Proposal for a COUNCIL DIRECTIVE on the conditions for granting and using authorizations for the prospection, exploration and extraction of hydrocarbons
Date: 1992-05-11
Institutions: European Commission
Subjects: energy site, energy supply, exploitation of resources, hydrocarbon, management of resources, security of supply

COMMISSION  OF  THE  EUROPEAN  COMMUNITIES 

COM(92) 110 final - SYN 412 

Brussels, 11  May  1992 

Proposal  for a 

COUNCIL  DIRECTIVE 

on the conditions  for granting  and using authorizations  for 

the prospection, exploration  and extraction of  hydrocarbons 

(presented  by the  Commission) 

IK 

-  2 -

EXPLANATORY  MEMORANDUM 

Introduct ion 

With  the publication of  the White  Paper  on completing  the  internal 
market  in  June  1985(D  followed  by  the  adoption  of  the  Single 
European  Act  in December  1985,  completion  of  the  internal  market 
by  the  end  of  1992  became  one  of  the  Community's  fundamental 
object ives. 

The Single  European Act  added  to  the Treaty  a new Article 8a which 
defines  the  internal  market  as  "an area without  internal  frontiers 
in  which  the  free  movement  of  goods,  persons  and  capital  is 
ensured".  This definition  applies equally  to the energy market. 

Energy  is such  a vital  component  of  all  economic  activity  in the 
Community  that  completion  of  the  internal  market  is  inconceivable 
without  an  integrated  energy  market.  The  Community  energy  policy 
objectives  adopted  by  the  Council  in  1986  explicitly  emphasized 
the need  for  "greater  integration,  free  from barriers  to trade, of 
the  internal  energy  market  with  a  view  to  improving  security  of 
supply, 
economic 
compet i t i veness"  S^ 

improving 

reducing 

costs 

and 

Substantial  progress  has  been,  and  still  is  being,  made  towards 
establishment  of  an  internal  energy  market.  Following  the  first 
stage  marked,  notably,  by  the  adoption  of  the  Council  Directives 
on  the  transit  of  electricity(3),  the  transit  of  natural  gas^4^ 
and  the  transparency  of  gas  and  electricity  prices^5),  the 
Commission  has  sent  the  Council  two  proposals  for  Directives 
laying  down  common  rules  for  the  internal  market  in  electricity 
and  gas. (6)  In  the  case  of  gas,  the  common  rules  proposed  do 
not  apply  to  the  production  side  of  the  industry.  Consequently, 
for  the  gas  industry,  this  proposal  is  complementary  to  the 
second  phase  already  in  progress.  At  the  same  time  it  is 
designed  to  remove  the  last  remaining  major  obstacles  to 
completion  of  the  internal  market  in oil,  where  few  restrictions 
to competition  in the downstream  activities are  left. 

( 1)  COM(85)  310 f i n a l,  1 4 . 6 . 1 9 8 5. 
( 2)  OJ  No  C  2 4 1,  2 5 . 9 . 1 9 8 6. 
( 3)  OJ  No  L  313,  1 3 . 1 1 . 1 9 9 0,  p.  3 0. 
( 4)  OJ  No  L  147,  1 2 . 6 . 1 9 9 1,  p.  3 7. 
( 5)  OJ  No  L  185,  1 7 . 7 . 1 9 9 0,  p.  16. 
( 6)  COM ( 9 1) 

548  f i n a l,  SYN  3 8 4 - 3 8 5,  2 1 . 2 . 1 9 92 

-  3  -

3. 

In practice, exploration  for  and extraction  of oil  and  natural  gas 
are part  of one and  the same activity  which  are  subject  to similar 
physical,  technical  and  legal  conditions  and  must  therefore  be 
covered  by  a  common  framework  separate  from  the  arrangements  for 
downstream  activities  and  electricity  generation.  Within  this 
framework,  these  activities  remain  subject  to  restrictions, 
greater  in some  Member  States  than  in others.  Although  these  can 
be  explained  by  the  importance  of  hydrocarbons  to  economic 
activity  and  the  traditional  mining  regulations,  they  are 
nevertheless  incompatible  with  completion  of  the  internal  market, 
which,  in  particular,  calls  for  harmonisation  of  the  conditiofis 
for  access  to and  exercise  of  this  activity,  while  respecting  the 
Member 
concerning 
rights 
administration of  their  oil  and  gas  resources. 

responsibilities 

States' 

and 

General  context 

Their  wide  range of end-uses  (as  fuels  for electricity  generation, 
heating  or  transport  and  as  raw  materials  for  the  chemical  and 
petrochemicals 
industries)  make  hydrocarbons  a  fundamental 
component  of  economic  activity.  The  limited  resources  in  the 
Community  lend  them  added  importance.  More  specifically,  the 
Community  produces  only  24% of  the  oil  which  it  consumes  and  62% 
of  the gas. 

In  most  Member  States,  oil  and  gas  resources  are  owned  by  the 
State.  In  any  event,  they  are  administered  by  the  public 
authorities  which  usually  perform  this  task  with  broader 
objectives  than  efficient  exploitation  of  individual  production 
si tes a lone  , e.g.: 

a)  planned  management  of  all  available  resources; 
b)  national  security  of  supply; 
c)  revenue  for  the State  budget; 
d)  development  of  the national  economy,  notably: 

the  upstream  industries  (contractors,  equipment  suppIiers 
and  providers of  services); 

-  national  producers, particularly  public undertakings;  and 

the 
distribution,  etc.). 

downstream 

industries 

(petrochemicals, 

gas 

6. 

