This is the second in a series of posts on the new regulatory
regime for the North Sea oil and gas industry following the
enactment of the Energy Act 2016. In the first post we introduced the new regime. Here,
we look at how its central legal provisions work.
At the heart of the new regime is the concept of "MER
UK". This is short-hand for the "principal
objective" of "maximising the economic recovery of
[offshore] UK petroleum", which is set out in s. 9A of the
Petroleum Act 1998 (inserted by the Infrastructure Act 2015). The
way that the principal objective governs both the regulators and
those they regulate is summarised below.
Two points are worth emphasising here.
First, obligations to act in accordance with the MER UK strategy apply to a very broad range of
persons engaged in a very broad range of activities – the
summary above slightly understates this. It does not, for example,
have room to list all the categories of offshore installation (e.g.
gas storage or accommodation facilities) that are covered.
Second, the key obligations in the legislation refer to the MER
UK strategy, rather than the principal objective itself. This gives
DECC (for now) and the OGA (in the future) great flexibility to
articulate the practical implications of the principal objective,
and to do so in a document that, although it is legally binding,
does not have to be (and is not) written with the precision that
one would expect to find in legislative drafting.
The position in practice could almost be caricatured as being
"you must do what the OGA says you must do to achieve MER
UK". Courts would probably be reluctant to second-guess the
range of factors contributing to an assessment of MER UK in any
event, but this feels like a regime which has been very carefully
set up with a view to minimizing the risk of administrative law
challenges to the regulator's decisions.
NOTE: The Energy Act 2016 is being commenced in
stages, by regulations. The first commencement regulations were made on 23
May 2016. So far, only provisions which empower the Secretary of
State to make further regulations or transfer schemes (e.g.
relating to the transfer of property from DECC to OGA) have been
made. However, the substantive obligations on "relevant
persons" and DECC / OGA described above are largely contained
in the provisions which the Infrastructure Act 2015 inserted into
the Petroleum Act 1998 with effect from 12 April 2015 (even though
the MER UK strategy itself was not finalized until almost a year
So although it may be a few months before the sections of the
Energy Act 2016 that will allow enforcement of MER UK obligations
are brought into force by further commencement regulations, the
substantive obligations to comply with MER UK principles are
already in force and should be kept in mind by relevant persons
(and DECC / OGA) in all the situations where they apply. The next
post in this series will explore some of these situations, with
particular emphasis on exploration activities.
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