Hydrocarbons

What are the main laws regulating activities related to hydrocarbons in Greece?

The legal framework pertaining to hydrocarbons in Greece is mainly shaped by Law 2289/1995, which regulates the prospecting, exploration and production activities related to hydrocarbons in Greece and sets out the requirements for the licensing of the respective rights. Law 2289/1995 was amended by Law 4001/2011, which also established the Hellenic Hydrocarbon Resources Management S.A. (HHRM) as the competent authority for the management of these rights on behalf of the Greek State.

It should be noted, however, that - following the common practice of the Greek State - each contract signed between HHRM and a Concessionaire on this basis is separately ratified by law, the terms of which are not always fully consistent with the provisions of Law 2289/1995. In this respect, it seems that - in ad hoc cases - the Greek State may be willing to improve some of the provisions of the main Law 2289/1995, as incorporated in each contract separately, ratifying the said improvements by law.

Finally, Law 4409/2016, which sets out the legal framework for safety in offshore operations involving the exploration and production of hydrocarbons, transposed Directive 2013/30/ EU into Greek law.

Who may exercise the rights of prospecting, exploration and production of hydrocarbons?

The exercise of the rights of prospecting, exploration and production of hydrocarbons is regulated by Law 2289/1995. The law defines “prospecting” as any attempt to identify the existence of hydrocarbons in a given area using any appropriate method, excluding drilling, while the concept of “exploration” refers to any attempt to discover hydrocarbon deposits using any appropriate method, including drilling. Finally, “production” is defined as any activities related to (i) mining; (ii) processing of hydrocarbons for commercial purposes and (iii) storage and transportation of hydrocarbons and their by-products. These processing activities do not include refining.

The rights to carry out exploration and production activities belong exclusively to the Greek State. Hellenic Hydrocarbon Resources Management S.A. (HHRM) is entrusted with the management of the respective rights on behalf of the State, and is vested with the authority to license them.

What is the procedure for the licensing of the right of prospecting and what are the licensee’s obligations?

The right of prospecting is licensed following a relevant decision by the HHRM. A license for prospecting may be granted to more than one applicants. HHRM issues an invitation to submit applications for prospecting, which is published in the Government Gazette and the Official Journal of the European Union. Applications must be submitted within ninety (90) days from the last publication. The invitation may also be issued following an application by the interested party and contains the description of the relevant area, the license terms and conditions, the selection criteria, the amount of the payable administrative fee, etc.

Immediately after the license has been granted, the licensee must submit to the HHRM the schedule of prospecting in phases. After the completion of each phase, the licensee must submit copies of all technical and scientific data and findings associated with the prospecting operations performed during that phase. Within three (3) months after the license has expired, the licensee must submit to HHRM an analytical report accompanied by the official data and evidence. This report must contain an analytical presentation of the prospecting results. The licensee’s failure to meet the above obligations or the violation by the licensee of any of the terms of the invitation or license may result in the license being revoked.

The duration of the prospecting license does not exceed 18 months and the area covered by the prospection license may not exceed 4 000 km2 for land areas and 20 000 km2 for sea areas.

What is the procedure for the licensing of the rights of exploration and production?

The rights of exploration and production may be licensed either (i) by lease agreement or (ii) by production sharing agreement. Each agreement may concern one or more adjacent land or underwater areas.

The rights of exploration and production are licensed on the basis of one of the following procedures:

• On the basis of a tender notice concerning a specifically defined area. The notice is published in the Government Gazette and the Official Journal of the European Union, and tenders must be submitted within ninety (90) days from the last publication.
• On the basis of an application by any entity interested in an area not included in the aforementioned tender notice. Once the application has been approved, HHRM issues the respective tender notice, published in the Government Gazette and the Official Journal of the European Union. Any tenders must be submitted within ninety (90) days after the last publication.
• Where the area concerned is available on a permanent basis or where an earlier tender procedure concerning this area was unsuccessful, HHRM may issue an open-door invitation for declaration of interest. More specifically, in a relevant notice published in the Government Gazette and the Official Journal of the European Union, the Minister of Environment and Energy specifies the minimum requirements for concession, as well as any necessary information. Interested parties may submit their tenders no later than the last working day of the first and second semester of each calendar year.

