Oil production on the Norwegian continental shelf began on June 15, 1971, at the Ekofisk field, which is still one of the largest among Norway’s oil producing areas and whose production is expected to continue until 2050. It is estimated that only 35% of the country’s continental shelf resources have been exploited thus far. The petroleum industry, the largest Norwegian industrial sector, accounted for 26% of added value in Norway in 2006. That year, Norway ranked as the world’s fifth largest oil exporter, the tenth largest oil producer, the third largest gas exporter, and the fifth largest gas producer. In 2008, it was the sixth largest net oil exporter and the eleventh top oil producer, and it remains the largest oil producer in Europe.
As of January 2008, Norway’s continental shelf had seen one major oil blowout from a facility during the operations phase of petroleum extraction: the 1977 Ekofisk Bravo accident, which resulted from the failure of a bottom valve in a production well in connection with an overhaul. Although there were no deaths from the accident, 9,000 tons of oil in one week spilled into the sea before operators regained control of the well.
II. Legal Regime
The Norwegian Constitution has provisions on general protection of the environment and natural resources. It states in Article 110b that every person has a right to an environment conducive to good health and “to a natural environment whose productivity and diversity are maintained. Natural resources should be managed on the basis of comprehensive long-term considerations whereby this right will be safeguarded for future generations as well” (para. 1). To safeguard this right, “citizens are entitled to information on the state of the natural environment and on the effects of any encroachment on nature that is planned or carried out” (para. 2). State authorities are to issue specific provisions for implementation of these principles (para. 3).
B. Pollution Control Act
The Norway Pollution Control Act (PCA) stipulates in general under Article 2, on guidelines, that efforts are to be made to prevent any occurrence or increase of pollution and to limit any pollution that does occur (item 1); that the costs of preventing or limiting pollution are to be met by the person responsible for the pollution (item 5); and that pollution resulting from activities in Norwegian territory will be counteracted to the same extent, irrespective of whether the damage arises within or outside Norway. The PCA defines pollution as, among other things, “the introduction of solids, liquids or gases to air, water or ground” and “anything that may aggravate the damage or nuisance caused by earlier pollution, or that together with environmental impacts such as [those listed above] causes or may cause damage or nuisance to the environment” (art. 6).
The PCA imposes a duty to avoid pollution, whereby, for example,
If there is a danger of pollution contrary to this Act or decisions made pursuant thereto, the person responsible for the pollution shall ensure that measures are taken to prevent such pollution from occurring. If pollution has already occurred, the said person shall ensure that measures are taken to stop or remove the pollution or limit its effects. The person responsible also has a duty to take steps to mitigate any damage or nuisance resulting from the pollution or from measures to counteract it. The duty laid down in this paragraph applies to measures that are in reasonable proportion to the damage and nuisance to be avoided. (art. 7, para. 2.)
However, such provisions do not apply to measures to prevent or stop acute pollution (art. 4, para. 1).
Special rules apply to liability for pollution damage, the scope of which is covered in Article 53 of the PCA, under Chapter 8, “Compensation for Pollution Damage.” Chapter 8 is applicable “insofar as the question of liability is not separately regulated by other legislation or a contract.” (art. 53, para. 1). Because the Petroleum Activities Act (see below) covers liability for such activities in the Norwegian realm, it seems that the PCA’s liability provisions do not apply to those activities.
C. Petroleum Activities Act
The Petroleum Activities Act (Nov. 1996, No. 72) (PAA) is the key item of legislation applicable to oil spill liability. It “applies to petroleum activities in connection with subsea petroleum deposits under Norwegian jurisdiction” and “to petroleum activities inside and outside the realm and the Norwegian continental shelf to the extent such application follows from international law or from agreement with a foreign state”(art. 1-4, para. 1). It is also applicable to utilization of petroleum production on Norwegian land territory or seabed subject to private property rights, when that utilization “is necessary to or constitutes an integrated part of production or transportation of petroleum” (art. 1-4, para. 2). The King has the authority to issue regulations to supplement or delimit this condition of utilization (art. 1-4, para. 7). The PAA applies as well to a pipeline in Norwegian territorial jurisdiction that originates outside it should the King decide, insofar as it follows from international law, to apply relevant provisions of the PAA to the pipeline and associated equipment (art. 1-4, para. 3). The PAA does not apply to the internal waters and territorial sea of the Svalbard Islands (art. 1-4, para. 5).