To  attain  these  objectives,  the  public  authorities  in  the 
Member  States  sometimes  place  restrictions  of  varying  degrees  on 
access  to and  exercise of oil  and  gas exploitation  activities,  the 
biggest  restrictions  being: 

partial  reservation  of exploitation  for  national  undertakings, 
either  by granting  direct  concessions  for  certain  zones, or by 
requiring  their  participation  in  groups  of  undertakings 
applying  for  authorisation, 
exemption  of  public  undertakings  from  some  of  the  conditions 
imposed  on private  companies, 

- 

-  4  -

restriction  of  the  undertakings'  freedom  of  choice  of 
suppliers, customers, staff  or means of  transport. 

7. 

Consequently,  the  control  exerted  by  the  public  authorities  over 
oil  and  gas  production  covers  not  only  compliance  with,  for 
example,  safety,  environmental  and  land  use  standards,  as  for  any 
other  activity,  but  also: 

the  nationality  and  legal  status  (private  or  public)  of  the 
undertak ings; 
the  way  in  which  they  proceed  or  plan  to  proceed  with 
exploi tat ion; 
the end-use  of  the products. 

These  restrictions  can be  imposed  formally  by  law.  Even when  they 
are  not,  however,  the  public  authorities' discretionary  powers  to 
grant  authorisations  enable  them  to  demand  a  commitment  to  the 
same  effect  from  the  undertakings  applying.  At  least  some  of  the 
restrictions  of 
to  the  Treaty, 
particularly  its  rules  on  free  movement  of  goods  and  right  of 
establishment. 

type  are  contrary 

this 

8. 

Finally,  oil  and  gas  exploitation  activities  have  two  other 
important  characteristics: 

the  investments  are a risk.  Often  the presence, and  quantity, 
of  hydrocarbons  in  a  concession  are  not  known  until  the 
completion  of  extremely  costly  work, particularly  in the North 
Sea; 

access  to  the activities  is  limited  by  the availability  of oil 
and  gas.  What  is  more,  even  at  sites  where  resources  are 
found  a  proliferation  of  installations  and  operators  is  not 
always  either  physically 
feasible  or 
or 
desirable. 

economically 

These  features  are  good  reason  to  reserve  for  entities  exclusive 
rights  over  the  areas  which  they  are  authorised  to  exploit, 
accompanied  by  a  guarantee  that  they  will  be  able  to  exercise 
these  rights  long  enough  to  secure  an  adequate  return  on  their 
r isk capi taI . 

Current  situation  in the  Community 

10.  Three  factors  shape  the  general  situation  today  in  the  individual 

Member  States: 

(i) A  trend  towards  liberalization  of  the  sector.  Over  the  last 
decade  or  so  a  number  of  Member  States  have  considerably 
relaxed  their  rules  de  Jure or  de  facto. 

(ii)  The  maturity  of  the  sector.  As  mentioned  earlier,  the 
Community's  resources  are  limited.  Most  of  these  are 
probably  in the areas  for  which  concessions  have  already  been 
granted.  No major  finds  should  be  expected  in  the  areas  yet 
to be allocated.  Nevertheless, substantial  reserves remain. 

-  D  -

Not  all  the  areas  for  which  concessions  have  been  granted  are 
yet  in  production  and  new  technologies  can  be  expected  to 
allow  exploitation  of  marginal  fields  which  cannot  yet  be 
worked  profitably.  In  turn,  the  relinquishment  process,  i.e. 
the  obligation  for  authorisation  holders  to  give  up  any  parts 
of  their  concessions  not  exploited  by  the  agreed  dates,  opens 
up  the  further  possibility  of  new  authorisations. 

(iii)  Past  agreements.  Competition  in  this  sector  remains  under 
the  shadow  of  conditions  laid  down  in  the  past,  given  the 
extremely  long  term  of  the  concessions,  some  of  the  richest 
of  which  are  exempt  from  the  abovementioned  relinquishment 
requ i rement. 

11.  At  Community  level,  under  Directive  90/531/EEC  of  17  September 
1990,  all  supplies  and  works  contracts  concluded  by  undertakings  in 
this  sector  will  have  to  be  fully  open  to  competition  from 
1  January  1993  on  in  most  Member  States  (a  little  later  in  Spain, 
Portugal  and  Greece).  On  6  November  1991  the  Commission  adopted  a 
proposal  to  bring  service  contracts  under  this  Directive.  In  this 
context,  the  same  Directive  includes  alternative  arrangements  for 
oil,  gas  and  solid  fuel  production.  The  principal  condition  is 
that  authorisations  must  be  granted  on  a  non-discriminatory, 
transparent  basis. 

Finally,  on  ....  the  Commission  adopted  a  communication  to  the 
Council  on  the  approach,  progress  and  guiding  principles  of  the 
work  on  technical  harmonisation  and  standardisation  in  the  energy 
field. 

12.  Object ives 

1.  The  establishment  of  a  single  market  without  internal  frontiers 
implies  equal  access  for  undertakings  to  exploit  oil  and  gas 
resources 
the 
and 
Member  States. 

free  movement 

of  such 

products 

between 

2.  Despite  the  progress  made  in  a  number  of  Member  States,  all  too 
prospecting, 
to 
subject 
with 
incompatible 

often  access  to  and  exercise  of  oil  and  gas 
extraction 
exploration 
discrimination, 
attainment  of  these  objectives. 

restrictions 

activities 

conditions 

are 

and 

or 

3.  To  remedy  this  situation,  common  rules  must  be  established  to 
ensure  that  the  authorisation  procedures  are  non-discriminatory  and 
transparent  and  impose  no  conditions  on  access  to  or  exercise  of 
these  activities  which  are  not  technically  and 
economically 
warranted  by  the  objective  of  optimum  exploitation. 

4. 

