It’s been a busy start to 2024 in UK oil and gas regulation, with two areas of interest reaching different stages of the legislative process.
The requirement for consent of the Oil and Gas Authority (“NSTA”) prior to a change of control of a licensee introduced by the Energy Act 2023 became effective on 11 January, and on 22 January the Offshore Petroleum Licensing Bill (the “Bill”) passed its House of Commons second reading.
Change in control
A change in control of a licensee is now not permitted without prior NSTA consent.
Although best practice had previously been to seek a comfort letter that the NSTA would not exercise powers to revoke a licence as a result of a change of control, several transactions had taken place without such comfort being sought, in turn raising potential concerns as to the level of NSTA control over such transactions and identity of ultimate licence holders.
With effect from 11 January, if a change in control of a licensee is contemplated, the licensee must apply in writing to the NSTA for consent at least three months before the date on which it is proposed that the change would occur.
This change should not operate to cause parties to materially diverge from previous practice (where, as mentioned above, a comfort letter from the NSTA was commonly sought) but nevertheless, this is now a formal statutory power of the NSTA and obligations of licence holders.
As such, a change of control cannot validly occur for the purpose of the relevant licence without the NSTA’s consent, and the NSTA may revoke (wholly or partially) if there is a breach of any condition subject to which the NSTA gave its consent.
Offshore petroleum licencing
At the second reading on 22nd January, a majority of 82 voted in favour of the Offshore Petroleum Licensing Bill, which now progresses to the committee stage for further scrutiny.
The Bill amends the Petroleum Act 1998 to create a new obligation on the NSTA to invite, for at least one block and only if the carbon intensity and net importer tests under the Bill are met, applications for seaward area production licences annually from October 2024.
The carbon intensity test is met if the carbon intensity of produced domestic natural gas is lower than the carbon intensity of LNG imported into the UK in the prior three years.
The net importer test requires that domestic crude, gas and NGL production is expected to be below demand for each year in question.
The UK Government believes this will help provide certainty to the industry and increase investor confidence.
However, industry feeling seems to be muted. There are a few reasons for this:
- The UK regulator has (other than during the last few years) typically held oil and gas licensing rounds annually. The Bill would therefore cement that approach, but might not be the root cause of a return to annual licensing rounds. On the other hand there is no discretion not to hold a licensing round where NSTA or industry does not consider it to be necessary. Publicly, the NSTA has stated that “government legislation is a matter for government”.
- The NSTA will continue to have free reign to offer as many or as few blocks annually as it wishes.
- New licence awards are a small component of exploration and development activity compared to prospects being and likely to be developed under existing licences.
For investors, more confidence is likely to be derived from a more stable (and ideally less onerous) tax regime.
2024 has already started as a year of significant development in UK oil and gas regulation; and there may be more on or the horizon.
Of particular interest will be the oil and gas fiscal review progressing and an expected consultation on a new charging regime to be introduced in connection with the approval of offshore decommissioning programmes.
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