UK: First Referral for Dispute Resolution over Access to North Sea Infrastructure

Last Updated: 27 May 2010
Article by Judith Aldersey-Williams and David Rutherford

Endeavour International, a UK gas explorer, has asked the Department for Energy and Climate Change to resolve a dispute as to the cost charged by Nexen Petroleum for Endeavour to transport its gas through the Scott Platform.

This is the first time that the Government has been asked to resolve a dispute over access to North Sea upstream infrastructure and DECC's conclusion will be an important precedent for the operation of the "ICOP" process and for the relationship between small explorers and infrastructure operators.


Licensees on the UKCS are expected to adhere to the Infrastructure Code of Practice ("ICOP"), a non-statutory set of industry guidelines developed in collaboration with DECC. The ICOP applies to all UK oil and gas upstream infrastructure "from well-head through to receiving terminals and initial onshore facilities." It sets out the information to be provided to potential users of existing oil and gas infrastructure, the processes and principles to be applied in negotiations between the parties and requires the publication of a summary of the agreement reached. In the event that the parties are unable to reach an agreement, there is the ultimate option of applying to the Government for a determination.

The Secretary of State has powers under various pieces of legislation (The Gas Act 1995, The Gas Act 1986, The Energy Act 2008, The Petroleum Act 1998 and The Pipe-lines Act 1962) to settle such disputes, which may typically involve setting the tariff charged for access rights.

Under ICOP, the company wishing to gain access to infrastructure must submit an automatic referral notice, in which it undertakes to request the Secretary of State to exercise his statutory powers if satisfactory negotiations for access have not been concluded within 6 months of the submission of the automatic referral notice. This is known as the "Automatic Referral Procedure". In practice, the parties may well overrun this time limit, particularly in complex negotiations, in which case the negotiation period can be extended. The Government will always ensure that the parties have had a "reasonable time" to reach an agreement, before it exercises its powers.

Although the referral procedure is said to be "automatic", the popular attitude in the industry is that one should not "tell teacher" and speak out on a dispute. Rather, the negotiation between the parties should be pressed home to agreement.

The Dispute

The Endeavour referral is the first time that the dispute resolution process following an automatic referral notice has been used "in heat". Endeavour argues that the owners of the Scott Platform (Nexen, as operator, Premier Oil, ExxonMobil and Suncor) have set an unreasonably high tariff rate for transporting gas from Endeavour's Rochelle Field Development in Block 15/27 of the UKCS, through the Scott infrastructure.

In line with the existing guidelines, DECC has said that it will take 10 weeks to resolve the dispute. This will leave the parties with a tight timetable to implement DECC's determination before the start of production, due in the fourth quarter of 2010.


There is a possibility that DECC's decision could set a precedent on how tensions between small explorers and major players in the North Sea will be played out in future.

An increasing proportion of production in the North Sea comes from smaller fields, typically satellites of well-known existing fields. As the major companies start to scale back their investments in the North Sea, smaller companies are taking the opportunity to develop what minor hydrocarbon accumulations remain. These small companies, operating small fields, are not able to support their own infrastructure to shore and depend on the use of existing infrastructure.

However, infrastructure owners can be reluctant to accept the risks associated with working with smaller players. The negotiations can take many months to reach a conclusion.

On the other hand, there are advantages to established companies in granting such access. The spectre of decommissioning liability becomes ever present as North Sea infrastructure continues to age. The decline in the production of many old fields means that there is the capacity to take on new volumes and so extend the life of the asset.

In short, gaining access to existing infrastructure is an indispensable element in the development of marginal fields and indeed the future production of the North Sea as a whole. As such, DECC's determination on Endeavour's referral will be highly significant in setting the tone of business going forward. It will also establish the value of using Government as a means of dispute resolution. It is to be hoped that the decision will be published in a reasonably detailed format (as opposed to the brief summary required of parties who reach an agreement) so as to reduce the level of uncertainty that exists at present over how DECC will apply its powers.

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

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 26/05/2010.

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