In  order  fully  to  attain  the  stated  objective,  these  rules  must 
also  limit  any  restrictive  effects  of  authorisations  granted  in 
the  past.  To  this  end,  undertakings  should  be  released  from  any 
obligations  which  will  no  longer  be  allowed,  while  at  the  same 
time  steps  must  be  taken,  within  reasonable  limits,  to  give  other 
undertakings  access  to  areas  reserved  for  a  single  undertaking 
under  discriminatory  conditions  in  the  past. 

-  6  -

Attainment  of  these  objectives  will  create  a  more  competitive 
environment  in  this  industry.  It  will  contribute  towards  cutting 
costs,  stimulating  exploration  and  production  activities  and,  as  a 
result,  making  the  Community  more  self-sufficient  in  oi I  and  gas 
and  generally  improving  its  security  of  energy  supplies.  This 
will  facilitate  the  free  movement  of  oil  and  gas  in  the  Community 
and  thus  complement  the  action  taken  by  the  Commission  to 
liberalise  the  transmission  and  distribution  stages  of  the  gas 
market. 

General  principles 

13.  The  proposal  from  the  Commission 

is  based  on  four  general 

pr inc iples: 

1. 

2. 

3. 

4. 

Member  States  retain  sovereignty  over  their  oil  and  gas  resources. 
In  this  respect,  the  proposal  in  no  way  prejudices  the  rights  of 
long-term  management  of  these 
the  Member  States  concerning 
resources, 
short-term 
administration  thereof. 

therefrom 

revenue 

derived 

the 

and 

In  line  with  the  principle  of  subsidiarity,  the  Member  States 
remain  free  to  choose  or  maintain  the  rules  most  appropriate  to 
natural  operating  conditions  and  to  the  long-term  policy  for 
management  of  these  resources. 

Consequently,  the  aim  of  the  proposal  is not  to  establish  detailed 
regulations  but  to  lay  down  a  framework  for  the  general  principles 
to  which  those  rules  must  conform. 

The  approach  taken  to  this  end  is based  on  the  specific  conditions 
for  exploitation  of  such  resources.  Consequently,  it  is  different 
from  the  approach  in  the  proposal  for  a  Directive  concerning 
common  rules  for  the  internal  electricity  market  and  is  based  on 
the  line  followed  in  the  Directives  concerning  public  procurement 
contracts. 

Means 

14.  All  entities  (possessing  the  requisite  capabilities)  must  be 
ensured  non-discriminatory  access  to  and  rights  to  exercise 
prospecting,  exploration  and  extraction  activities.  To  this  end, 
the  following  provisions  are  proposed: 

a)  Henceforth  exclusive  rights  to  prospect,  explore  and  extract 
the  basis  of 

hydrocarbons  will 
non-discriminatory  procedures  open  to  all  entities. 

be  granted 

solely  on 

b)  The  authorisation  procedures  will  be  made  more  transparent  and 

non-discr iminatory: 

-  by  using  procedures  open  to  all  undertakings  concerned  and 

giving  them  the  requisite  publicity; 

-  by  laying  down  and  publishing  objective  criteria  on  which 

the  decisions  will  be  based; 

-  by  informing  all  parties  concerned  of  the  conditions  to  be 

applied  for  granting  authorisations. 

-  7 •-

c)  The  conditions  and  obligations  imposed  on  undertakings  for 
granting  or using authorizations must  be based  exclusively on: 

-  the need  to ensure  proper  exploitation; 
-  reasons  in the public  interest  such  as  compliance  with  the 
standards  applicable  to  the  environment,  security  and 
public  health, national  defence  or  the  resource  management 
poIi cy;  and 

-  the  royalties  levied  by  the  Member  States  on  hydrocarbon 

product ion; 

and  entities  on  which  unjustified  conditions  and  obligations 
were  imposed  by  authorisations  granted  in  the  past  should  be 
released  therefrom. 

d)  Where  authorisations  were  granted  in  the  past  under  a 
procedure  closed  to  competition,  other  entities  must  be 
granted  access  to  the  as  yet  unexploited  parts  of  the  area 
covered  by  the concession. 

COMMENTS ON THE  PROPOSAL 

Subject  matter  and persons  covered 

15.  In essence, the Directive applies to the national  legal  frameworks 
for exercising oil  and gas prospecting, exploration  and  extraction 
activities,  i.e.  to  the  authorisations  defined  in  Article  1(3), 
which  determines  the  subject  matter  covered  by  the  Directive. 
This  in  turn  determines  the  persons  covered,  namely  the  entities 
(Article  1(2)) which  apply  for  or  hold  an  authorisation  and  the 
competent  authorities  (Article  1(4)),  i.e.  the  public  authorities 
(Article  1(1))  which  grant  the  authorisations.  The  important 
points  to note are that: 

(i) the definition of  author isat ions does not  cover: 

-  contracts  whereby  the  public  authorities  or  an  entity 
the 
entrust 
activities,  in  return  for  payment,  in  which  case  the 
contract 
is  covered  by  the  Directives  on  public 
proceurement contracts; 

an(other)  entity 

performance 

with 

of 

-  authorisations  which  do  not  confer  an  exclusive  right,  as 

is generally  the case with  prospecting  licences; 

(ii)  with  respect  to  the ent i t ies.  no distinction  is drawn  between 

public or  private undertakings. 

Territory  covered 

16.  The Directive  applies to the  territory  of  the Member  States and  to 
the  other  areas  over  which  they  exercise  sovereignty  under  the 
conditions  laid down  in the Treaty. 

