The UK oil and gas industry is on the verge of one of the most fundamental changes in its history when the Energy Act receives Royal Assent, according to an oil and gas specialist at law firm Bond Dickinson LLP.
The MER Strategy (Maximising Economic Recovery) became law in March and the Act is likely to become law in the coming weeks. When it does so, for the first time ever UK Continental Shelf (UKCS) companies will have to make certain key decisions based on economic analysis and not firmly established legal rules.
However, Uisdean Vass, oil and gas partner at the firm, said the ‘visionary’ strategy could cause legal headaches for companies.
“It is radical and ground-breaking and heralds the creation of an extensive new regulatory structure,” he said.
“The strategy is innovative but it is also a complex and sometimes controversial document. It is a unique, one-off legal document, and represents the first time a set of business principles have become law in this way.
“It will be vital for oil companies to stay abreast of the rapid developments taking place and fully understand how MER will impact them. Failure to understand this could have important consequences as the OGA will have significant powers from demanding data generated by oil companies to imposing a wide range of sanctions including financial penalties and revocation of licences.
“The long term future of the UK North Sea oil and gas industry, which is so vital to ensuring that the North-east of Scotland retains the expertise to make it a respected international hub, depends on the success of the OGA and the Strategy. While it is visionary, it may well create some legal headaches in the months ahead. For example, we are already being asked questions relating to late life/decommissioning infrastructure and whether precedence will be given to extending life to achieve MER or minimising cost by closing loss-making fields.”
Bond Dickinson undertook an in-depth study of the implications of the Act and the MER UK.
Key findings include that to some considerable extent, UKCS companies will have to make investment decisions based not only on their own economic benefit but for the benefit of the “oil province as a whole”.
Failure to comply with MER could have profound consequences as the OGA will have significant powers to impose sanctions ranging from financial penalties and the imposition of enforcement notices to the removal of operatorship and the revocation of licences.
There are potential competition law issues arising from the collaboration which is a key part of the strategy.
The implications of the changes will be discussed at a seminar at the firm’s London office on 26 May and in Aberdeen on 2 June.
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