In the event that a commercially exploitable deposit is discovered, the Concessionaire is rendered a licensee of the right to exploit the deposit, having both the right and the obligation to produce hydrocarbons and their by-products and dispose these to their own
benefit. In return, the Concessionaire pays the Lessor (the Greek State) the agreed rent, as well as any taxes due.

The rent is payable irrespective of the Concessionaire’s profitability. The Lessor may choose whether the rent will be payable in kind (as a percentage of the quantity of hydrocarbons produced) or in cash (as a percentage of their value).

Is there a possibility for public-private partnerships?

Yes. In lease agreements or production sharing agreements, it is possible for the State to participate by forming a public-private partnership with the Concessionaire, both at the exploration and at the production stage. Any issues pertaining to the State’s participation in the exploration and production expenditures, as well as in the distribution of the product, the administration of the partnership and any other relevant details are specified in the tender notice.

What are the main obligations of a Concessionaire?

A Concessionaire is defined as a person that has entered into a lease agreement or a production sharing agreement with HHRM, or any third party to whom that person has licensed the relevant contractual rights. Concessionaires may be either natural or legal persons, acting individually or collectively (in the form of a “quasi”-consortium).

The Concessionaire’s main rights and obligations include the following:
The duration of the exploration stage is defined in the contract and cannot exceed seven (7) years for land areas and eight (8) years for sea areas. The exploration stage is separated in phases, as specified in the agreement. If these activities are delayed due to technical problems or if more time is needed for necessary additional operations, the aforementioned timeframe may be extended by half.
The Concessionaire is both entitled and obliged to start, continue and complete the exploration activities, pursuant to the contractual terms. To this purpose, the Concessionaire must implement the appropriate technical measures and methods.
Following the end of each phase of the exploration stage, the Concessionaire is obliged to complete the operations, remove any installations, seal properly and abandon any shafts and restore the environment within less than six (6) months. After this period, the Contract Area is returned to the Lessor, with the exception of any exploitation areas. In any event, after the end of each phase, the Concessionaire is obliged to return to the Lessor a free part of the Contract Area.
The Concessionaire must notify the Lessor of any discovery of hydrocarbon deposit within a period specified in the contract.
If the Concessionaire finds that the hydrocarbon deposit is commercially exploitable, they are obliged, within a period specified in the contract, to notify in writing the Lessor of the deposit’s commercial exploitability and of its expected recoverable amount. The Concessionaire must establish in their assessment of the deposit as exploitable, by submitting all necessary data and evidence. The duration of the production stage is 25 years for each area.
The exploitation area is of rectangular shape and does not exceed 100 km2, unless the Concessionaire can prove that the deposit exceeds 100 km2, in which case the exploitation area may extend up to 200 km2.
The Concessionaire must submit to the Lessor analytical development and productions schedules, the exact content of which is specified in the contract.
The duration of the production period may be extended by two 5-year periods if the statutory duration is not sufficient for the completion of the activities concerned.
If a hydrocarbon deposit extends beyond the limits of the Concessionaire’s contractual area, within another Concessionaire’s contractual area, the Lessor invites the Concessionaires to submit a joint exploration and exploitation schedule.

Are the Concessionaire’s rights and obligations transferrable?

Yes. The Concessionaire may transfer, in whole or in part, the contractual rights and the respective obligations to an independent third party conditional only upon the Lessor’s written consent, as well as the approval of the Minister of Environment and Energy. Similarly, the Concessionaire may transfer, in whole or in part, the contractual rights and the respective obligations to an affiliated entity, provided that the Concessionaire and the affiliated entity remain jointly and severally liable towards the Lessor with regard to the contractual obligations.

If the Concessionaire is a quasi-consortium of natural or legal persons, each member of the consortium may transfer the contractual rights and obligations to another member, conditional upon the Lessor’s written consent, as well as the approval of the Minister of Environment and Energy.

The rights and obligations may be transferred only by notarial deed.

What is the applicable tax regime?

According to the law, the Concessionaire is subject to income tax of 20%, as well as to a regional tax of 5%, without being subject to any other duty or levy. The income that derives from each contract signed by the Concessionaire is taxed separately. The tax is imposed on the net taxable income that derives from the Concessionaire’s contractual operations. Neither the Concessionaire nor its shareholders are liable for any further income tax on the profits that derive from their contractual operations.

