Maximising Economic Recovery

A New Approach to Regulating the UK's Offshore Oil and Gas Industry

By (author) Judith Aldersey Williams, Valerie Allan

Publication date:

16 June 2023

Length of book:

296 pages

Publisher

Globe Law and Business

ISBN-13: 9781787429703

The regulatory regime encapsulated in the term ‘maximising economic recovery’ or MER, now administered by the North Sea Transition Authority (NSTA), was introduced in 2015. It emerged from a government-commissioned report by Sir Ian Wood, published in 2014, which recommended the introduction of a new tripartite strategy for MER from the UKCS involving HM Treasury, industry and a new regulator at arm’s length from government. This was intended to address the problems of an ageing basin in which smaller discoveries meant new fields were more marginal and interdependent than in the past. An increasingly diverse set of companies operating these smaller, more interconnected fields resulted in greater competition for ageing infrastructure and required increased collaboration between operators to ensure that fields remain economical. These factors, coupled with growing competition for investment from outside the UK, had led to significant falls in production, production efficiency and exploration. The new approach requires regulated persons active in UKCS operations to seek to maximise economic recovery not just from their own assets but across the basin and therefore requires unprecedented levels of collaboration. It has also resulted in a far more hands-on regulator seeking to use both influence and enforcement to radically alter the culture of the UKCS. This book is not a complete guide to oil and gas industry regulation in the UK; instead, it is specific to the MER UK regime. It describes the legislative changes that introduced the regime, the nature of the NSTA, and how it uses ‘soft power’ to achieve many of its aims. It also describes the regulatory tools at the NSTA’s disposal including the nature of the OGA Strategy and how this can be enforced through sanctions, the right to attend a wide range of industry meetings, request vast amounts of industry data and to get involved in industry disputes. It also discusses the increasing focus of the NSTA on the energy transition. This book will be of interest to legal practitioners active in energy law whether in private practice or in house, academics and students with an interest in energy regulation and regulators looking at the UKCS as a model for other jurisdictions.

Foreword 7 Andy Samuel, CBE Chief executive, North Sea Transition Authority (2015 to end-2022) 1. Introduction 11 2. Background 13 1. The Wood Review process 13 2. Overview of MER UK 20 3. How the OGA works 27 1. The nature of the OGA 27 2. Relationship to government 28 3. Transfer of statutory powers to the OGA 33 4. Directions by the Secretary of State 34 5. Review of OGA’s performance by the Secretary of State 34 6. Funding 35 7. Power and discretion 39 8. Culture 40 9. Structure 44 4. The OGA Strategy 47 1. Background 47 2. The principles 48 3. The central obligation (paragraph 2 of the OGA Strategy) 50 4. Supporting obligations 55 5. Required actions 66 6. Safeguards 69 7. Relationship between MER UK and contracts 74 5. The OGA as influencer 77 1. Overview 77 2. Commissioning of seismic acquisition and other research 78 3. Publication of data 81 4. National Data Repository (NDR) 84 5. Energy Pathfinder 87 6. Analysis and publication of one-off reports 87 7. Benchmarking and setting of KPIs 88 8. Promotion of best practice 94 9. Engagement with industry 99 10. Cultural change 102 6. Asset stewardship 105 1. Asset stewardship in the Wood Report 105 2. Asset stewardship obligation 107 3. Asset Stewardship Strategy 108 4. Asset Stewardship Expectations and guidance 112 5. What is the status of the Asset Stewardship Expectations? 116 6. Asset Stewardship Survey 116 7. Tiered Stewardship Reviews 118 8. Area Plans 121 9. Supply Chain Action Plans 125 7. Meetings 129 1. Introduction 129 2. Relevant meetings 129 3. The OGA’s powers in relation to relevant meetings 130 4. Provision of information regarding meetings 130 5. Meetings Statutory Notice 132 6. Thematic review 136 8. Non-binding dispute resolution 137 1. Introduction 137 2. Overview of the OGA’s powers in respect of disputes 137 3. Power to gather information 139 4. The OGA’s Dispute Resolution Guidance 143 5. The process 144 6. Process where reference accepted 153 7. Recommendations 156 8. Examples in practice 157 9. Appeals 158 9. Information and samples 159 1. Background 159 2. Overview of the 2016 Act provisions 160 3. Information and samples plans (ISPs) 162 4. ISP Guidance 164 5. Information and samples coordinator (ISC) 165 6. ISC Guidance 166 7. Retention of information and samples 167 8. Reporting 170 9. Disclosure by OGA 174 10. Measured escalation and investigation 181 1. Background 181 2. The OGA’s general approach 182 3. Facilitation/enhanced facilitation 184 4. Enquiries (prior to November 2022) 185 5. Initial Assessment (post-November 2022) 193 6. Investigations 196 7. Mediation Pilot 202 11. Sanctions 207 1. Sanctions in the context of the OGA’s activities 207 2. Circumstances where sanctions may be imposed 207 3. Sanction Warning Notices 209 4. Sanction Notices generally 210 5. Types of sanctions 211 6. Enforcement Notice 212 7. Financial Penalty Notice 213 8. Revocation Notice 217 9. Operator Removal Notice 217 10. Withdrawal of Sanction Notice 218 11. Appeals in relation to Sanction Notice 218 12. Publication of Sanction Notice 220 13. Sanctions in practice 221 12. MER UK and energy transition 223 1. Background 223 2. The UK and energy transition 225 3. The OGA and energy transition: policy development 227 4. The OGA and energy transition: key actions 232 5. The OGA and energy transition: next steps 242 13. OGA and third-party access 245 1. Overview 245 2. Third-party access in the OGA Strategy 246 3. MER UK and ICoP 246 4. OGA powers to set terms of access 247 5. Applications under the Energy Act 2011 254 14. MER UK and competition law 257 1. Overview of UK competition law 257 2. Guidance on information exchange 258 3. Collaboration on the UKCS 258 4. The role of the CMA in the development of MER 260 5. The OGA Guidance 263 6. Application of competition rules to MER UK 264 7. Potential solutions to competition law issues 266 15. Decommissioning 269 1. Decommissioning in the Wood Report 269 2. Responsibility for regulating decommissioning 270 3. Changes to the Petroleum Act 1998 in relation to decommissioning 271 4. The OGA Strategy and decommissioning 273 5. OGA Guidance 274 6. Decommissioning and Repurposing Taskforce 275 7. Cost reduction 276 8. Decommissioning microsite 278 9. Decommissioning Data Visibility Project 278 Glossary 279 Index 283 About the authors 293 About Globe Law and Business 295

MER is a complicated concept, made all the more complex by recent amendments to the strategy. The intrinsic value of this book is its deep dive into the origins of MER, the changes that have occurred, and the recent shift in name and strategy to the broader energy transition. Trying to piece all of the components of MER is difficult, but this book makes it much easier. This is an exceptional book from exceptionally knowledgeable authors. This book is timely given the importance of MER in the UK’s energy transition strategy.