Q&A on Nordsøfonden's finances

As we are sometimes asked about the structure of Nordsøfonden’s finances, we have put together a list of Questions and Answers about this issue.


Who owns Nordsøfonden?

Nordsøfonden is owned by the Danish state, with the Minister of Industry, Business and Financial Affairs as the sole owner. Nordsøfonden is administrated by Nordsøenheden.

By law, Nordsøfonden is to handle the participation of the Danish state in licences for the exploration and production of oil and gas in the Danish section of the North Sea. In 2023, a legislative amendment was passed allowing Nordsøfonden also to participate on behalf of the Danish state in licences for carbon storage and associated activities in Denmark.

How much revenue does Nordsøfonden generate?

Nordsøfonden’s revenue stems from the sale of the fund’s share of the oil and gas produced. The revenue varies from year to year, depending on the prevailing prices for oil and gas and on the volumes actually produced.

Nordsøfonden may also receive some income from tariffs if third parties use of production and transport infrastructure that is co-owned by Nordsøfonden. In the longer term, Nordsøfonden may also generate revenue from subsurface carbon storage.

Every year, Nordsøfonden is required to transfer its surplus liquidity in the form of a dividend to its owner, namely the Danish treasury. Nordsøfonden also pays corporate tax and hydrocarbon tax.

Nordsøfonden has paid a total of DKK 24.8 billion in taxes and dividends to the Danish state in the period 2012–2023.

Why does Nordsøfonden have such limited equity?

Nordsøfonden generates revenue from the sale of the fund’s share of the oil and gas produced in the North Sea. In the longer term, Nordsøfonden may additionally generate revenue from subsurface carbon storage. This revenue is used to cover expenses for licence activities, taxes, administration and so on.

Irrespective of Nordsøfonden’s net result, all surplus liquidity is transferred to the Danish treasury in the form of a dividend paid annually, which means that no liquidity is built up in Nordsøfonden over time. For this reason, the fund will not build up any significant equity over time either. It is thus possible for Nordsøfonden – unlike other companies – to register a loss for the year at the same time as paying a dividend.

The size of Nordsøfonden’s equity depends on Nordsøfonden’s net result and the dividend the fund pays to the Danish state. This means that equity increases when Nordsøfonden generates a positive net result, and that it is reduced in the event of a negative net result, as well as following the annual dividend payments.

The dividend transferred to the state coffers is not bound to Nordsøfonden; it is included in the national budget and can therefore be disbursed under the Danish Finance Act.

Nordsøfonden has access to state relending. As a result, Nordsøfonden will always be able to fulfil its obligations in the licences, irrespective of the amount of equity held by the fund.

Why is Nordsøfonden’s equity becoming smaller and smaller?

In 2012, Nordsøfonden became a partner in the Danish Underground Consortium (DUC), which is responsible for the overwhelming majority of Danish production of oil and gas.

When Nordsøfonden joined DUC as the state participant in 2012, the fund took over 20 per cent of DUC’s assets. The valuation at current prices of these assets, which included 15 producing fields and a range of installations and pipelines, was included in the Nordsøfonden balance sheets. As a result, Nordsøfonden’s equity was increased by DKK 8.8 billion to DKK 8.9 billion.

Over the period 2012–23, Nordsøfonden has generated a total net result in excess of DKK 2.9 billion, thus increasing the fund’s equity.

By law, Nordsøfonden is required to pay out all surplus liquidity in the form of a dividend to the fund owner, i.e. the Danish state. For this reason, Nordsøfonden has paid DKK 9.0 billion in dividends to the Danish state during the same period, which has naturally reduced the fund’s equity.

The total reduction in equity to DKK 3.4 billion at year-end 2023 does not, therefore, reflect the profit or loss on Nordsøfonden’s activities; it simply expresses that Nordsøfonden’s share in the value of DUC’s assets has been “converted” to liquidity that has been transferred to the Danish treasury.

Is the Danish state liable for Nordsøfonden’s expenses?

As the owner of Nordsøfonden, the Danish state is liable for the obligations Nordsøfonden assumes in connection with the licence activities.

Nordsøfonden generates revenue from the sale of the fund’s share of the oil and gas produced. In the longer term, Nordsøfonden may also generate revenue from carbon storage.

Expenses for activities in connection with licences, including the development and operation of oil and gas fields and carbon storage facilities, are financed through Nordsøfonden’s revenue.

By law, Nordsøfonden is required to transfer all its cash flow surplus to the Danish state every year in the form of a dividend. This means that the fund cannot save up liquidity in a reserve. If the need arises to finance activities that cannot be covered by Nordsøfonden’s current revenue, financing is arranged through state relending.

Can Nordsøfonden lose money?

Nordsøfonden is obliged to pay expenses and make investments in licences corresponding to its share in these licences.

Oil and gas prices have fluctuated sharply since the energy crisis of the 1970s, while investments in the oil and gas sector are often made from an extremely long-term perspective. This means that companies make investments defined by market-based, long-term expectations regarding future oil and gas prices, rather than on the basis of a current snapshot of the sector.

The same applies to carbon storage. An element of uncertainty applies in this area, given that the CCS (Carbon Capture and Storage) market is under development.

In the same way as all other businesses, Nordsøfonden makes investments it expects to be profitable. For example, when companies choose to develop a gas field or a facility for the storage of CO2, they do so in the expectation that the investment will produce a net profit.

