In July this year we reported that NAM, the biggest oil and gas operator in the Netherlands had obtained from the European Commission a full exemption from the public procurement rules, which require contracts to be put out for competitive tender, in relation to oil and gas exploration and production activities in the Netherlands. To see our original report click here.

At the time we speculated whether this might prompt a similar application in relation to the UK and such an application has now been made by Shell.

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.

Shell has applied for an exemption for England, Scotland and Wales in relation to exploration for and extraction of oil and gas. The exemption, if granted, will cover not just Shell but all operators in the sector. The Commission is allowed a period of three months to take a decision on this request so it must reach its decision by 16th January 2010. It can extend this period by a further three months if required.

If the Commission grants the requested declaration, which seems likely, the effect will be that Shell, and other oil and gas operators in the UK (excluding Northern Ireland), 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.

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 04/11/2009.