A few recent legal developments have implications for the subsea sector, among others.
The Oil and Gas Authority (OGA) has published guidance on the development of Supply Chain Action Plans (SCAPs). Since its inception, OGA has consistently emphasised the importance of collaboration to achieving MER UK. One of the recommendations in OGA’s March 2017 report “Lessons Learned from UKCS oil and gas projects 2011-2016” was that the supply chain should be involved in projects at an early stage, and that operators should work with their supply chain as one team with a single project-wide culture.
Other sectors have used SCAPs to successfully enhance value and encourage collaborative behaviour in new projects – OGA sees SCAPs as a tool to drive behavioural change in our sector so operators engage more actively with the service sector, which has many of the solutions to enable MER UK.
OGA has been open to SCAP submissions since the New Year and all projects requiring Field Development Plans (FDPs) or Decommissioning Programmes (DPs) will be expected to have a SCAP from April 1, 2018. This should be submitted to OGA early, prior to contract award, and probably during the “select” stage for those companies using a standard stage-gate process. However, OGA also expects to engage with operators on their draft SCAPs prior to formal submission and then following contract award, to review SCAP commitments.
The SCAP itself will be assessed on the criteria of Engagement, Trust, Innovation and Quality, as explained in more detail in OGA’s Guidance. OGA will seek to respond to SCAPs within 60 days and can either endorse them or return them for amendment if unsatisfactory – repeatedly if necessary. The outcome of the SCAP process will be part of the FDP assessment and in decommissioning cases will form part of OGA’s recommendations to BEIS on the DP.
Workshops are to be held by OGA to assist operators in developing their plans and after a year of operation, feedback will be sought from industry in order to improve the process.
December saw publication of BEIS’s updated Decommissioning Guidelines. These have been issued in draft for informal consultation, and BEIS has asked for comments by February 12, with the intention that they should come into force in April 2018.
The structure remains almost identical to the 2011 guidelines, except for one new chapter on decommissioning protective deposits and some changes to the annexes. Within the chapters there has been some re-jigging, largely for clarity, particularly in the chapter on Decommissioning Programmes. A new section has been added to the chapter on Pipeline Decommissioning, on assessing the risks of decommissioning complex pipelines or pipelines in environmentally sensitive areas.
For those involved in decommissioning operations, although there are few substantive changes, there have been amendments to provide greater clarity on what is required at the various stages of the process. A flow diagram has been added showing the different pathways for approval for ordinary installations, derogation candidates and pipelines.
For environmental specialists, updated guidance on the environmental appraisal requirements for decommissioning (which was expected to encourage operators away from conducting a full environmental impact assessment when not required by the relevant legislation) is still to come. However, the description in Annex C of what should be included in a decommissioning programme in relation to the environment, although now relabelled as an environmental appraisal rather than an EIA, is substantially identical to the 2011 guidelines.
For the lawyers, there are some interesting changes. There is recognition of the new role played by OGA in decommissioning, such as the requirement for operators to consult OGA prior to submission of a DP, or in relation to proposals for re-use. There is also comment that early decommissioning before approval of a DP will now require consent, although no explanation of what would and would not constitute decommissioning for this purpose.
Specifically in relation to subsea developments, it is notable that some useful guidance in the 2011 guidelines, regarding policy on who will be served with a Section 29 Notice, has been removed. This addressed issues such as who would be treated as “manager” of an installation and thus liable to decommission it, specifically in the context of installations managed by a contractor and tiebacks controlled from a host platform. It also addressed the interpretation of “benefit” for the purposes of an exemption which prevented licensees from being made liable to decommission a facility on their licence from which they had never benefitted. This could indicate that BEIS does not want to commit to a policy on these issues, but it seems more likely that BEIS considers the matter settled. The draft guidelines state that for installations, notices may be served on the operator, licensees, owners of the installation and parties to a joint operating agreement (JOA) or similar agreement, from which they derive a financial benefit – this would not cover owners of a host facility from which a tie-back was controlled nor a contractor operating that facility on a day-to-day basis. For pipelines, notices may be served on owners of the pipeline and parties to a JOA or similar agreement (although the latter does not seem consistent with s. 31(2) of the Petroleum Act 1998).
There is reference at a number of points to the requirement for operators to outline plans for managing liability in perpetuity for anything left in situ following decommissioning – this appears to be a particular concern for BEIS.
Finally, where BEIS requires financial security (a relatively rare occurrence until now) the credit rating for the issuer has been reduced from the previous AA to a perhaps more realistic A-.
Old Annex F, which previously detailed government policy on calculating risk in relation to decommissioning liabilities and how, therefore, BEIS would be likely to consider applications for the withdrawal of Section 29 Notices, has been omitted. We are told that “the Government has developed an enhanced decommissioning financial policy to ensure that adequate funding and security for decommissioning costs is maintained on a field by field basis….The details of this policy, including the circumstances in which decommissioning security may be appropriate, will
be covered in separate Financial Guidance due to be published in 2018.”
Penelope Warne is senior partner and head of energy, CMS
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