Timescale  covered 

-  8  -

17.  Article  14  requires  the  Member  States  to  comply  with  this 
Directive  by  1 January  1993.  The  Directive  applies  only  to 
authorisations  granted  after  this  date.  However,  it  could  be 
applied  in advance  to authorisation  procedures  started  before  this 
date.  This  can  be  justified  by  the  need  to  prevent  new 
authorisations  for  the  limited  number  of  geographical  areas  still 
unexploited  being  granted  under  conditions  incompatible  with  the 
Directive  between  the  date  of  adoption  and  of  entry  into  force 
thereof. 

18.  The  Directive  also  applies  to  authorisations  granted  before  its 

application  into force  in two specific cases: 

if  the  authorisations  impose  on  the  entities  conditions, 
obligations  and  requirements  other  than  those  authorised  by 
Art icle 7; 

in the case provided  for by Article  8  (see paragraph 26). 

In  both  these  cases,  the  Directive  in  no  way  calls  into  question 
the  granting  of  these  authorisations  but  simply  limits  certain 
effects  to  ensure  that  the  Directive  has  a  balanced,  beneficial 
impact  on  the  individual  Member  States.  It  is provided  that  the 
limitation  of  rights  in  these  cases  shall  give  rise  to 
compensation  by  the  Member  States  concerned,  according  to  their 
leg is I at ion. 

Objective  of  the Directive 

19.  The  objective  of  the  Directive  is  to  ensure  non-discriminatory 
access  to  and  exercise  of  the  activities  concerned  (Article 2 ). 
In  another  connection,  Member  States  shall  retain  the  right  to 
forbid  any  activity  in  certain  parts  of  their  territory  for 
reasons  of  public  interest  or  to  subject  the  exercise  of  such 
activity  to  conditions  connnected  with  the  observance  of  such 
reasons  (Article  3 ).  Articles  4  to 8  lay  down  the  rules  designed 
to attain  this objective. 

Rules  for  the granting  of  authorizations  (Articles  4,  5, 6,  7 and 
8) 

Basic  pr inciple 

20.  Authorisations  must  be  granted  solely  under  the  conditions  laid 
down  in the Directive,  i.e. by  procedures open  to all  entities and 
transparent  and  imposing on  them only  clearly  defined  conditions. 

Opening  of  procedures  (Article  4) 

21.  The  procedures  must  be  open  to  everyone  and  must  be  given  the 
necessary  publicity  (Article  4(1) and  (2)).  The Member  States use 
two  types of  procedure: 

rounds  opened  at  the  initiative  of  the  public  authorities, 

-  9  -

when  there  are  a  relatively  large  number  of  authorisations  to 
grant,  as  is  generally  the  case  with  the  North  Sea  fields; 
and 

procedures  opened  following  submission  of  an  application  by  an 
ent ity. 

This  shall  not  apply  to  applications  for  authorisation  formulated 
so  as  to  take  account  of  changes  in  the  control  of  entities  but 
which  do  not  affect  the  rights  and  obligations  established  by  the 
initial  authorisation  (paragraph  3 ).  Where  there  is a  transfer  to 
another  entity  of  all  or  some  of  the  rights  which  an  entity  enjoys 
by  virtue  of  an  existing  authorisation,  it  shall  be  for  the  Member 
States  to  decide  whether  such  a  transfer  requires  the  granting  of 
a  new  authorisation  and  consequently  the  application  of  the 
procedures  provided  in Article  4(1)  and ( 2 ). 

Duration  and  scope  of  authorisations  (Article  5) 

22.  Equal  access  for  entities  to  activities  implies  that  the  scope  of 
authorisations  and  their  duration  should  be  limited  in  a  manner 
compatible  with  the  economic  and 
conditions  for 
efficient  exploitation,  so  as  not  to  reserve  for  one  entity,  for 
an  excessive  length  of  time,  the  exploitation  of  a  zone  in  which 
other  operators  could  also  exercise  their  activity. 

technical 

Transparency  of  procedures  (Article  6) 

23.  To  keep  the  procedures  transparent,  they  must  satisfy  three 

condit ions: 

the  decisions  must  be  based  on  objective,  pre-established 
criteria  published  in  advance; 
all  the  general  conditions  and  obligations  imposed  on  the 
undertakings  must  be  established  and  made  available  to  the 
entities  before  submission  of  applications; 
the  criteria,  conditions  and  obligations  must  be  applied 
without  discrimination. 

Conditions  for  granting  and  using  authorisations  (Article  7) 

24.  Steps  must  be  taken  to  avoid  placing  on  the  granting  and  use  of 
authorisations,  conditions  or  obligations  which  are  not  directly 
linked  to  optimum  exploitation  of  the  concession,  such  as  those 
which  would  impose  on  undertakings  the  choice  of  their  partners, 
of  their  employees,  of  their  suppliers,  of  their  customers  or  of 
means  of  transporting  oil  or  gas. 

Only  conditions  compatible  with  this  objective  may  be  imposed  on 
undertakings.  The  same  applies  to  conditions  and  obligations 

-  10  -

imposed  for  reasons  in  the  public  interest  as  mentioned  in 
Article  3  and 
the 
Member  States. 

obligations 

vis-a-vis 

financial 

to  the 

25.  In  the  light  of  the  above,  Member  States  shall  not  be  able  to 
impose  the  participation  in  an  entity's  capital  or  revenues  of  a 
national  undertaking  which  would  otherwise  itself  exercise  the 
activities  covered  by  the  Directive.  In addition,  this  enterprise 
must  behave  as  a  "sleeping  partner". 

Existing  authorisations  (Article  8) 

26.  As  mentioned  in  paragraph  18,  the  Directive  applies  fully  only  to 
authorisations  granted  after  its  date  of  application.  This  raises 
the  question  of  authorisations  granting  entities  the  exclusive 
right  to  exploit  geographical  areas  after  a  procedure  closed  to 
other  entities.  Exclusive  rights  of  this  type  conflict  with  the 
principle  of  equal  access  to  resources. 