1. Liability for Damage for Pollution in General Under the PAA
Provisions in Chapter 7 of the PAA apply to liability for damage from pollution and for damage arising as a result of pollution and waste (art. 1-4, para. 6). Pollution damage under the PAA refers to “damage or loss caused by pollution as a consequence of effluence or discharge of petroleum from a facility, including a well, and costs of reasonable measures to avert or limit such damage or such loss, as well as damage or loss as a consequence of such measures” and “[d]amage or loss incurred by fishermen as a consequence of reduced possibilities for fishing … .” (art. 7-1, para. 1). Ships used for stationary drilling are deemed a facility; ships that store petroleum in conjunction with production facilities are regarded as part of the facility, as are ships for transport of petroleum when loading from the facility occurs (art. 7-1, para. 2).
Chapter 7 provisions apply to such pollution damage that takes place “in Norway or inside the outer limits of the Norwegian continental shelf or affects a Norwegian vessel, Norwegian hunting or catching equipment or Norwegian facility in adjacent sea areas” (art. 7-2, para. 1). The provisions also apply when that damage occurs in onshore or offshore territory belonging to a party to the Nordic Environmental Protection Convention (art. 7-2, para. 2). The King has the authority, irrespective of the PAA provisions, to issue rules on pollution damage liability by agreement with a foreign state, but the rules may not restrict the right to compensation based on the PAA in regard to any injured party under Norwegian jurisdiction (art. 7-2, para. 3).
In general, the PAA imposes strict liability for pollution damage on the licensee; licensee liability provisions also apply to an operator who is not a licensee subject to a Ministry of Petroleum and Energy decision in connection with the operator status approval (art. 7-3, para. 1). The PAA does not impose a liability cap for offshore drilling. If a license covers several licensees, one of which is the operator, the compensation claims will be initially directed to the operator. If the operator leaves any part of the compensation unpaid on the due date, that part is to be covered by the licensees proportionate to their participating interest in the license; if one fails to cover his share, it is to be allocated proportionately among the others (art. 7-3, para. 2). Liability may be reduced “to the extent it is reasonable” in cases of a force majeure demonstrably contributing “to a considerable degree to the damage or its extent,” beyond the liable party’s control. Particular consideration in such circumstances is given “to the scope of the activity, the situation of the party that has sustained damage and the opportunity for taking out insurance on both sides” (art. 7-3, para. 3). If pollution damage is from a facility in an area outside the Norwegian continental shelf, the party who has the competent authority’s approval to conduct facility-related activities will be deemed a licensee (art. 7-3, para. 4).
As for the channeling of liability of a licensee, it may only be claimed pursuant to the PAA’s provisions, and cannot be claimed against certain other specified actors, e.g., anyone who has performed tasks or worked in connection with the petroleum activities by agreement with a licensee or his contractors or anyone employed by a licensee (art. 7-4, paras. 1&2). If the licensee has been ordered to pay compensation but fails to pay it within the time limit stipulated by the judgment, the damaged party may bring action against the perpetrator of the damage, to the same extent as the licensee may bring action for recourse against the perpetrator; a similar rule applies to a licensee claiming compensation from the party that caused him pollution damage (art. 7-4, paras. 3&4).
The PAA does not permit a licensee to claim recourse for damage that is exempt from liability under the liability channeling provisions, except in cases where the person “or someone in his service has acted wilfully or by gross negligence” (art. 7-5, para. 1). Moreover, recourse liability may be mitigated to the extent “considered reasonable” on the basis of conduct, economic ability, and the general circumstances (art. 7-5, para. 2). To the extent recourse is claimed against a person entitled to limitation of liability under the rules of the Maritime Act of June 24, 1994, the relevant provisions of that Act will apply (art. 7-5, para. 3).
