On 15 December 2022, the North Sea Transition Authority (“NSTA”) published its first ESG Disclosure Report (the “ESG Report”) since the revised OGA Strategy came into force on 11 February 2021.
Pursuant to the Central Obligation of the OGA Strategy (as updated in 2021), relevant persons are required, in taking steps to achieve maximum economically recoverable petroleum in the UKCS, to “take appropriate steps to assist the Secretary of State in meeting the net zero target, including by reducing as far as reasonable in the circumstances greenhouse gas emissions from sources such as flaring and venting and power generation, and supporting carbon capture and storage projects.”
The supporting obligations of the OGA Strategy were also updated to “apply good and proper governance at all times, including complying with any principles and practices as the OGA may from time to time direct.”
In March 2022, the NSTA released an open letter to licensees, urging them to focus on high-quality ESG disclosure and reporting to demonstrate the UKCS is an attractive investment proposition for investors and lenders. These ESG disclosures in turn have facilitated the ESG Report which was prepared by the NSTA having reviewed “the public ESG reports of 31 licensees to assess and compare their ESG disclosure status against the NSTA’s ESG Taskforce recommendations and other commonly used ESG frameworks”.
One of the key findings of the ESG Report is that reporting is on a positive trajectory with considerable alignment overall to the 2021 recommendations. However, it also notes that continued focus remains on the ‘E’ of ESG, which remains easier to quantify, with less focus on the ‘S’ and the ‘G’.
The ESG Report concludes with setting out its revised 2022 recommendations to more clearly specify the types of reporting under each of the “E”, “S” and “G” requirements, noting that they will be kept under review and may be subject to change based on further developments in best practice and “any change to the NSTA’s powers and responsibilities.” The ESG Report is expected to be updated annually.
New oil and gas exploration and production
A key focus of the OGA Strategy and the ESG reporting requirements is that they assist in ensuring that offshore licensees continue to hold a social licence to operate. In October 2022, the 33rd UK offshore licensing round was officially opened and closed for applications for licences on 12 January 2023. The NSTA has announced that 115 applications have been made for 258 blocks and part blocks.
This is the first licensing round since 2019, made possible in part by the publication of the Climate Compatibility Checkpoint in September 2022. With security of supply still very much in sharp focus, a new licensing round which includes a number of priority clusters with known reserves has clearly received positive support from industry, as evidenced by the number of applications made. Following initial assessment, NSTA expects to award licences in Q2 2023.
However, despite these advances in ESG which can be demonstrated by the updated OGA Strategy, the ESG Disclosures and the Climate Compatibility Checkpoint, the Scottish Government’s draft Energy Strategy and Just Transition Plan (“EJSTP”) published on 10 January, clearly signalled that the Scottish Government:
· did not support the further production of oil and gas from Scottish waters; and
· considers that the Climate Compatibility Checkpoint does not go far enough, and is consulting on whether a more rigorous package of tests should be included in the Climate Compatibility Checkpoint.
Responses on the consultation questions set out in the draft EJSTP are to be made by 4 April, with a final strategy and plan expected to be published by the Scottish Government later in 2023. Although licensing is a reserved matter, the Scottish Government’s policy may impact investor confidence, in direct contrast to the stated aims of the ESG Disclosure Report an OGA Strategy.
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