The State acquiers increased ownership in the gas transportation system

Unofficial version

 ‘I would like to thank the companies for a good, constructive process and for agreements that I believe benefits all parties involved. I am very pleased that we have found a solution resulting in a full State ownership of the large and important Gassled infrastructure ’, said the Minister of Energy Terje Aasland.

There is an extensive gas transport system on the Norwegian continental shelf, and the State has the right of reversion at the end of the license period. The Ministry announced in 2023 that the State aims to make use of the right of reversion when the licenses expire and wants a full state ownership of the key parts of the upstream gas infrastructure. Based on this, the State started discussions with the owners.

The background for this initiative is that the State is considered to be the most suitable owner of this infrastructure in order to facilitate the overall objective of the Norwegian petroleum policy, including low tariffs for the users.

At the request of the owners, the State has offered to take over ownership of the infrastructure before the licence period expires. The concluded agreements are made with 1st January 2024 as an effective economic date. Total consideration is 18,1 billion NOK. The purchase is considered to be value-neutral for the State.  

Agreements have not been made with all owners in the system. North Sea Gas Infrastructure AS and M Vest Energy AS did not accept the State’s offer for their interests in Nyhamna and Polarled respectively. Equinor Energy AS have accepted the offer but will continue to own a minority share in Nyhamna JV and Polarled JV. Hence, there will still be some private ownership in Nyhamna JV and Polarled JV.

Background

The objective of the Norwegian gas infrastructure 

An important principle in the resource management is that the resource rent shall be realized in exploration and production of oil and gas – and not by the owners of the infrastructure. This practice best supports the overall objective of Norway’s petroleum policy to facilitate profitable production of oil and gas in a long-term perspective.

The cost of use of the infrastructure should reflect the cost of transport and treatment of gas in the infrastructure. The tariffs for using the gas infrastructure aims to reflect this. If the tariffs are set too high it will prevent economically profitable petroleum resources from being found, developed and produced. Hence, it is important that the gas infrastructure is operated cost-efficiently and that decisions related to further development are made with a shelf perspective. Ensuring low tariffs, right capacity and high regularity in the gas infrastructure best facilitates good resource management and high value creation from the petroleum resources on the Norwegian continental shelf.

Ownership in key parts of the Norwegian gas infrastructure before transactions

Key parts of the gas infrastructure are owned through Gassled JV, Nyhamna JV and Polarled JV. The ownership in these JVs consists of a combination of the Norwegian State (SDFI), exploration & production  companies and single purpose infrastructure owners.

Ownership share (%)	Gassled JV	Nyhamna JV	Polarled JV
SDFI[1]	46,697	26,138	11,946
CapeOmega AS	26,322	18,209	28,271
Hav Energy NCS Gas AS	15,553	-	13,255
Silex Gas Norway AS	6,428	-	-
Equinor Energy AS	5,000	30,056	37,076
North Sea Infrastructure AS	-	13,700	-
ORLEN Upstream Norway AS	-	8,188	-
A/S Norske Shell	-	2,027	-
ConocoPhillips Skandinavia AS	-	1,681	4,452
M Vest Energy AS			5,000
Totalt	100	100	100

[1] Petoro AS is responsible for managing the State’s ownership in petroleum activities through the State’s Direct Financial Interest (SDFI)

 

Other gas infrastructure joint ventures Haltenpipe, Valemon Rich Gas Pipelie, Utsira High Gas Pipeline and Vestprosess DA are not part of the transactions.

Regarding the State’s right of reversion 

Large parts of the infrastructure in the Gassled partnership, as the gas export pipelines, have license periods that expire in 2028, and the state has the right of reversion at the end of the license period. Other parts of the gas transport system have longer license periods. Certain systems do not have an explicit license period.

As the end of the license period is approaching, Gassled-owners have expressed a need for early clarification regarding ownership of the infrastructure after 2028 to ensure long-term transparency. This is also important for the State as uncertainty regarding ownership complicates achieving desired development and operation of the gas infrastructure. The Ministry of Energy started working with this issue and alternatives in 2020.  

On April 28 2023 the Ministry of Energy sent a letter to the relevant licensees signalling that the state aims to make use of the right of reversion at the end of the license period and wants a full state ownership of the key parts of the upstream gas infrastructure.

