Chapter 6: The NPD's role
A substantial part of the NPD’s administration takes the form of exerting dialogue-based pressure, rather than utilising legal instruments.
Norway’s oil and gas resources belong to its people, and the government has strong legal powers to administer these resources to the benefit of society. Norwegian administration has a tradition of regulating petroleum activities through operating parameters and requirements for government approval, permission or consent at various milestones in a field’s producing life.
The government does not make much use of orders. In practice, a substantial part of the NPD’s resource management is exercised by exerting dialogue-based pressure rather than utilising legal instruments.
However, the petroleum regulations provide an opportunity to apply a number of statutory powers, such as issuing orders. The authority to use most of these formal instruments rests with the Ministry of Petroleum and Energy, and the NPD’s role is to give specialist advice to the ministry.
The petroleum authorities exercise management by establishing operating parameters and by issuing permits and approving applications at various project milestones. This is accomplished through substantial dialogue and cooperation with the industry.
Follow-up by the NPD during the development phase is tied to several milestones. These are largely tailored to the normal project process in the industry. With the award of a production licence, a work programme is established with scheduled milestones up to the submission of a plan for development and operation (PDO) and an application for a permit for installation and operation
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The government’s follow-up of these milestones and the decision process is intended to ensure that other relevant options are assessed along the way, and that the best solution for society is chosen. In addition, early insight into the project will provide the necessary clarification of issues before the PDO is submitted and thereby reduce the time required for consideration of the final proposals.
Where certain projects are concerned, the government has conveyed clear expectations to the licensees at an early phase of the project in order to ensure that the value potential is realised. In most cases, close dialogue and collaboration with the licensees up to the submission of the PDO will ensure that the development solution satisfies both the government’s expectations and the companies’ commercial requirements.
Once a development is completed, the government can deploy formal instruments at new milestones. Changes to and variations from the original PDO, and possibly an amended plan, require government approval. In this process, the government can set new conditions and thereby determine the direction of future activity.
The annual production permits represent another formal instrument for fields on stream. These are issued in part on the basis of the annual status reports submitted for fields, and the government can set production below the volume sought if this is considered necessary to improve overall resource management. In some cases, conditions are also attached to the production permit.
Each licence is awarded for a specified period, and the licensees must apply to extend its term no later than five years before it expires. The ministry can set conditions for such an extension, including requirements for improved recovery.
A common denominator for all the milestones is that a dialogue-based collaboration on the best solution represents the basic approach, but that the regulations and the formal powers can be deployed when interests fail to coincide or when the players lack the willingness or the ability to take decisions on realising the value potential.
Extending production licences
Some fields will contain substantial residual resources which remain unproduced when the production licence expires. In such cases, clarification and agreement will be sought between licensees and government with the aim of securing future production.
- The crucial consideration for the government is that the licensees commit to a programme which ensures that all resources which contribute value to society are produced.
- Predictability will be important for the licensees. It provides a financial basis for taking investment decisions to secure continued operation.
The government will approve applications for a further extension of the licence with the same licensee structure if they identify improved resource utilisation, unless special considerations make another approach necessary.
Photo: Statoil-Harald Pettersen
Several examples exist of such production licence extensions. A process of this kind is currently under way for Snorre. Large residual resources are present in this field, and it is important for the government that the licensees commit both to continued operation of existing facilities and to a programme which ensures improved recovery.
The potential for improved recovery from Snorre is comparable in size with the Goliat Field.