To  remedy  this  situation,  Article  8  provides  for  the  return  of 
subareas  not  yet  exploited  to  the  Member  States  concerned  so  that 
they  can  grant  new  authorisations  for  the  subareas  in  question. 
In  practice,  this  is  a  specific  application  of  the  relinquishment 
method  already  in use,  particularly  in  the  North  Sea. 

Other  provisions  (Art icles 9.  10.  11.  13) 

27.  Relations  with  third  countries.  Liberalisation  of  the  sector  will 
bring  benefits  for  all  entities  established  in  the  Community, 
including  branches  of  non-Community  companies.  Companies  from  the 
in  non-Community 
Community  must  enjoy  equivalent 
countries.  Article  9  establishes  a  procedure  for  evaluating  the 
situation  and  initiating  negotiations  with  third  countries  as  the 
need  ar ises. 

advantages 

28.  Directive  90/531/EEC  on  the  procurement  procedures  of  entities 

operating  in  the  excluded  sectors. 

by 

for 

Article  3  of  this  Directive  establishes  alternative  arrangements 
for  entities  exercising  oil  and  gas  exploration  and  extraction 
activities.  These  are  more  flexible  than  the  general  arrangements 
provided 
these 
alternative  arrangements  shaI I be  subject  to  two  conditions  : that 
the  granting  of  authorisations  on  the  one  hand,  and  procurement  on 
the  other,  shall  be  made  under  non-discriminatory,  transparent 
conditions.  In  order  to  apply  them,  the  Member  State  concerned 
must  send  an  application  to  the  Commission,  which  will  check  that 
these  conditions  are  met. 

the  Directive.  The  application 

of 

Member  States  requesting  the  application  of  the  alternative 
arrangements  shall  no  longer  be  required  to  demonstrate  that  they 
fulfil  the  first  of  these  conditions  from  the  date  on  which  they 

-  11  -

shall  have  satisfied  the  requirements  of  this  Directive.  It 
should  be  noted  that  the  general  rules  of  Directive  90/531/EEC 
shall  become  applicable  to  them  should  they  subsequently  fail  to 
meet  their  obligations  under  this  Directive.  Consequently, 
Directive 90/531/EEC Article  13 requires  to be  amended. 

It  should  be  recalled  that  the  Directive  [on  remedies  in  the 
excluded  sectors] also applies. 

29.  Finally,  the  Directive  places  on  the  Member  States  an  obligation 
to publish  an annual  report  on  the authorisations granted  (Article 
10) and  to notify  the Commission  of  the competent  authorities  with 
a  view  to  publication  in  the  Official  Journal  (Article  11).  No 
comments  need  be made on  these Articles. 

Legal  basis 

30.  A  Directive  based  on  Articles  57(2),  66,  100A  and  113  of  the 
Treaty  is  the  most  appropriate  means  of  harmonising  the  Member 
States'  authorisation  procedures.  In  addition,  the  Commission 
reserves  the  right  to use  all  its powers  under  the  Treaty  against 
any  national  laws,  regulations  or  administrative  provisions 
directly  conflicting  with  the provisions of  the  Treaty. 

CONCLUSION 

Consequently,  the  Commission  proposes  a  Directive  introducing  common 
rules  on  the  conditions  for  granting  and  using  authorisations  for  the 
prospecting,  exploration  and  extraction  of  hydrocarbons,  based  on 
Articles  57(2),  66, 100a  and  113 of  the Treaty. 

-  12 -

Proposal  for a 

COUNCIL  DIRECTIVE 

on the conditions  for granting  and using  authorizations  for 

the prospection, exploration  and extraction of  hydrocarbons 

THE COUNCIL OF THE EUROPEAN  COMMUNITIES, 

Having  regard  to  the  Treaty  establishing  the  European  Economic  Community, 

and  in particular Articles  57(2),  66,  100a and  113 thereof, 

Having  regard to the proposal  from the  Commission^), 

In cooperation with the European  Parliament(2), 

Having regard to the opinion of the Economic  and Social  Committee(^), 

Whereas measures must be adopted with the aim of progressively  establishing 

the  internal  market  over  a  period  expiring  on  31  December  1992; 

whereas  the  internal  market  consists  of  an  area without  internal  frontiers 

in  which  the  free  movement  of  goods,  services,  persons  and  capital  is 

ensured; 

Whereas  in  its  Resolution  of  16  September  1986(*)  the  Council  identified 

as an objective of the energy policy of the Community  and the Member  States 

the  greater  integration,  free  from  barriers  to  trade,  of  the  internal 

energy  market  with  a  view  to  improving  security  of  supply,  reducing  costs 

and  improving economic  competitiveness; 

Whereas  the  Community  depends  on  imports  for  its  hydrocarbon  supply; 

whereas  it  is  consequently  advisable  to  encourage  the  best  possible 

exploitation  of the  resources  located  in the Community; 

(1)  OJ 
(2)  OJ 
(3)  OJ 
(4)  OJ No C 241, 25.9.1986, p. 1. 

