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The scope of the standardized parent company guarantee is likely to be revised following Supreme Court decision

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In the case between the Norwegian State and Skeie Technology AS ("Skeie"), the Norwegian Supreme Court found that the standardized parent company guarantee issued by parent companies of licensees on the Norwegian Continental Shelf (the "NCS") only covers petroleum activities within the scope of the production licenses, and that any obligations undertaken by the licensees individually hence falls outside the scope of such guarantee. The standardized parent company guarantee, not revised since 1979, is now likely to be revised.

The wording in the standardized parent company guarantee has not been revised since issued in 1979, and the Ministry of Petroleum and Energy (the "MPE") has been unwilling to both negotiate with individual companies and discuss, review and revise the wording generally in public. Hence, the interpretation and decision of the Supreme Court is of great importance and interest for the industry.


In short, the case concerned the parent company guarantee issued by Skeie in 2008 as security for the obligations of its subsidiary, E&P Holding AS' ("EPH") petroleum activities on the NCS. The guarantee issued by Skeie was in the standardized form required by the MPE.

The factual background for the claim against Skeie was that EPH, in a time of financial difficulties, purchased seismic data and services from TGS Nopec Geophysical ASA ("TGS"). Instead of cash payment, the data and services were compensated through a convertible loan. The compensation was booked as a cost in the financial statements of EPH, and hence EPH received the tax value of these costs from the State through the so-called exploration reimbursement scheme. When it became clear to the State that the purpose of acquiring the data and the services was to receive the exploration reimbursement, and not related to petroleum activities, the State claimed repayment of the exploration reimbursement from EPH. A payment request was also issued to the parent company, Skeie, under the parent company guarantee. The case for the Supreme Court concerned whether the scope of the guarantee covered the claim.

Legal basis in the Petroleum Act

The Supreme Court interpreted the scope of the guarantee by analyzing the wording of the guarantee in light of the enabling provisions in the Petroleum Act. The majority of the Supreme Court concluded that the scope of the guarantee was limited to obligations that EPH as the principal debtor assumed as holder of participating interests and hence for petroleum activities within the scope of a production license, and that it did not cover obligations that the principal debtor assumed individually. In short, the guarantee only covers claims originating from activities in production licenses.

As the seismic data purchased by EPH was not related to production licenses held by EPH, and that being a licensee was not necessary for the purchase of the data and the services, the Supreme Court found that the claim fell outside the scope of the guarantee.

The Supreme Court’s decision deviates from the State's view

The Supreme Court’s decision limits the scope of the guarantee, and clearly deviates from the State's view that it covers all petroleum activities performed as a qualified licensee on the NCS. As mentioned, the wording of the guarantee has not been revised for more than 40 years. In light of the decision by the Supreme Court, the parent company guarantees issued to secure the obligations of licensees on the NCS since 1979 have less value to the State than it expected.

In addition to reducing the value of the guarantee, the restrictive interpretation applied by the Supreme Court gives rise to additional questions. Most operators and licensees enters into intra-group agreements with a wide scope as well as other agreements with a scope exceeding its production licenses, for example in connection with evaluations of applications for new licenses or evaluation of potential acquisition. Most companies clearly have obligations which are not directly related to its production licenses, and in light of the decision from the Supreme Court, claims from the State arising out of such obligations may not be covered by the parent company guarantee.

Another result of the decision is that the scope of the exploration reimbursement scheme exceeds the scope of the parent company guarantee.

It may be expected that the wording in and the scope of the parent company guarantee will now be revised by the MPE.

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