Member Article

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Several oil majors and traditional utilities and downstream companies have reduced their presence and, to some extent, been replaced by smaller companies, including start-ups backed by private equity.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
1 0-12(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.

https://svw.no/contentassets/fe913bce36024574bd9fdb237ebcf077/transfers-of-norwegian-petroleum-licences.pdf