-  13 -

Whereas  steps  must  be  taken  to  ensure  the  access  to  and  pursuit  of 

activities  relating  to  the  prospection,  exploration,  and  extraction  of 

hydrocarbons  under  conditions  which  encourage  greater  competition  in  this 

sector  and  thereby  to  favour  the  best  exploitation  of  Community  resources 

and to reinforce the  integration of the  internal energy market; 

Whereas,  for  this  purpose,  it  is  necessary  to  set  up  common  rules  for 

ensuring  that  the  procedures  for  granting  authorizations  for  the 

prospection, exploration  and extraction  of hydrocarbons must be open to all 

entities possessing the necessary  capabilities; whereas authorizations must 

be  granted  on  the  basis  of  objective,  published  criteria;  whereas  the 

conditions under which authorizations  are granted must  likewise be known in 

advance by all entities taking part  in the procedure; 

Whereas Member  States must  retain the option to limit the access to and the 

exercise  of  these  activities  for  reasons  justified  by  public  interest  and 

to  subject  the  payment  of  a  financial  contribution  or  a  contribution  in 

hydrocarbons, the modalities of the said contribution having to be fixed  in 

such  a way  as not to  interfere  in the management  of  entities; whereas  this 

option  must  be  used  in  a  non-discriminatory  way;  whereas,  with  the 

exception of the obligations related  to the use of this option,  steps must 

be taken to avoid  imposing  on entities conditions  and obligations which  are 

not  justified  by  the  need  to  perform  this  activity  properly;  whereas  the 

activities  of  entities  must  be  monitored  only  to  the  extent  necessary  to 

ensure their compliance with these obligations  and conditions; 

Whereas  the  extent  of  the  areas  covered  by  an  authorization  and  the 

duration of the authorization must be limited with a view to preventing the 

reservation to a single entity of an exclusive right over an area which can 

be exploited  more efficiently  by  several entities; 

Whereas  the grant  of  an exclusive  right to exploit  an  area  and  exercise of 

this right  for the time specified  in the authorization  is fair  compensation 

for  the  risks  taken  by  an  entity;  whereas  this  compensation  surpasses  the 

risks taken  if an entity  holds exclusive  rights  for  a very  long or even  an 

indefinite  period  over  a  geographical  area  without  having  given  other 

entities  the possibility  of  access to  exploit  the  area, either  at the time 

-  14 -

of  granting  or  at  a  later  stage;  whereas  with  a  view  to  ensuring  the 

effectiveness  of  this  Directive,  conditions  must  be  established  to  remedy 

this  situation  to  the  extent  that  the  area  is  not  entirely  exploited; 

whereas  it is nevertheless necessary to take into account  legally-protected 

situations  and  to  provide  for  entities  to  be  compensated,  if  the  need 

arises,  in accordance with the applicable national  law; 

Whereas Member  States' entities  should enjoy  in third countries a treatment 

comparable to that enjoyed by third  countries' entities  in the Community by 

virtue  of  this  Directive; whereas  it  is necessary  to  lay  down  a  procedure 

to this end; 

Whereas this Directive  should  apply to authorizations  issued  after the date 

on  which  Member  States  apply  it;  whereas,  however,  entities  holding 

authorizations  granted  before  that  date  should  be  released  from  any 

conditions  and  obligations  which  may  no  longer  be  imposed  thereafter; 

whereas  it is nevertheless  necessary  to take  into account  legally-protected 

situations  and  to  provide  that,  if  the  need  arises,  entities  and  other 

parties concerned  be compensated  in accordance with the applicable  national 

law; 

Whereas  Council  Directives  90/531/EEC<5)  and 

(6) apply  to  the 

entities  in the  sector  as  regards  their  procurement  of  supplies, of  works 

[and  of  services]; whereas  the  application  of  the  alternative  arrangements 

provided  for  under  Article  3  of  Directive  90/531/EEC  is  subject  in 

particular  to  the  condition  that,  in  the  Member  State  requesting  the 

application  of  these  arrangements,  authorizations  be  granted  in  a  non 

discriminatory  and  transparent  manner; whereas  a Member  State  fulfils  this 

condition  from  the  moment  when  and  for  as  long  as  it  complies  with  the 

requirements  of  this  Directive;  whereas  it  is  consequently  necessary  to 

amend Directive 90/531/EEC, 

HAS ADOPTED  THIS DIRECTIVE: 

Article 1 

For the purposes of this Directive, 

(5)  OJ No L 297, 29.10.1990. 
(6)  OJ 

-  15 -

1. 

"public  authorities"  mean  the  public  authorities  defined  in  Article 

1(1)  of Directive  90/531/EEC; 

2. 

"entity"  means  any  legal  or  natural  person  or  any  group  of  such 

persons which  applies  for or holds  an authorization; 

3. 

"authorization"  means  any  law,  regulation,  administrative  or 

contractual  provision  by  which  the  competent  authorities  of  a 

Member State  entitle  an  entity  to  exercise, on  its  own  behalf  and  at 

its own  risk, the exclusive  right to exploit  a geographical  area with 

the  objective  of  prospecting  or  exploring  for  and/or  extracting 

hydrocarbons; 

4. 

"competent  authorities"  means  the  public  authorities  which  are 

responsible  for granting  authorization  and monitoring use thereof. 

Article 2 

1. 

Member  States  shall  ensure  non-discriminatory  access  by  entities  to 

activities  relating  to  the  prospecting  and  exploration  for  or 

extraction  of  hydrocarbons  and  non-discriminatory  exercise  of  these 

activities. 

2. 

Member  States  may,  for  reasons  related  to  the  defence  of  the 

territory,  refuse  the  access  to  and  the  exercise  of  the  activities 

referred  to  in  paragraph  1  in  border  areas  to  any  entity  which  is 

effectively  controlled  by  a  third  country  and/or  nationals  of  third 

countries. 

3. 

The  option  provided  for  in  paragraph  2  shall  be  subject  to  prior 

authorization  by the Commission which  shall ensure especially that  its 

use  does  not  give  rise  to  discrimination  between  entities  other  that 

those referred  to  in paragraph 2. 