Where pollution damage occurs in connection with petroleum activities conducted without a license, the party that carried out such activities, as well as others who took part and who knew, or should have known, that they were conducted without a license, will be liable for the damage regardless of fault (art. 7-6).
The operator is obliged under the PAA, “unless the Ministry considers it obviously unnecessary,” to provide “without undue delay,” by means of public announcement, information on the party to whom the compensation claims will be directed and the period of limitation (art. 7-7, para. 1). The announcement is to be made by placement of an advertisement twice, with at least one week’s interval, in The Norwegian Gazette (Norsk Lysingsblad) and in newspapers and other publications generally read in the places where the damage is caused or presumed to occur (art. 7-7, para. 2). The PAA also provides for the summoning by preclusive notice of possible claimants, subject to the Ministry’s consent and its issuance of relevant rules (art. 7-7, para. 3).
The legal venue for compensation for pollution damage is the court in the court district where the petroleum effluence or discharge has occurred or where the damage has been caused. However, the Ministry will determine where the legal action will be brought if: (a) the effluence or discharge occurred or the damage has been caused outside the area of any court district; (b) it cannot be demonstrated within which court district the effluence or discharge took place or the damage has been caused; (c) the effluence or discharge took place in one court district and the damage has been caused in another; or (d) the damage has been caused in more than one court district (art. 7-8, paras. 1 & 2).
2. Compensation for Norwegian Fishermen Under the PAA
Chapter 8 of the PAA is devoted to compensation for Norwegian fishermen (persons registered in the registration list of fishermen and owners of vessels listed in the registry of Norwegian fishing vessels subject to registration licenses (art. 8, para. 3)) for pollution damage. Chapter 8 provisions apply to compensation for financial losses incurred by Norwegian fishermen as a result of petroleum activities occurring in fishing fields or resulting in pollution and waste, or as a result of damage caused by a facility or actions in connection with the placement of a facility. They do not apply to pollution damage set forth under Article 7-1 (see above) (art. 8-1, para. 1). “Pollution and waste” in Chapter 8 (art. 8-1, para. 2) have the same definition as in Articles 6 and 27 of the PCA.
If petroleum activities completely or partially occupy a fishing field, the State must, “to the extent that fishing becomes impossible or is substantially impeded,” award compensation, in the form of payment entirely or in part as a lump sum or as a fixed annual payment, for any resultant financial losses. Compensation claims may normally not be made for losses that have occurred more than seven years after the occupation occurred. If the licensee should have averted the losses, the State may claim recovery from him (art. 8-2, paras. 1-3).
In general, the PAA imposes strict liability for financial losses incurred as a result of pollution and waste from the petroleum activities as well as for the cost of “reasonable measures to avert or limit such damage or such loss, including damage or loss as a result of such measures” (art. 8-3, para. 1). The liability also includes damage and inconvenience caused by pollution and waste from supply vessel and support vessel traffic, and by relocation of the facility to or from the field concerned. However, the licensee has the right of recourse against the actual perpetrator of the loss or the ship owner if the other prevailing conditions of liability have been fulfilled (art. 8-3, para. 2).
Compensation may also be claimed for fishing time lost to locating, marking, retrieving, or bringing ashore objects, provided the objects are “properly marked or brought ashore and presented to the police or port authority or other equivalent public authority, unless absolute obstacles exist”; the objects’ location, at least, must be reported to the police or port authority (art. 8-3, para. 3). This provision also applies to compensation for other losses “reasonably” requiring marking, indication of location, or bringing ashore of objects (art. 8-3, para. 4). Joint and several liability will be imposed on licensees for damage incurred when the perpetrator cannot be determined, to the extent that it is believed to have been caused by petroleum activities connected to the license in question (art. 8-4).
Strict liability of licensees also applies to financial losses suffered by fishermen as a result of damage caused by the placement of a facility or actions in connection with it, and the injured party does not have a right to compensation under the provisions of Article 8-2 (art. 8-5.)
