Since the issuance of the Wood Review in February 2014, the UK has seen a revolution in the legal regulatory regime for offshore oil and gas (not to mention the onshore!).
The Coalition and then the Conservative government have enacted the Infrastructure Act 2015, the MER Strategy (March 2016) and lastly the Energy Act (May 2016). This large body of legislation has led to the creation and empowerment of a new autonomous regulator, the Oil and Gas Authority (OGA). However, the old regulator, the Department of Energy and Climate Change – which has now merged with the old Department of Business and Industrial Strategy to form the Department of Business, Energy and Industrial Strategy (BEIS) – continues to have weighty responsibilities, especially in the area of decommissioning.
The MER Strategy, made up of 34 paragraphs, represents the legal enactment of the duty to maximise economic recovery of UK petroleum – an objective which was enshrined in the Wood Review. The Energy Act establishes the OGA and gives it wide-ranging new regulatory powers.
Those obligated to decommission offshore installations and pipelines are required to submit an abandonment programme under Section 29 of the Petroleum Act 1998. This is located in Part IV of the Act which deals with the regulatory aspects of decommissioning. Part IV of the Petroleum Act 1998 was heavily amended by the Energy Act 2016. Those required to carry out decommissioning are, at a prior stage, served with a so-called “Section 29 Notice” by BEIS.
Despite the considerable new powers vested in the OGA, the decision-maker on abandonment approvals is still BEIS.
The MER Strategy binds all owners (usually oil companies) and those who control offshore infrastructure (MER Parties). The OGA itself is bound by the Strategy. However, MER, in great part, does not bind the supply chain. The MER Strategy says a lot about decommissioning. The fundamental duty of the Strategy is that MER Parties must “take the steps necessary to secure that the maximum value of economically recoverable petroleum is recovered from the strata beneath relevant UK waters”.
Any MER Party considering the decommissioning of an installation must first ensure that all “viable options” for alternative use are examined. If decommissioning is still required then the work must be done in the “most cost effective way that does not prejudice the maximising of the recovery of economically recoverable petroleum from a region”.
The OGA is empowered to draw up a plan (OGA Plan) which will list infrastructure the decommissioning of which it does not consider would be prejudicial to MER. These powers are somewhat controversial; they can be construed as allowing the OGA to require MER Parties to postpone decommissioning which might adversely impact petroleum operations in a region, even if early decommissioning would make most sense for the MER Party in question.
MER Parties do not have to comply with an OGA Plan, but they do need to consult with the OGA if their intention is to act contrary to such a plan.
MER Parties cannot be forced to act under the Strategy if the required action would lead them not to make a “satisfactory expected commercial return” (SECR). Thus, the SECR defence (or safeguard) might be used by a MER Party if OGA was requesting a commercially unreasonable course on decommissioning. However, if an SECR assertion is made out then the MER Party must either seek new investors who will carry out the MER obligation or sell off the asset.
As far as the abandonment programme process goes, the OGA must be consulted before an application is made to BEIS for approval. The OGA must opine on whether an alternative exists and, if not, whether the programme is being carried out in the cheapest possible way. After an application for approval has been received by BEIS, the OGA must provide the same input to BEIS.
However, in this case the OGA is restricted to rendering advice – the decision-making is done by BEIS. It is interesting that BEIS is not bound by the Strategy except to the extent of reducing decommissioning costs.
BEIS may approve, modify or reject a proposed abandonment programme. It will be interesting to see how OGA and BEIS dove-tail their different, but complementary, roles and capacities in this vital area of decommissioning. ■
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From Adjacent Oil & Gas 5, November 2016