-  16 -

Article 3 

1.  Member  States  shall  retain  the  option  to  prohibit  exercise  of  the 

activities  set  out  in  Article  2(1)  to  the  extent  justified  by  the 

defence of the territory, public  security,  public health, security of 

transport, protection  of  the  environment,  safety  of  installations  and 

of  workers  or  the  planned  management  of  hydrocarbon  resources.  For 

the  same  reasons,  they  shall  also  retain  the  option  of  imposing 

conditions on the exercise of those activities. 

2. 

Member States shall ensure that the use of the options provided  for in 

paragraph  1 does not give rise to discrimination between entities. 

Article 4 

1. 

Member  States  shall  take  the  necessary  measures  to  ensure  that 

authorizations  are  granted  under  a  procedure  in which  all  interested 

entities may  submit applications. 

2. 

These procedures  shall be  initiated: 

(a)  either  at the initiative of the competent  authorities by means of 

a  notice  published  in  the  Official  Journal  of  the  European 

Communities  at  least  90  days  before  the  closing  date  for 

applications; 

(b)  or  following  submission  of  an  application  by  an  entity.  This 

application  shall  be  published  by  means  of  a  notice  in  the 

Official  Journal  of  the  European  Communities.  Other  interested 

entities  shall  have  a period  of  at  least  90  days  after  the  date 

of publication  in which to submit an application. 

Notices  shall specify the type of authorization, the geographical  area 

or  areas  in  respect  of  which  an  application  has  been  or  may  be  made 

and the planned  date for granting  authorization. 

-  17 -

3. 

The grant  of  an  authorization  solely  by  reason  of  a change of  name or 

ownership  of  an  entity  holding  an  existing  authorization  or  from  a 

change  in the composition  of such an entity  shall not be considered  as 

the grant of an authorization within the meaning of paragraph  1. 

Article 5 

Member  States  shall take the necessary measures to ensure that: 

(a)  If  the  geographical  areas  are  not  delimited  on  the  basis  of  a  prior 

geometric  division  of  the  territory,  the  extent  of  each  area  is 

determined  so as to ensure the best possible exploitation of the  areas 

from  the  technical  and  economic  points  of  view.  Objective  criteria 

shall  be  established  to  this  end  and  shall  be  made  available  to  the 

entities prior to the submission of applications; 

(b)  the  duration  of  an  authorization  does  not  exceed  the period  necessary 

to  carry  out  the  activities  for  which  the  authorization  is  granted. 

However,  the  competent  authority  may  prolong  the  authorization  where 

the  exploitation  has  been  subject  to  delays  due  to  unforeseen 

circumstances  such as particular difficulties  linked to the  geological 

structure  of  the  specific  area  or  where  an  unexpected  discovery  of 

hydrocarbons  is  to  be  developed  and  the  stipulated  duration  is 

insufficient  to appraise  and exploit  such a discovery; 

(c)  entities  surrender  as  soon  as  possible  to  the  competent  authorities 

the  whole  or  part  of  the  geographical  area  concerned  which  is  not  to 

be exploited  by those entities. 

Article 6 

Member  States  shall take the necessary measures to ensure that: 

1. 

authorizations  are  granted  on  the  basis  of  the  technical  and 

financial  capability  of the entities and of one or more other  criteria 

concerning: 

- i s-

ta)  the way in which the entities propose to exploit the geographical 

area in question, 

(b)  the efficiency and responsibility displayed by the applicants in 

operations under other authorizations, 

(c)  if  the  authorization  is put  up  for  sale, the  price  which  the 

entity is prepared to pay in order to obtain the authorization; 

these  criteria  shall  be  drawn  up  and  published  in  the  official 

journals of the Member States in question and in the notice referred 

to in Article 4(2) before the  start of the period  for submission of 

applications; 

2.  all conditions and requirements concerning the exercise or termination 

of  the  activity  which  apply  to  authorizations  of  the  same  type  by 

virtue of the laws, regulations and administrative provisions in force 

at the time  of  submission  of the applications, whether  contained  in 

the authorization or being one of the conditions to be accepted prior 

to the grant of such authorization are established and made available 

to  interested  entities  at  the  start  of  the  period  allowed  for 

submission of applications for authorization; 

3.  all changes made to these conditions and requirements in the course of 

the procedure are notified to all interested entities; 

4.  the criteria, conditions and requirements referred to in this Article 

are applied in a non-discriminatory manner; 

5.  any entity whose application for an authorization is unsuccessful is, 

if the entity so wishes, informed of the reasons for the decision. 

Article 7 

1.  Member  States  shall  ensure  that  the  conditions  and  requirements 

referred to in Article 6(2) and the detailed obligations for use of a 

specific authorization are justified exclusively by the need to ensure 

- 19 -

proper  exploitation  of  the  geographical  area  for  which  an 

authorization is requested, by the application of Article 3 and by the 

payment of a financial contribution or a contribution in hydrocarbons. 

The rules for payment of such contributions  shall be fixed by Member 

States in such a way as to ensure that the independence of management 

of entities is maintained. 

2.  Member  States  shall  ensure that  the monitoring  of the  activities in 

the  framework of an authorization  is limited to the extent necessary 

to  ensure  the  compliance  with  the  conditions,  requirements  and 

obligations  referred  to  in  paragraph  1.  In  particular,  they  shall 

take the measures necessary to ensure that no entity is compelled, by 

any law, regulation or administrative requirement, or by any agreement 

or  undertaking,  to  provide  information  on  its  intended  or  actual 

sources  of  procurement,  except  at  the  request  of  the  competent 

authorities  and exclusively with a view to the objectives  set out in 

Article 36 of the Treaty. 