Compensation claims made in connection with Norwegian fishermen will be handled by a commission, the composition and procedures of which will be determined by regulations issued by the King, who will also issue provisions on the handling of administrative appeals (art. 8-6, para. 1). Decisions of the administrative appeal body may be brought directly before the district court within two months of the party concerned having been notified by a summons of the given decision (art. 8-6, para. 2).
3. Penal Provisions Under the PAA
The PAA stipulates a punishment of a fine or up to three months’ imprisonment for willful or negligent violation of provisions or decisions issued in or pursuant to the Act; in particularly aggravated circumstances, a sentence of up to two years’ imprisonment may be imposed. The same penalties apply to complicit acts. These provisions will not apply, however, if the violation is subject to a more severe penalty under any other statutory provision (art. 10-17).
4. Proof of Insurance Under the Regulations to the PAA and JV Contracts
Proof of insurance is required by Norway for offshore drilling. There is no set amount for the insurance, but the Regulations to the Petroleum Activities Act stipulate that “the license shall provide reasonable insurance cover” (art. 73, para. 3). Article 73 states in full:
The activities conducted by the licensee pursuant to the Act Chapters 3 and 4 [on production licenses and production of petroleum, respectively] shall be insured at all times. The insurance must at least cover:
- a) damage to facilities,
- b) pollution damage and other liability towards third parties,
- c) wreck removal and cleanup as a result of accidents,
- d) insurance of the licensee’s own employees who are engaged in the activities.
The licensee shall ensure that contractors and subcontractors engaged in the activities take out insurance for their employees to the same extent as the operator insures his own employees.
When taking out insurance as mentioned in the first paragraph literas a) to c), the licensee shall provide reasonable insurance cover, taking into consideration risk exposure and premium costs. Insurance as mentioned under litera d) shall be taken out as further agreed with the organisations of the employees.
The Ministry may consent to the licensee using another form of security arrangement.
At the end of each calendar year, the licensee shall inform the Ministry about existing insurance agreements, with an indication of the main terms. The Ministry may require further insurance to be taken out.
However, it is rare in Norway for there only to be one company in a lease, and leases are not award based on an auction system like that of the United States. Companies must apply for the leases and the Norwegian authorities will evaluate the applications based on such factors as the candidate’s geological expertise, the candidate’s technical expertise (including safety), and the authorities’ prior experience with the company. Therefore, most leases for petroleum activities are in the form of a joint venture. Article 14 of the standard joint venture agreement in Norway is on insurance. It provides that the operator will take out and maintain any insurance required by laws, regulations, and other official rulings, as well as other insurance as determined by the management committee. Copies of the policies will be submitted to the joint venture parties (art. 14.1, para. 1). The operator must file all claims covered by the insurance and collect indemnities that are to be credited to the joint account (art. 14.1, para. 2, in part). A party to a joint venture is also entitled to take out his own insurance or an equivalent form of coverage, but must notify the operator well in advance of the operator’s taking out insurance on behalf of the joint venture, provide the operator and the other parties with the necessary information on that insurance coverage, and ensure waiver of recourse against the other parties (art. 14.2, para. 1). The operator must establish that the insurer of the parties covered by joint insurance or equivalent coverage taken out by the operator has waived recourse claims against a party that takes out his own insurance (art. 14.3). The operator must also ensure that suppliers of goods and services to the joint venture activities take out and maintain the requisite insurance (art. 14.4, in part).
D. Other Potentially Relevant Regulations
Regulations Relating to Health, Environment and Safety in the Petroleum Activities (The Framework Regulations) contain provisions on, among other subjects, prudent petroleum activities, principles on risk reduction, coordination of and cooperation in emergency preparedness, establishment of safety zones, and sanctions. An Appendix to the Regulations is on the “Application of the Working Environment Act in Petroleum Activities Outside the Norwegian Part of the Continental Shelf and During Relocation.”