The background for this initiative is that the State is considered to be the most suitable owner of this infrastructure in order to facilitate the overall objective of the Norwegian petroleum policy, including low tariffs for the users. After the license period expires, commercial infrastructure owners will no longer have the same incentives to tie up capital as the tariffs have reflected returns on large historical investments.

Furthermore, the State has communicated the ambition to return to having an overall  ownership of the key parts of the gas infrastructure, as was the situation until 2013, combined with the State’s right of reversion.

Discussions with current owners

The ministry started discussions with the current owners in April 2023 regarding all aspects related to their ownership in the gas infrastructure. Pareto Securities, Advokatfirmaet Wiersholm AS and Petoro AS have assisted the ministry throughout the process. The operator, Gassco AS, has contributed with facts and information in the process, both to the ministry and the owners. 

During these discussions, the owners requested a state takeover before the licenses expire, preferably with an effective economic date of 1 January 2024. A state takeover before the end of the license period means that the owners must be compensated for their interests.

Offer to buy interests in 2024

Based on the discussion with the owners, the ministry sent an offer on 5 July 2024 to buy all of their interests in Gassled, Nyhamna and Polarled joint ventures. The offer was made with 1 January 2024 as an effective economic date. The offer to Equinor was made subject to a sufficient degree of acceptance from the other companies in order to ensure that user interests are represented as long as there are several owners.

The Ministry of Energy has now entered into sales and purchase agreements with seven of the nine owners regarding purchase of interests in the three joint ventures. Agreements have been concluded with A/S Norske Shell, CapeOmega AS, ConocoPhillips Skandinavia AS, Equinor Energy AS, Hav Energy NCS Gas AS, ORLEN Upstream Norway AS and Silex Gas Norway AS. Six of the seven owners have accepted the State’s offer to buy all of their interests in these joint ventures. Equinor accepted the State’s offer but will continue to own a minority share in Nyhamna JV and Polarled JV.

The total consideration is 18,1 billion NOK as of the effective date. The companies will also be compensated for the present value of remaining tax balances in the petroleum tax from the relevant licenses and there will also be, among other things, an adjustment for settlements between the effective date and the closing date.  

The agreements are subject to a consent by the Norwegian Parliament (Stortinget). It has also been agreed upon side letters regarding equal treatment in the event that the State buys additional interests in the joint ventures the next two years.  

The objective is still a full State ownership of Nyhamna JV and Polarled JV. The State aims to take over the remaining interests in these two joint ventures when the license periods expires or through an agreement prior to this. 

Ownership after transactions

Changes in the SDFI share in the different JVs as a result of these transactions are shown in the table below.

Ownership (%)	Gassled JV	Nyhamna JV	Polarled JV
SDFI	100,000	81,300	90,000
North Sea Infrastructure AS	-	13,700	-
M Vest Energy AS	-	-	5,000
Equinor Energy AS	-	5,000	5,000
Purchased interests	53,303	55,162	78,054
Consideration (million NOK)	12 226	3 731	2 147

 

Other issues

The increase in state ownership does not affect the ministry’s regulation of the sector. The main features of the regulation of the gas transport system will be continued.

Petoro will still be the licensee and manage the SDFI shares on behalf of the Norwegian State. Petoro will be given a separate mandate when it comes to managing the ownership in the gas infrastructure in order to best support the overall objective of the Norwegian petroleum policy. Petoro shall manage gas infrastructure separately from their portfolio of producing fields so that no special emphasis is placed on the value of SDFI shares in production licenses in their decision making. Petoro’s objective for managing SDFI shares in production licenses will remain the same.

Gassco will continue to be the operator and use technical service providers. It is also important to ensure sufficient user involvement in further development of the gas infrastructure. The tariffs will be cost-based. 

Investments in new gas infrastructure on the continental shelf will, as currently, continue to be driven by the commercial players and their need for gas transport. With this established practice, a market test is ensured when developing new infrastructure.

Investments in any new gas infrastructure linked to the petroleum activity on the NCS, including a possible increase in export capacity from the Barents Sea, shall be driven by the oil and gas companies and their need for gas transport. The change has no significance for the policy related to any other possible future infrastructure between Norway and Europe, including pipelines for transport of CO₂ or H_2.