UK: The UK's Energy Act 2016: An Independent Regulator Gets Its Teeth

The publication of the draft strategy for the UK Oil and Gas Authority (OGA) to give effect to the maximization of economic recovery (known as "MER UK") was a welcome development, but further guidance and detail was needed on implementing the strategy. The next step in this process took place on May 12, 2016 with the granting of Royal Assent to the Energy Act 2016 (the "Act").

The Act furthers the recommendations of the Wood Review and establishes the OGA as the independent regulator for the UK oil and gas sector by transitioning it from an Executive Agency of the Department of Energy and Climate Change (DECC) to a company incorporated under the Companies Act 2006. Substantial changes for the UK oil and gas landscape1 are set out in the body of the Act addressing the core functions of the OGA, the resolution of disputes in the sector, information-gathering powers of the OGA, sanctions and charges, and access to infrastructure and decommissioning. This article summarizes the impact of the Act on each of those topics.

The OGA, Its Functions and Powers

From its establishment as an Executive Agency of the DECC, the OGA was given "sufficient operational independence to be effective from day one"2 and the responsibility for a range of functions of the Licensing Exploration and Development unit,3 including exercising certain statutory functions on behalf of the Secretary of State. Prior to Royal Assent being given to the Act, this was broadly managed pursuant to a Framework Document4 clarifying the OGA's operation and governance, and the exercise of rights, influence and control by the Secretary of State while the OGA remained an Executive Agency.5

These arrangements were designed to be consistent with the intended OGA operation and governance arrangements, posttransition.

The Act advanced the transition, giving effect to the next stage by renaming the Oil and Gas Authority Limited as the Oil and Gas Authority,6 clarifying its relationship with the Crown7 and formally transferring to it certain functions of the Secretary of State for Energy and Climate Change.8 The Secretary of State was given the power9 to transfer property, rights and liabilities from the remit of a Minister of the Crown to the OGA. Staff were also transferred10 to the new corporate entity and arrangements made in relation to staff pensions.11 While initially very little might change in OGA operations, the transition sets the platform from which long-term decisions for the industry can now be taken. A supplementary Framework Document reflecting the new arrangements is expected in Q3 2016 to clarify the nature of the relationship between the DECC and the OGA further, but it is expected that the day-today functions in matters such as licensing, licensing strategy and policy, exploration activities, decommissioning, field and area strategies, managing infrastructure, consents, metering, supply chain issues and commercial relationships and managing the industry portal will continue to be managed independently by the OGA.12

However, certain responsibilities have been supplemented or developed further by the Act, as described in the remainder of this article.

Dealing With Disputes

It is widely accepted that the UKCS is a challenging jurisdiction in which to operate, being a mature basin with aging infrastructure and increasingly diverse operators. The Act also provides the OGA with the powers necessary to resolve certain disputes due to high operating costs, limited access to funding and a change in approach to regulation to achieve MER UK. The OGA has said that it "will use the new regulatory powers ... such as those relating to dispute resolution and sanctions, prudently to improve UKCS operating performance in line with MER UK."13 So what are these new powers and to what disputes are they applied?

The Act gives the OGA power to consider and make recommendations to resolve "qualifying disputes"14 that involve issues relevant to the fulfillment of the MER UK or that relate to activities carried out under an offshore license, and are not the subject of a section 82 application.15 An OGA application for recommendation must be made by a "relevant party" (a party to the dispute who has a relevant purpose and is either a holder of a petroleum license, an operator under petroleum license, an owner of upstream petroleum infrastructure or planning and carrying out the commissioning of upstream petroleum infrastructure16) "in such manner as the OGA may require," and the Act permits the OGA to make different provisions for different cases.17

Information Gathering by the OGA

The OGA's role as a primary regulatory body is reinforced by its power to request from industry participants, by notice in writing, a wide range of petroleum-related information and samples, provided they are acquired in relation to fulfilling the principal objective of MER UK or in the course of licensed activities.18 While such provisions arguably give the OGA access to a broad range of information, an affected party has limited appeal rights in front of a Tribunal. A certain degree of comfort is offered by the strict safeguards for any obtained information where the OGA is only allowed to disclose such information to other branches of government and regulators, and only to the extent such disclosure is relevant to their functions.

Sanctions and Charges

The Act establishes a comprehensive sanctions regime to allow the OGA to target and sanction different categories of non- compliance. The OGA's power to levy these sanctions is triggered by industry participants' breach of a "petroleum-related requirement" which captures: (i) a duty to act in accordance with the MER UK; (ii) compliance with the terms or conditions of an offshore license; or (iii) any requirement imposed by the Act which is itself sanctionable, for instance a failure to comply with an OGA information request.19

Prior to levying a sanction, the OGA must inform the relevant person of the alleged breach by giving a warning notice. The actual sanctions are imposed through four gradated types of notices, through enforcement, financial penalty, revocation of a petroleum license and operator removal.

