UK/Norwegian co-operation in relation to cross-boundary petroleum development

It is a fact of life that in the medium term the UK will become a net importer of energy, while Norway has (through reserves including Ormen Lange) supplies to export. This reality has led to discussions between the UK and Norwegian Governments over co-operation to facilitate the supply of oil and gas from Norway and in particular the exploitation of fields which cross the median line between the states ("cross-boundary fields"). It is in the interests of both countries that petroleum reserves are exploited in an effective and efficient manner.

There are cross-boundary fields already in development, each of which has an individual treaty (Statfjord, for example). There is also exist treaties dealing with specific infrastructure issues such as a 1998 framework agreement, which dealt with the laying, operation and jurisdiction of offshore pipeline interconnections that straddle the boundary. However, the scope of this treaty is limited: it covers only pipelines on the continental shelf (i.e. excluding parts in territorial waters and land territory) which cross the UK/Norway boundary and which link infrastructure on one side, under the jurisdiction of one Government, with infrastructure on the other side, under the jurisdiction of the other Government. By way of example, the Vesterled pipeline was not covered because it linked the Heimdal facilities on the Norwegian shelf and the Norwegian Frigg pipeline on the UKCS, both of which are under Norwegian jurisdiction. Similarly, pipelines direct from a Norwegian field to a UK landing terminal are outside its scope because the landing terminal would be on the UK's land territory, not on the UKCS.

Accordingly, it has been agreed that a new framework agreement is needed to deal with both trans-median fields and infrastructure in more general terms and to ensure a more efficient and effective approach to cross-border petroleum exploitation generally. The DTI has now published for consultation a draft Framework Agreement negotiated between the two governments relating to such cross-boundary co-operation.

The Draft Framework Agreement

The UK and Norwegian Governments published a paper in 2002 entitled "Unlocking Value through Closer Relationships". This was updated in the latter part of 2003 by a paper entitled "Unlocking Value through Strengthened Relationships". The principles in these papers have been further expanded in the draft Framework Agreement. The intention is that arrangements for offshore activities should be flexible and allow for problems to be resolved promptly, and that the decision-making process between both Governments should be better co-ordinated. So does it achieve those aims?

As one would expect, there is much reference to co-operation and co-ordination between the two States in relation to cross-boundary projects. The general provisions in the Framework Agreement provide for the two States to encourage, among other matters, the adoption of common health and safety and environmental requirements (including provisions for physical access for relevant inspectors of the other State). Additionally, the Governments will work together and establish procedures for early approval of any petroleum metering systems, paying regard to the economic impact on the project and existing metering arrangements in relation to relevant infrastructure.

The Governments also agree to work together to promote the use of existing infrastructure and, in relation to cross-boundary projects, to consult with the other Government on decommissioning standards and methods.

Aside from the general provisions, there are specific provisions relating to the three types of cross-boundary projects as follows:

• cross-boundary fields,
• host facility development (where an installation on one side of the median line exploits reservoirs on the other) where not covered by an existing treaty;
• infrastructure issues not covered by the 1998 framework agreement, essentially construction and operation of cross boundary pipelines ("cross-boundary projects").

Cross-boundary Fields

The provisions of the Framework Agreement which specifically relate to cross-boundary fields require that:

• the licensees must submit to both Governments for their approval a development plan for the exploitation of the cross-boundary field;
• the appointment of and change of the unit operator must be approved by both Governments;
• the various licensees enter into a "Licensees Agreement" relating to the exploitation of cross-boundary fields, such Licensees Agreements to include:-
• • provision that in the event of any conflict between the Licensees Agreement and the Framework Agreement, the latter will prevail;
  • a definition of the field and proposals for determination of its geographical and geological characteristics;
  • proposals for the determination of the total amount of reserves and methodology used for calculation and apportionment of such reserves between the licensees under the jurisdictions of each Government;
  • dispute resolution procedures relating to any of the matters above; and
  • procedures for a one-off unitisation or a timetable for redeterminations to be carried out by the unit operator at the request of the Licensees or either Government.
• The Licensees Agreement must be approved by each Government within 60 days of receipt and consent will be deemed to be granted if not approved within this timescale – a useful provision which should speed up the development of cross –border fields. If however, either Government is unable to agree on any of the matters specified above having used best endeavours to do so, an expert shall be appointed to determine the matter, such determination to be binding on the Governments.
• Both Governments must agree on the timing of cessation of production from a cross-boundary field.

Cross-boundary pipelines

Where a cross-boundary pipeline is to be constructed, in which licensees of each State have an interest and which relates to a cross-boundary field, the licensees will again be required to enter a Licensees Agreement. Again, the Licensees Agreement must be approved by each Government within 60 days of receipt and consent will be deemed to be granted if not approved within this timescale.

With respect to cross-boundary pipelines generally:

• the appointment of and change of the unit operator will require the approval of both Governments;
• terms and conditions for access and setting of entry and exit tariffs must be in accordance with applicable EU law and principles of fairness, non-discrimination, transparency and open access to spare capacity, avoidance of abuse of a dominant position and other anti-competitive behaviour;
• any access to a cross-boundary pipeline should include both physical access to capacity and to facilities supplying technical services incidental to such access;
• any terms determined by a Government for access to such pipelines should be such that they promote optimal use of existing pipelines and do not inhibit alternative options for using UK and Norwegian pipeline systems; and
• where changes are proposed to regulations governing access to pipelines in either State, the other must be consulted.

There are also various provisions in the Framework Agreement relating to the setting of entry points and tariff (and associated dispute resolution procedures) in relation to two new pipelines - the Langeled South and First Dry Gas Link pipelines: the former is the pipeline bringing Ormen Lange production to the UK and the latter is the pipeline to transport Norwegian dry gas to the UK. The principles relating to these entry points and tariffs set out in the Framework Agreement may be applied to other cross-boundary pipelines if agreed by the Governments.

Host Facility Development

Chapter 4 of the draft Framework Agreement deals with platforms, drilling rigs, storage units etc. which are on the other side of the delimitation line from the fields they serve. Generally decisions relating to the host facility and field require to be taken in close consultation with the other Government (including approval/changes of operator).

In the event of any dispute between the respective Governments relating to the application or interpretation of the Framework Agreement, the matter will be referred to a conciliation board made up of two representatives of each Government and a neutral party. The decision of the conciliation board, by simple majority, will be binding on the Governments. This provision should reduce the potential for political decision-making by both Governments.

Conclusion

The aims of the draft treaty are positive but we will need to await the publication of the agreed standards and procedures to determine its true value. The proposed treaty applies only to cross-boundary fields, but the industry will hope that these standards and procedures can in due course be extended to apply to all projects in the UK and Norwegian sectors – no longer needing to comply with two sets of health and safety rules, for instance, would have the potential to reduce costs significantly for the industry.

For further information about the co-operation between the United Kingdom and Norway in relation to trans-median fields please contact Judith Aldersey-Williams on [email protected] or Norman Wisely on [email protected]. Both are based in the Aberdeen office.

For a copy of the framework agreement please click here