There are four supplementary regulations to the Framework Regulations: Regulations on Management in Petroleum Activities (the Management Regulations), Regulations on Material and Information in Petroleum Activities (Information Duty Regulations), Regulations on the Design and Outfitting of Facilities, etc., in Petroleum Activities (Facilities Regulations), and Regulations on the Conduct of Activities in Petroleum Activities (Activities Regulations). The Management Regulations contain “all overarching requirements” for management in the field of health, safety, and the environment, including, inter alia, risk reduction, analysis and measurement, follow-up, and improvement. The Information Duty Regulations set requirements for the relevant material and information to be submitted or made available to the authorities, such as applications for consent, alerts, notifications, and reporting. The Facilities Regulations govern the design and outfitting of facilities, “such as safety functions and loads, materials, work areas and accommodation areas, physical barriers and emergency preparedness.” The Activities Regulations regulate various activities and set requirements for such matters as “planning, prerequisites for use, the working environment, work arrangements, health-related aspects, the external environment, maintenance and emergency preparedness. Requirements to environmental monitoring are listed in an appendix, which forms part of the regulations.”
III. Key Regulatory Agencies
Norway’s Ministry of Petroleum and Energy (MPE) has as its principal aim the attainment of “a coordinated and integrated energy policy.” The MPE is responsible for the state’s direct financial interest (SDFI), by means of which the state takes part in Norway’s petroleum sector as a direct investor. It is also in charge of state shareholding in StatoilHydro ASA (an oil and gas company in which the Norwegian state is the majority shareholder), Petoro AS (a state-owned limited company that manages SDFI and that serves as the licensee for SDFI shares on Norway’s continental shelf), and Gassco AS (a gas transport company). The MPE is responsible as well for the Government Petroleum Insurance Fund.
The Norwegian Petroleum Directorate (NPD), which reports to the Ministry of Petroleum and Energy, “sets frameworks, stipulates regulations and makes decisions in areas where it has been delegated authority.” It is also “responsible for conducting metering audits and collecting fees from the petroleum industry” and, “[t]ogether with the MPE, … is responsible for the security of supplies. In addition, the NPD contributes administrative competence, mapping of resources and petroleum data administration for the development aid programme ‘Oil for Development.’ ” The NPD is the coordinating regulatory body; the Norwegian Pollution Control Authority (SFT) and the Norwegian Board of Health are independent regulatory authorities.
The Petroleum Safety Authority Norway (PSA) was established as an independent government regulatory agency in 2004, supplanting the safety department of the NPD. According to its website, the PSA is “the regulatory authority for technical and operational safety, including emergency preparedness, and for the working environment,” whose “regulatory role covers all phases of the industry, from planning and design through construction and operation to possible ultimate removal.” Its definition of “safety” is broad-ranging “and embraces three categories of loss—human life, health and welfare, the natural environment, and financial investment and operational regularity.”
The Norwegian Climate and Pollution Agency (CPA, established on January 18, 2010; formerly the Norwegian Pollution Control Authority, established in 1974) is a directorate under the Ministry of Environment tasked with implementing government policy on pollution. One of its functions is to exercise regulatory authority and carry out inspections, e.g., by managing and enforcing the Pollution Control Act, the Product Control Act, and the Greenhouse Gas Emission Trading Act. The CPA grants permits, establishes requirements and sets emission limits, and carries out inspections to ensure compliance.
IV. Regulations on Svalbard Islands
Norway also has a set of regulations relating to safe practices in petroleum exploration activities on the Svalbard Islands, entitled Regulations Relating to Safe Practice in Exploration and Exploration Drilling for Petroleum Deposits on Svalbard (hereinafter, Svalbard Safety Regulations). As noted above, the PAA does not apply to the internal waters and territorial sea of the Islands. The Svalbard Islands are an archipelago, constituting the northernmost part of Norway, located about halfway between Norway’s mainland and the North Pole, in between the Norwegian Sea, Greenland Sea, Barents Sea, and Arctic Ocean.