When these companies generate a profit, the Danish state receives revenue in the form of company and hydrocarbon taxes paid to the Danish treasury. If, on the other hand, the companies make investments that subsequently prove not to be profitable, the state may incur a loss. This situation can occur in cases where Nordsøfonden is liable for the losses on its 20% share of the activity, while the other participant companies have to shoulder the remaining 80% of the loss.

The commercial risks associated with state participation are an inevitable consequence of the desire actively to maximise the state’s share of the revenues from the asset, which fundamentally belongs to the state.

What are the benefits of active state participation?

The underground resources belong to the Danish state, and as the state’s subsurface company, Nordsøfonden is tasked with generating maximum value for the state by making the best possible use of these resources and providing the state with insight into the licence activities.

Nordsøfonden holds shares in all Danish oil and gas licences granted since 2005 and is also a partner in the Danish Underground Consortium (DUC). In addition, Nordsøfonden is a participant in all licences granted for the storage of CO2.

As a state-owned subsurface company, Nordsøfonden safeguards the interests of the Danish state in the licences. Nordsøfonden is to exercise active ownership of the fund’s share in the licences and to act as a commercial company.

Nordsøfonden holds responsibility for ensuring that overall, the activities represent a benefit to Danish society. The fund is therefore committed to conducting its work with all due consideration to societal, environmental and social conditions.

Nordsøfonden is a consistent player in more-or-less all licences, working at the intersection where partners, operators and public authorities meet. This enhances the working relationship on development of the Danish section of the North Sea to the benefit of society as a whole.

Can the Danish state discontinue Nordsøfonden?

Nordsøenheden and Nordsøfonden were established by an act of Parliament in 2005 to handle Danish participation in licences for the exploration and extraction of oil and gas. Today, Nordsøfonden is also tasked with representing the Danish state in Carbon Capture and Storage (CCS) licences. The purpose of the fund is to generate as much value as possible for the Danish state from our shared resources.

State participation is a precondition in the licenses, and Nordsøfonden is not empowered to make decisions about its own participation.

There are no legal provisions that hinder the sale of Nordsøfonden’s licence shares. The sale of licence shares would, however, require approval from the Danish Minister of Industry, Business and Financial Affairs, who is the official owner of Nordsøfonden, as well as from the fund’s commercial licence partners and from the public authorities.

Nordsøfonden can be terminated through an act of Parliament. In the event of discontinuation of Nordsøfonden, the Danish treasury would take over the fund’s assets and assume the fund’s rights and obligations. For example, this would entail the Danish state being liable for future decommissioning expenses.

Is it possible to stop producing Nordsøfonden’s share of the oil and gas?
Oil and gas activities in the Danish section of the North Sea are carried out via licences, with the participation of commercial companies and Nordsøfonden. The oil and gas produced are distributed among the companies involved, proportional to their share of the licence.

Whether or not Nordsøfonden is a participant in the licence therefore makes no difference to the size of the production, given that the volume produced would be shared between the remaining commercial companies that are partners in the licence.

Who is to pay for decommissioning of fields?

Companies that are granted licences to explore and produce oil and gas in the Danish section of the North Sea are subject to a range of obligations. By law, the companies are obliged to post security to the Danish state as a guarantee that they will fulfil these obligations, which include the safe and environmentally responsible cease of production and removal of the associated facilities.

Nordsøfonden has to pay the licence expenses proportional to its share in the licences. This also applies to expenses connected with the decommissioning of fields and the removal of installations.

In some cases, the costs associated with the responsible decommissioning of installations and infrastructure are only to be paid many years into the future. The estimates of these costs are therefore subject to appreciable uncertainty.

There is a provision in the national budget that commits the Danish state to paying its share of these decommissioning costs via Nordsøfonden. The provision in the national budget amounts to DKK 8 billion (2024).

In the same way, companies with CCS licences are subject to a number of obligations with regard to removing installations and monitoring the CO2 stored.

The decommissioning costs should be viewed in the context of the revenues that the activities in the North Sea have already generated and which they continue to contribute to the state.

Can the oil and gas companies renege on their share of the bill?

Under the prevailing legislation, oil and gas companies operating in Denmark provide the Danish state with financial security for the fulfilment of all obligations agreed in connection with the allocation of the licence. These obligations also extend to the safe and environmentally responsible discontinuation of oil and gas fields and to removal of the associated installations.

Pursuant to the Danish Subsoil Act (Undergrundsloven), all operators running facilities in the North Sea are required to prepare a decommissioning plan that must be updated and approved by the Danish Energy Agency on an ongoing basis. i.a., this plan is to contain a statement of the expected expenses for the completion of the decommissioning plan.

Once the value of the remaining production is no longer sufficient to cover the expected discontinuation costs, the companies involved in the licence must post security for their share of these costs.

This security may, for example, take the form of a deposit of liquid funds, a bank guarantee or a parent company guarantee. The Danish state posts the relevant guarantee for Nordsøfonden, whose share in the decommissioning costs is covered by a commitment in the national budget.

Otherwise, fulfilment of the obligation is covered by what is known as “subsidiary liability for companies”. This means that a company which withdraws from a licence remains liable for its share of the decommissioning costs as they were at the time of conveyance, if the company to which the share was conveyed is unable to fulfil its obligations.