The Danish Energy Agency has put out draft guidelines on third-party access to oil and gas infrastructure for consultation. The guidelines will elaborate on the Danish executive order on the topic and contain useful information to North Sea operators about how the Danish Energy Agency exercises its authority in relation to third-party access agreements on the use of existing infrastructures for production purposes, etc.
The purpose of the guidelines is to clarify matters for the operators in the North Sea and to explain how to interpret the third-party access rules provided in the Danish Subsoil Act (undergrundsloven) and the Danish Executive Order on Third-Party Access (tredjepartsadgangsbekendtgørelsen, bkg. nr. 1449 af 8. december 2017). Accordingly, the guidelines constitute part of the Danish Energy Agency's increased focus on facilitating the negotiation process to speed up the granting of access to third parties on terms that are predictable and reasonable to both the users (the third-party) and the owners of the infrastructure.
The Danish Energy Agency's increased focus on third-party access is the indirect consequence of a political agreement dated 22 March 2017 (between the Government, the Danish People's Party, the Danish Social-Liberal Party and the Danish Socialist People's Party), which resulted in amendments to the Subsoil Act with a view to improving third-party access and thus the possibility of developing and producing from new small oil and gas fields in a commercial context.
The improved terms governing third-party access were included in the 8th licensing round, the application period of which ended on 1 February 2019.
The deadline for submitting responses to the draft guidelines is 26 March 2019.
Negotiation process, payments and conflicts of interest
Generally, third-party access is negotiated between the third party, as the user, and the owner of the infrastructure to which access is requested. According to the Danish Energy Agency, experience shows that the owner's natural monopoly and hence its strong bargaining power vis-à-vis the potential user have often entailed the parties' failure to reach an agreement when negotiating third-party access. The Executive Order on Third-Party Access and the guidelines now seek to remedy this market failure by, for instance, ordering the owner of an infrastructure to respond to enquiries from potential users and to draw up procedures for how to carry on the ensuing negotiations.
The draft also describes the principles of settling the user's payments to the owner of the infrastructure, including the fact that the profit from the production activities must mainly accrue to the licence holder, whereas the owner of the infrastructure is entitled to a reasonable profit considering the risk assumed. Moreover, operating costs incurred directly for the use of the infrastructure must also be defrayed by the user.
According to the draft guidelines, a standard agreement on third-party access will be prepared in a Danish and an English version and included as a schedule to the guidelines. This schedule does not seem to have been published yet.
As a new feature, it is finally determined that a company with interests on both side of the bargaining table in a commercial negotiation – because the company participates in several licences pursuant to the Subsoil Act – may participate only on the side on which it accounts for the largest share of participants to avoid that the company obtains unfair advantages. This has also been incorporated directly into a new draft executive order on third-party access, which has been put out for consultation together with the guidelines and which is expected to take effect as from 1 July 2019.
The role and authority of the Danish Energy Agency
Pursuant to the Subsoil Act, all agreements on third-party access must be submitted for the approval of the Danish Energy Agency within eight days of the agreement's conclusion. According to the draft guidelines, the Agency's consideration of such application for approval will be based on the assumption that the parties to the agreement are of the opinion that the agreement complies with prevailing third-party access principles, including those governing the distribution of the profit from the extraction activities. Accordingly, the Danish Energy Agency will consider the terms of the agreement only with regard to whether they guarantee an appropriate use of oil and gas deposits in the Danish part of the North Sea, in accordance with s. 1 of the Subsoil Act.
If, on the other hand, the parties fail to agree on the said terms, and agreement cannot be reached within reasonable time, the parties must bring their dispute before the Danish Energy Agency for the Agency to decide upon the matter. According to the draft guidelines, reasonable time is generally defined as six months. According to the draft guidelines, however, the Danish Energy Agency is prepared to have an ongoing and close dialogue with parties contemplating to expand third-party access, or parties that are in the midst of a negotiation process, so that it may, for example, provide guidance on the rules applicable.
Finally, according to the draft guidelines, the Danish Energy Agency may, on a current basis and with a view to acquiring knowledge, request all rights holders to provide information for use in the Agency's assessment of whether there is any potential for third-party access under a given licence.
Advice on third-party access negotiations
Bech-Bruun has long-term experience in advising Danish and international companies on hydrocarbon activities in the North Sea, including advice on the processes of negotiating agreements and obtaining licences and permits from the Danish Energy Agency. We are therefore able to assist companies with third-party access issues, whether they involve the negotiations between parties or applying to the Danish Energy Agency for an approval of a concluded agreement or a decision on a dispute about the the terms of agreement.
Per Hemmer, Partner
Johan Weihe, Partner