Article 8 

1.  If, on 1 January 1993, an entity holds one authorization granted under 

conditions which precluded submission or consideration of applications 

from  other  entities,  the  Member  State  concerned  shall  take  the 

necessary measures to grant new authorizations in respect of the parts 

of  this  geographical  area  which  are  not  yet  exploited  on  the 

abovementioned date. 

2.  For the purposes of paragraph 1, the following shall be considered as 

not yet exploited:  the parts of the abovementioned  geographical  area 

which  have  not  been  explored  or  for  which  the  agreement  of  the 

competent authorities to proceed to extraction has not been requested 

or, where such agreement  is not required, in which extraction has not 

begun: 

within the period fixed by the authorization, or failing that, 

within  the  period  fixed  by  any  legislation  which  may  apply  to 

other authorizations, or, where no such period is stated, 

within  a  period  of  five  years  after  the  granting  of  the 

authorization. 

- 20 -

3.  The Member State concerned shall ensure that applications for the new 

authorizations  referred  to  in  paragraph  1  may  be  submitted  from 

1 January 1993. 

4.  Member  States  shall  ensure  that  entities,  whose  rights  have  been 

limited under paragraph  1, receive compensation of the same nature as 

that provided  for under national  legislation  for similar  limitations 

of rights for reasons of public interest. 

Article 9 

1.  Member  States  shall  inform  the  Commission  of  any  general  difficulty 

encountered,  in  law  or  in  practice  by  entities  in  access  to  or 

exercise of the activities of prospecting, exploring for and producing 

hydrocarbons in third countries. 

2 

The Commission shall report to the Council before 31 December 1993 and 

periodically  thereafter, on the situation of these entities  in third 

countries  and on the state of possible negotiations undertaken under 

paragraph 3 with those countries or in the framework of international 

organizations. 

3.  Whenever the Commission establishes, either on the basis of the report 

referred to in paragraph 2, or on the basis of other information, that 

a  third  country  does  not  grant  to  Community  entities,  as  regards 

access to and exercise of the activities referred to in paragraph 1, 

treatment comparable to that granted by the Community to entities from 

that country, the Commission  shall  initiate negotiations  in order to 

remedy the situation.  The case may be, it shall make an appropriate 

proposal to the Council. 

4.  In  the  circumstances  described  in  paragraph  3,  the  Commission, 

following a reasoned request by a Member State, may at any time and in 

addition to initiating negotiations, allow that Member State to refuse 

an authorization  to an entity which  is effectively controlled by the 

third country concerned and/or by nationals of that third country. The 

- 21 -

Commission authorization is deemed to be granted if the Commission has 

not  issued  an unfavourable opinion within three months  following the 

notification of the request by this Member State. 

5.  Measures  taken  pursuant  to  this  Article  Bhall  comply  with  the 

Community's  obligations  under  any  international  agreement  governing 

the  access  to  and  the  exercise  of  prospection,  exploration  and 

extraction of hydrocarbons. 

Article 10 

Each Member State shall publish and communicate to the Commission an annual 

report which shall include information on the geographical areas which have 

been  opened  to  exploitation,  the  authorizations  granted,  the  entities 

holding  authorizations  and  the  composition  thereof  and  the  estimated 

reserves contained in its territory. 

Article 11 

Member States shall notify the Commission, no later than  1 November 1992, 

of  the  competent  authorities.  They  shall  notify  the  Commission  without 

delay of any subsequent  changes. The Commission  shall publish the list of 

competent  authorities  and  any  changes  thereto  in the Official  Journal of 

the European Communities. 

Article 12 

This Directive shall apply to authorizations granted from 1 January 1993. 

Article  7  shall  also  apply  to  authorizations  granted  before  that  date. 

Member  States  shall  ensure  that  the entities  and  other  parties  concerned 

whose rights are limited under this paragraph are compensated in the manner 

laid down in national law for similar limitations of rights for reasons of 

public interest. 

Article 13 

The following is hereby added to Article 3 of Directive 90/531/EEC: 

-  22 -

As  regards  the  exploitation  of  geographical  areas  for  the  purpose  of 

exploring  for or  extracting  oil or  gas, paragraphs  1 to  4 shall  apply 

as  follows  from  the  date  from  which  the  Member  State  concerned  has 

complied  into the provisions of Council Directive  ...  [of 

on the 

conditions  for  granting  and  using  authorizations  for the  prospection, 

exploration  and extraction of hydrocarbons^*)]: 

(a)  the conditions  laid down  in paragraph  1 shall be considered to be 

satisfied  with  effect  from  that  date  without  prejudice  to 

paragraph  3; 

(b)  with  effect  from  that  date,  the  Member  State  referred  to  in 

paragraph  4  shall  be  required  to communicate  only  the  provisions 

relating  to  compliance  with  the  conditions  referred  to  in 

paragraphs  2 and 3. 

(*>OJ No L 

Article  14 

Member  States  shall  bring  into  force  the  laws,  regulations  and 

administrative  provisions  necessary  to  comply  with  this  Directive  on 

1 January  1993. They  shall  forthwith  inform the Commission thereof. 

When  Member  States  adopt  these  provisions  these  shall  contain  a  reference 

to this Directive  or  shall  be  accompanied  by  such  reference  at the time of 

their  official  publication.  The  procedure  for  such  reference  shall  be 

adopted by Member States. 

Article 15 

This Directive  is addressed  to the Member States. 

Done at Brussels, 

For the Council 

The President 

ISSN 0254-1475 

COM (92) 110 final 

DOCUMENTS 

EN 

12 

Catalogue number: CB-CO-92-181-EN-C 

ISBN 92-77-43592-5 

Office for Official Publications of the European Communities 
Lr2985 Luxembourg