CELEX: 51992PC0110
Language: en
Date: 1992-05-11
Title: Proposal for a COUNCIL DIRECTIVE on the conditions for granting and using authorizations for the prospection, exploration and extraction of hydrocarbons

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
 ---pagebreak---                                             - 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,           reducing                costs       and      improving  economic
    compet i t i veness" S^
    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     241, 25.9.1986.
(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 ,    21.2.1992
 ---pagebreak---                                     - 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      States'     rights     and     responsibilities      concerning
   administration of their oil and gas resources.
   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       downstream      industries     (petrochemicals,       gas
           distribution, etc.).
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,
 ---pagebreak---                                      - 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        this  type    are    contrary    to    the     Treaty,
     particularly its rules on free movement of goods and right of
     establishment.
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      or     economically     feasible     or
          desirable.
     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.
 ---pagebreak---                                         -   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    and    free   movement     of     such   products   between    the
    Member States.
2.  Despite the progress made in a number of Member States, all too
    often   access    to and exercise          of oil     and   gas   prospecting,
    exploration      and     extraction       activities      are    subject     to
    discrimination,      restrictions    or     conditions     incompatible    with
    attainment of these objectives.
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.
 ---pagebreak---                                     - 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.  Member States retain sovereignty over their oil and gas          resources.
    In this respect, the proposal in no way prejudices the             rights of
    the Member      States concerning      long-term management        of   these
    resources,     the    revenue    derived    therefrom     and    short-term
    administration thereof.
2.  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.
3.  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.
4.  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
         hydrocarbons    will    be   granted   solely    on    the   basis    of
         non-discriminatory procedures open to all entities.
    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.
 ---pagebreak---                                      - 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
             entrust    an(other)   entity    with   performance    of   the
             activities, in return for payment, in which case the
             contract    is   covered   by   the   Directives    on   public
             proceurement contracts;
          - 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.
 ---pagebreak---                                    - 8 -
    Timescale covered
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,
 ---pagebreak---                                 - 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   technical   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.
    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
 ---pagebreak---                                     - 10 -
    imposed for reasons in       the public interest as mentioned        in
    Article 3   and    to   the  financial  obligations    vis-a-vis    the
    Member States.
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
    Community   must    enjoy equivalent   advantages    in non-Community
    countries. Article 9 establishes a procedure for evaluating the
    situation and initiating negotiations with third countries as the
    need ar ises.
28. Directive 90/531/EEC on the procurement       procedures  of   entities
    operating in the excluded sectors.
    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   for    by   the  Directive. The    application    of   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.
    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
 ---pagebreak---                                  - 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.
 ---pagebreak---                                           - 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.
 ---pagebreak---                                         - 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
 ---pagebreak---                                         - 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
 ---pagebreak---                                         - 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.
 ---pagebreak---                                      - 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.
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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:
 ---pagebreak---                                  -is-
   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
 ---pagebreak---                                     - 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.
 ---pagebreak---                                   - 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
 ---pagebreak---                                      - 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:
 ---pagebreak---                                       - 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
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                                                              COM (92) 110 final
                                                      DOCUMENTS
EN                                                                              12
                                Catalogue number: CB-CO-92-181-EN-C
                                                             ISBN 92-77-43592-5
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