Q&A on Nordsøfonden's finances

We have collected a number of questions about Nordsøfonden's finances. You can also read about the finances and legal framework of Nordsøfonden and Nordsøenheden under Organisation here on the website. We dive into some of the questions that arise from time to time in relation to finances.



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 and together, the two entities constitute the Danish state’s oil and gas company.

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.

How much revenue does Nordsøfonden generate?

Nordsøfonden generates revenue from the sale of the fund’s share of the oil and gas produced. Revenues vary from one year to the next, depending on factors such as how much oil and gas is produced and the prices for these commodities at the time. Nordsøfonden can also receive income from tariffs if third parties link up to production and transport infrastructure that is co-owned by the fund.

As Nordsøfonden is owned by the Danish state, the fund transfers its surplus Cash Flow to the state every year in the form of a dividend. Nordsøfonden also pays corporate tax and hydrocarbon tax.
Nordsøfonden has paid a total of DKK 21.6 billion in taxes and dividends to the Danish state in the period 2012–2019.

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. This revenue is then used to cover expenses for licence activities, taxes, administration and so on.

By law, it is not permitted to “save up” in Nordsøfonden and the fund transfers its Cash Flow surplus to the Danish state every year in the form of a dividend. This means that no reserve liquidity is built up in Nordsøfonden, so the fund does not accumulate substantial equity over time.

The sums transferred to the state coffers are not bound to Nordsøfonden; they are included in the national budget and can be distributed under the Danish Finance Act.

Why is Nordsøfonden’s equity becoming smaller and smaller?

In 2012, Nordsøfonden became a partner in the Danish Underground Consortium (DUC), which was responsible for around 85 percent of Danish production of oil and gas in 2020. In 2012, the value of Nordsøfonden’s share was estimated at DKK 8.8 billion.

Up until 2012, Nordsøfonden’s equity was considered insignificant, so the fund’s equity was set at DKK 8.8 billion in 2012. Nordsøfonden has since generated total accounts-related profits in excess of DKK 1 billion, thus increasing the fund’s equity.

By law, Nordsøfonden is required to pay an annual dividend to the Danish state. Nordsøfonden has paid almost DKK 8 billion in dividends to the Danish state since 2012, which has consequently reduced the fund’s equity.

The reduction in equity 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?

Nordsøfonden generates revenue from the sale of the fund’s share of the oil and gas produced. Expenses for activities under the licences, including operation of the producing fields, exploration and development of fields are financed through this revenue.

By law, Nordsøfonden is obliged 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 loans.

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

Can Nordsøfonden lose money?

Nordsøfonden has to pay expenses and make investments in exploration, development and operation that correspond to its share in the 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.

In the same way as all other businesses, oil and gas companies – and thus, Nordsøfonden – make investments they expect to be profitable. For example, when a company chooses to develop a field, it does so in the expectation that the investment will produce a net profit.

When oil and gas companies generate revenue, the state receives income for the treasury. If, on the other hand, companies make investments that subsequently prove not to be profitable, the state will incur a loss. This arises from Nordsøfonden suffering a loss on its 20% share of the activity, while the other companies have to shoulder the remaining 80% of the loss.

The commercial risks associated with state participation are an inevitable consequence of the desire 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 oil and gas company, Nordsøfonden is tasked with generating as much possible 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 licences granted since 2005 and is also a partner in the Danish Underground Consortium (DUC).

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

Nordsøfonden holds responsibility for ensuring that overall, the activities in the North Sea 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 activities in the Danish section of the North Sea, 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 sell 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. 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.

The termination of Nordsøfonden requires an act of parliament. In the event of discontinuation of the fund, the Danish treasury would take over the fund’s assets and assume the fund’s rights and obligations. This would, for example, mean that the state would be 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 through licences, with the participation of commercial companies and Nordsøfonden. The oil and gas produced are distributed among the companies involved proportionally 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 is shared between the remaining commercial companies that are partners in the licence.

Who is to pay for decommissioning the fields?

Nordsøfonden has to pay the licence expenses proportionally 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, costs associated with the responsible discontinuation (i.e. decommissioning) of oil and gas platforms 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 the decommissioning costs in the North Sea via Nordsøfonden. This provision in the budget has been set at DKK 8 billion, and encompasses the activities that Nordsøfonden is involved in at present.

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 fields and removal of the associated installations, also known as “decommissioning”.

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. For Nordsøfonden, the Danish state posts the relevant guarantee. Nordsøfonden’s 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.