In March this year we reported that Nederlandse Aardolie Maatschappij B.V. ("NAM"), the biggest oil and gas operator in the Netherlands had applied to the European Commission for a full exemption from the public procurement rules, which require contracts to be put out for competitive tender, in relation to exploration for, or extraction of, oil and gas in the Netherlands (see our original Law-Now on this).

Oil and gas companies fall within the scope of an EU directive (the "Utilities Directive") aimed at strengthening the single European market for goods and services. Companies with licences to engage in oil and gas exploration and production are obliged to comply with certain rules requiring competitive tenders and non-discriminatory treatment of bidders, but have a derogation from the more detailed procedures for competitive tendering which apply to the public sector and some utilities.

Under Article 30 of the Utilities Directive, the Commission may exempt a particular activity totally from these rules when:

  • access to the market is not restricted; and
  • the activity in question is directly exposed to competition.

Following receipt of NAM's application the Commission took written evidence from the Dutch government and from NAM itself. It concluded that access to the Dutch market for oil and gas exploration and production was not restricted since the Netherlands has implemented the Hydrocarbons Licensing Directive which requires competitive bidding for oil and gas licences (the UK has also implemented this directive).

It then considered whether the market for oil and gas exploration and the separate markets for oil production and gas production were competitive. In order to do this it reviewed the market shares of NAM and other players on the relevant markets. It considered the market for oil and gas exploration as a worldwide market, of which the Dutch contribution was around 3.7% and NAM's own share even lower. Likewise, oil production was a worldwide market on which NAM represented less than half of one per cent and even the vertically integrated supermajors only represented a few percentage points each. These markets were clearly highly competitive. Natural gas was a slightly different case – here the market had been found by the Commission in earlier decisions to be limited to the EEA, possibly with the addition of Russia and Algeria. Within the EEA, NAM's market share was a respectable 17.76% but after taking into account Russian and Algerian production this fell to a little over 5%. Again this enabled the Commission to conclude with apparent ease that the market was competitive.

The Commission has now granted the declaration requested (see the European Commission decision) so in future NAM, and other oil and gas operators in the Netherlands, will no longer have to comply with the rules set out in the Utilities Directive but can make their own decisions as to whether a competitive tender is appropriate in a particular case. In many cases they will continue to use competitive tendering as it is a requirement of the joint operating agreements under which they operate oil and gas fields, or simply because it is sound business practice. However, where the situation is urgent or there are other strong reasons for preferring to go direct to a single supplier, they will have this option without needing to worry about action from aggrieved contractors for breach of this regulatory regime.

The UK upstream sector has considered from time to time whether or not to apply for a similar exemption to that which now applies in the Netherlands, as access is unrestricted and the analysis which the Commission applied to the Dutch application would seem to be equally applicable to a UK application. In the past there has seemed to be no strong demand in the UK industry for an exemption, as the rules are not viewed as particularly onerous and may provide some benefits for the supply chain. It will be interesting to see whether this decision prompts any change of heart on this issue.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 16/07/2009.