The Svalbard Safety Regulations “are applicable to safety in connection with exploration, exploration drilling for petroleum deposits or other exploration activities in accordance with The Mining Ordinance for Svalbard (Spitzbergen)” (art. 2, para. 1). The Petroleum Safety Authority of Norway is the main regulatory body referred to in the Svalbard Regulations (art. 2, para. 2). It has the authority to impose coercive fines on licensees who fail to comply with orders within the time limit imposed. Such fines must either be stipulated at the time the order is imposed, or in connection with the stipulation of a new time limit for compliance with the order (art. 4, para. 1). The amount of the fine will be based on the importance of complying with the order and the estimated costs involved. Coercive fines may be collected by distraint (art. 4, para. 2). When “considered reasonable,” the PSA may waive an imposed coercive fine (art. 4, para. 3).
Willful or negligent violation of the Svalbard Safety Regulations, or of regulations imposed by virtue of them, is punishable by fines, with reference to Article 339, subsection 2, of the Penal Code, except when more severe penal provisions apply to the case. The same penalty applies to attempt and complicity (art. 5). Article 339, subsection 2 of the Penal Code imposes liability to fines for failure to give to a public authority any report or information required by law or for contravening any regulation issued by a public authority according to law and implying liability to a penalty.
Before the commencement of petroleum activities as well as afterwards, the Petroleum Safety Authority may require the licensee to “provide financial security for fulfillment of the obligations he has undertaken, as well as for possible liability in connection with the activities” (art. 15).
V. Recent Developments
The Norwegian Oil Industry Association (OLF) has reportedly commissioned a report on the differences and similarities between Norwegian and U.S. regulations and procedures for petroleum activities, as a result of the Deepwater Horizon accident. OLF is “a professional body and employer’s association for oil and supplier companies engaged in the field of exploration and production of oil and gas on the Norwegian Continental Shelf.” The report is to be prepared by Det Norske Veritas (DNV), an international provider of services to manage risk, headquartered in Oslo.
Another result of the Deepwater Horizon spill is that Norway has declared a moratorium on deepwater drilling. Minister of Petroleum and Energy Terje Riis-Johansen, stated that, in connection with its twenty-first licensing round currently underway, Norway “will not allow any deepwater oil and gas drilling in new areas until the investigation into the explosion and spill in the U.S. Gulf of Mexico is complete.” He further stated that it would not be appropriate for him to allow new licenses for deepwater drilling “until we have good knowledge of what has happened with the Deepwater Horizon [the Gulf of Mexico rig that exploded on April 20] and what this means for our regulations.”
Prepared by Wendy I. Zeldin
Senior Legal Research Analyst
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 Act of 13 March 1981 No. 6 Concerning Protection Against Pollution and Concerning Waste, Government.no website, http://www.regjeringen.no/en/doc/Laws/Acts/pollution-control-act.html?id=171893 (last visited June 18, 2010).
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 Agreement Concerning Petroleum Activities, MPE website, http://www.regjeringen.no/Upload/OED/ Vedlegg/Konsesjonsverk/k-verk-vedlegg-1-2-eng.pdf (last visited June 18, 2010) (unofficial source).
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 About Us, CPA website, http://www.klif.no/no/english/english/About-Us/ (last visited June 18, 2010); its organizational chart is available at CPA website, http://www.klif.no/no/english/english/Organisation/ (last visited June 18, 2010).
 Regulations Relating to Safe Practice in Exploration and Exploration Drilling for Petroleum Deposits on Svalbard, stipulated by Royal Decree of Mar. 25, 1988, by virtue of Section 4 of Act of July 17, 1925, No. 11, relating to Svalbard (Spitzbergen), last amended Dec. 19, 2003, No. 1596, available at the PSA website, http://www.ptil.no/getfile.php/Regelverket/Svalbardforskriften_e.pdf.
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 DNV to Prepare Summary Report, OLF (June 11, 2010), http://www.olf.no/news/dnv-to-prepare-summary-report-article19624-291.html.
 Carola Hoyos, Norway Bans Deepwater Oil Drilling, The Financial Times, June 8, 2010, http://www.ft.com/cms/s/0/986a577e-72fb-11df-9161-00144feabdc0,dwp_uuid=f2b40164-cfea-11dc-9309-0000779fd2ac.html (registration required for access).
Last Updated: 02/18/2014