production licence is valid for a so-called initial period (exploration period) of four-six years. The licensees can apply to extend this period to up to ten years. During this time, a specific work commitment shall be completed in the form of e.g. seismic data acquisition and surveys and/or exploration drilling. When the initial period is over and the work commitment is completed, the licensees can apply for extension for a period as stipulated in the production licence. In general, this period is up to 30 years.

If exploration drilling does not prove oil or gas, the main rule is that the area shall be relinquished at the end of the initial period. For production licences awarded before 2004, the main rule is that the licensees in the production licence can demand to retain up to one-half of the area of the production licence for up to 30 years (if the work commitment is completed during the exploration period).

In connection with the 20th licensing round on the Norwegian shelf (2008), a new scheme has been introduced involving a broad-based public consultation regarding proposed blocks. The Minister of Petroleum and Energy wants to promote more transparency so that various stakeholders among the general public can voice their opinions before the Ministry makes its decisions, as well as to ensure critical examination of both social and technical consequences of the proposal.