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14 September 2015
As activities under mature petroleum licences cease, many of the almost 500 facilities on the Norwegian continental shelf will have to be decommissioned in the years to come. It is a political goal to dispose of these facilities onshore and recycle as much of the waste materials as possible. Thanks to the development of heavy offshore lifting capacity, this decommissioning can increasingly be carried out onshore. As many facilities and related equipment are expected to arrive in Norwegian fjords for onshore decommissioning, the question of liability for possible local pollution arising from such activities is increasingly relevant.
This was one of the key questions in a case argued before the Gulating Court of Appeal in March 2015.
The decommissioning facility (Miljøbase Vats, operated by AF Decom Offshore) is located in Vindafjord on the western coast of Norway and is one of four sites established in Norway for deconstruction and disposal of facilities used in petroleum-related activities. In recent years the largest supplier of scrapped facilities to the decommissioning facility has been Production Licence 018 (PL 018) on the Norwegian continental shelf, which is operated by ConocoPhillips.
According to a fish farm situated next to Miljøbase Vats, fish farming was made impossible by pollution arising from the decommissioning activities conducted at the facility. The fish farm held ConocoPhillips responsible for its loss resulting from the pollution, as operator and licensee of PL 018.
The court did not address the question of the extent of liability relating to decommissioning activities under the Petroleum Act. Nevertheless, the dispute serves as a practical example of how the last phase of petroleum production activities may have a detrimental impact on the environment and third parties, and raises the question of the scope of liability under the Petroleum Act for petroleum licensees in relation to onshore decommissioning activity.
Decommissioning is regulated by Norwegian law and non-statutory law and regulations which include provisions on liability for pollution and damages to third parties caused by such activities. However, a question remains as to whether these activities can be considered part of petroleum operations and thus covered by the special responsibility and liability for the operator and petroleum licensees under the Petroleum Act.
The scope of the Petroleum Act is limited to 'petroleum activities', defined in the act as: "all activities associated with the subsea petroleum deposits, including exploration, exploration drilling, production, transportation, utilization and decommissioning, including planning of such activities."(1)
As decommissioning is both included in the definition of 'petroleum activities' and regulated in a separate chapter of the Petroleum Act, the question is not whether such activity is covered by the law, but rather the geographical and time limits of the law's application to such activities. It is generally assumed by many practitioners that onshore decommissioning of petroleum facilities is outside the scope of the Petroleum Act and that the law ceases to apply to such activities when the facility or equipment is removed from its offshore location. The dubious merits of this view are discussed below.
As petroleum activities in Norway are predominantly conducted offshore, the relevant facilities and equipment must be transported to shore (eg, by being towed on a barge or transported on a ship).
As all ships are flagged and registered in a ship register, the state where the vessel is registered (the flag state) has jurisdiction over the ship. Thus, the transportation of any type of goods – including decommissioned petroleum facilities – is regulated by the flag state rules.
However, this is only a starting point. Under customary public international law and the United Nations Convention on the Law of the Sea, coastal states may regulate all activities relating to the exploration and exploitation of petroleum conducted in their exclusive economic zone and on their continental shelf – including construction and removal of installations in the area.(2) Under public international law, coastal states are (with some exceptions) further obliged to remove all such installations in these zones when the activities cease. This right to regulate decommissioning of offshore petroleum facilities is the basis of Chapter 5 of the Petroleum Act. In the same way that the Petroleum Act applies to petroleum activities conducted on seismic, supply or service vessels without applying to the vessels as such, it also applies to petroleum activities conducted by ships that are transporting facilities or equipment to shore for decommissioning; however, the marine aspects of the transportation activity of such vessels and the vessels themselves are still regulated by the laws of the flag state.
The scope of the Petroleum Act is functionally defined, not geographically defined. This implies that the act applies as long as an activity falls within the definition of 'petroleum activities'. As the Norwegian legal system has a fragmentary structure, allowing for overlap of scope of several laws, the Petroleum Act may apply in parallel with other relevant laws (eg, environment, tort or planning laws). There is no doubt that the Petroleum Act may apply to onshore activities, (eg, in relation to onshore planning, construction and operation of facilities for extraction of petroleum from offshore petroleum deposits). The question is thus not whether decommissioning is happening offshore or onshore, but whether it is an "activity associated with subsea petroleum deposits" – in other words, whether it is sufficiently related to and naturally falls within the definition of 'petroleum activities'. If construction of the facility falls under this definition, there is a presumption that deconstruction of the facility does likewise. Further, even though the deconstruction of the facility does not directly affect extraction from the deposit, it has a certain direct impact on the timing of shutdown and on the production profile, as the costs of decommissioning may directly affect the profitability threshold of the activity.
For cessation and decommissioning activities, the term 'petroleum activities' must be read in conjunction with Chapter 5 of the Petroleum Act. Licensees are obliged to prepare and submit a decommissioning plan to the Ministry of Petroleum and Energy, on which the ministry will base its "decision related to disposal".(3) The plan must include two sections: a disposal plan and an impact assessment.(4) The requirements of these plans are further detailed in the regulations and include detailed assessment of the decommissioning alternatives, procedures and effects. Pursuant to Section 5-4(1) of the Petroleum Act, the obligation of the licensee and owner of a facility is to ensure that the decision relating to disposal is carried out.(5) This responsibility includes liability "for damage or inconvenience caused… in connection with the disposal of the facility or other implementation of the decision". Thus, the activity and the liability relate to fulfilment of the entire decommissioning plan, no matter where the different parts of this plan are conducted. Notably, this liability is not strict (as for pollution damage pursuant to Chapter 7 of the Petroleum Act), but depends on negligence or wilful misconduct by the licensee or owner of the facility which is decommissioned. However, it is sufficient under Section 5-4 that a third party suffers "inconvenience" as a result of such acts, whereas under the corresponding provision of the Neighbour Act, "unnecessary inconvenience" is required.
The fact that both the decommissioning plan and the disposal decision generally detail obligations regarding onshore activities indicates that the scope of the law includes such activities.
The subsequent question that naturally arises is how far down the decommissioning process the activities are covered by the scope of the Petroleum Act. Arguably, the structure of the law and the system established implies that decommissioning is a petroleum activity as long as it is described as an activity obligation comprised by the disposal decision. As mentioned above, the Petroleum Act will apply in parallel with other laws on such activities, but it is likely that licensees' special liability and operational requirements under the Petroleum Act will apply to all decommissioning activities described in the disposal decision. However, as the question is not directly dealt with in the act or the preparatory works to the act, clarification via a Supreme Court decision is keenly awaited.
If the holders of Norwegian production licences are indeed responsible for pollution arising from onshore decommissioning relating to such production licences and such activities are covered by the Petroleum Act, this may influence decommissioning methods, the organisation of such activities and contractual requirements imposed on contractors. It may also affect and potentially drive up the costs in the final phase of petroleum activities on the Norwegian continental shelf.
For further information on this topic please contact Preben Willoch or Frode Vareberg at Advokatfirmaet Simonsen Vogt Wiig by telephone (+47 21 95 55 00) or email (firstname.lastname@example.org or email@example.com). The Advokatfirmaet Simonsen Vogt Wiig website can be accessed at www.svw.no.
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