In case the Concessionaire is a “quasi”-consortium, the income tax is calculated individually for each member of the “quasi”-consortium. Nevertheless, each member of the “quasi”- consortium remains jointly and severally liable for the tax due by the other members.

The Concessionaire’s income that derives from the contractual operations, any income acquired by the Concessionaire’s foreign employees abroad for services associated with the contractual operations, as well as any income acquired by the employees of the Concessionaire’s contractors and subcontractors, are all exempt from any other tax, duty or levy, with the exception of the Value Added Tax.

Similarly, the licensing of the right for exploration and production to the Concessionaire, the transfer by the Concessionaire of the rights that derive from the contracts, the sale by the Concessionaire or the Lessor of the hydrocarbons produced, any contracts entered into between the Concessionaire and its contractors or between the contractors and their subcontractors, the lease or the use of immovable property for the purposes of the contract works are exempt from every other tax, duty or levy, with the exception of the Value Added Tax.

The same applies to any loans or credits granted to the Concessionaire by banks or credit institutions or foreign legal persons for the purposes of the exploration and production operations. However, the interest on these loans and credits is not exempt from income tax. Finally, it must be noted that the exemption does not cover a special duty imposed on the loans granted by credit institutions, as required by Law 128/1975.

What are the main obligations of the Concessionaire with regards to the protection of the environment?

The Concessionaire is obliged to carry out their activities in a diligent and safe manner, in accordance with international best practices, as well as comply with the legislation regulating employees’ health and safety and the protection of the environment.

The Concessionaire must ensure that the materials, supplies, machinery, equipment and installations used by themselves or by their subcontractors comply with the standards which are generally accepted by the international oil industry, and that they are functional and properly maintained.

The Concessionaire must also take all necessary measures in order to minimize any pollution of the environment or any water, soil or atmospheric damage which may be caused as a result of the hydrocarbon operations.

Where the Lessor deems that the Concessionaire’s activities or installations are likely to pose a threat to people or property or pollute or damage the environment, it may require that the Concessionaire adopt corrective measures within a reasonable timeframe, in order to rectify any damage to the environment. Until the adoption of these corrective measures by the Concessionaire, the Lessor may suspend the fulfilment of the Concessionaire’s contractual rights.

Are there any sanctions for failure to comply with the requirements of Law 2289/1995?

Yes. A person engaging in prospecting, exploration or production activities without having previously obtained the respective license faces imprisonment of minimum 2 months and a fine between € 100,000 and € 1,500,000. The illegally mined hydrocarbons automatically come under the Greek State’s ownership.

In addition, an administrative fine between € 100,000 and € 1,500,000 is imposed in case of failure to comply with the obligations to take measures for the protection of people and property and the prevention of pollution. The fine is imposed by decision of the Minister of Environment and Energy. If the breach resulted in the pollution of the sea, the fine is imposed by decision of the competent port authority.

The decisions imposing the fines may be challenged before the Administrative Courts within 60 days from their notification.

How are issues pertaining to safety in offshore oil and gas operations taken into account during the licensing procedure?

Law 4409/2016 has transposed Directive 2013/30/EU into Greek law. This law imposes on operators the obligation to ensure that all necessary measures are taken for the prevention of serious accidents in offshore hydrocarbon operations. Operators are also liable for their contractors’ actions or omissions which led or contributed to major accidents.

Licenses granted or transferred under Law 2289/1995 are issued on the basis of the applicant’s ability to meet the requirements for operations within the framework of Law 4409/2016. When assessing the technical and financial ability of the applicant for a license, account shall be taken of the following: (i) the risk, the hazards and any other relevant information relating to the licensed area concerned; (ii) the particular stage of offshore oil and gas operations; (iii) the applicant’s financial capabilities; and (iv) the available information relating to the safety and environmental performance of the applicant.

HHRM shall grant the license only upon evidence from the applicant that the latter has made or will make adequate provisions to cover liabilities potentially deriving from the applicant’s offshore oil and gas operations.

When assessing the technical and financial capabilities of an applicant for a license, special attention shall be paid to any environmentally sensitive marine and coastal environments.