The Act provides for the publication of guidance relating to the circumstances in which the OGA will consider a financial penalty,20 but no equivalent requirement is included for license revocation and operator removal notices. Any sanctions notice can be appealed within 28 days of issue.

Access to Infrastructure

Third parties seeking to access upstream infrastructure, but unable to agree on satisfactory terms of access with the owner, can make an application to the OGA to require access to be granted and to determine the terms on which it is to be granted a "section 82 application."21 The Act amends the Energy Act 2011 to allow for an application to access to be assigned to another party.22 It also introduces an element of continuity where the ownership of infrastructure that is the subject of an application has been transferred, by allowing all things done by the person to whom the application was made to be treated as done by its new owner.23 Any information provided by the third-party applicant to the OGA may be disclosed to the assignee of the application or to the new owner of the related infrastructure asset, provided that anything which might affect the commercial interests of the person providing the information has been removed.

Decommissioning and Abandonment

With several fields in the UK North Sea coming closer to their end of life, there is naturally a great deal of focus on how the MER UK will interact with operators' decommissioning plans, whether or not submitted in connection with a section 29 notice.24 The Act creates a new section 28A to the Petroleum Act 1998 which expressly prevents abandonment or decommissioning of an offshore installation or submarine pipeline unless an appropriate program has been approved by the Secretary of State. It is an offense to start decommissioning without this approval.25

The Act places an emphasis on keeping costs low in any decommissioning program, with a statutory obligation to frame any plan in such a way as to allow decommissioning to be carried out at the lowest practicable cost and be reasonably practical in the circumstances, without prejudice to existing obligations under primary and secondary legislation, such as in relation to environment or health and safety.

There is also a new duty on owners of offshore installations to act in accordance with the MER UK strategy when planning and carrying out the activities of an owner, or decommissioning an installation or infrastructure.26 The Act clarifies that this includes consideration of preservation or re-use and other uses than that for which the infrastructure was originally created. However, the Act remains light on specifics as to how such actions should be carried out beyond this general obligation.

Conclusions

The approach of the reforms that might be described as "guidance before intervention" is commended. The Act has continued to entrench this welcomed approach. In this and many other respects, the OGA will act as a guiding hand to the industry, providing direction that is in the best interests of MER UK – a sensible development, particularly in light of the recent political uncertainty created by Brexit.

However, it is questionable whether the brevity of the strategy remains the right approach, and until the OGA has had time to build up a body of decisions and precedent, there will be uncertainty as to what is required to demonstrate that license holder plans are cost-efficient, or are indeed maximizing economic recovery. This will only be answered, as the OGA demonstrates, through action, that it is achieving its aims and meeting the industry's needs.

Footnotes

1 The "LED" unit within the DECC had responsibility for the oversight and administration of the regulatory regime established under the Petroleum Act 1998 and associated legislation.

2 The Oil and Gas Authority Framework Document, April 2015, Statement of Intent.

3 The "LED" unit within the DECC had responsibility for the oversight and administration of the regulatory regime established under the Petroleum Act 1998 and associated legislation.

4 The Oil and Gas Authority Framework Document, April 2015.

5 There are a number of formal differences between an Executive Agency and a GovCo, which will make it necessary for a new Framework Document to be entered into when the OGA becomes a private company.

6 S.1(1) of the Act.

7 S.1(2) of the Act.

8 S.2 of the Act.

9 S.3 of the Act.

10 S.4 of the Act.

11 S.6 of the Act.

12 These responsibilities were transferred to the OGA in their entirety at the time of the OGA's establishment as an Executive Agency.

13 OGA Corporate Plan, 2016-2021.

14 S.19 of the Act.

15 Section 82 applications concern the acquisition of rights to use upstream petroleum infrastructure under the Energy Act 2011. See also, "Access to Infrastructure," below. If the applicant and the owner do not reach agreement on the access application, the applicant may apply to the Secretary of State for a notice under subsection (11) which would secure to the applicant the right sought in the access application.

16 S.9A(1)(b) of the Petroleum Act 1998, as amended by the Act.

17 S.20 of the Act.

18 S.34 of the Act.

19 S.42(3) of the Act.

20 S.45(2) of the Act.

21 S.82 of the Energy Act 2011. See also "Dealing with Disputes," above.

22 S.89A of the Act.

23 S.89B of the Act.

24 I.e. a decommissioning plan submitted to the Secretary of State following a request made by the operator under s.29(1) of the Petroleum Act 1998.

25 S.28(2) of the Act.

26 S.73 of the Act, amending Part 1A of the Petroleum Act 1998 with a duty under a new s.9C(5).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions