MER UK in Practice

Regulatory Framework

Simon Toole, Nicola Higgins, Tom Wheeler,

Robert White and Simon Churchfield

OGA Regulatory Framework

Regulatory framework underpins approach and priorities

Legislative Context

Supporting Obligations

Execution

Guidance

Sanction Notices

Statutory, non-statutory and Stewardship Expectations

Enforcement notice

Financial penalty notice

Operator removal notice

Licence revocation notice

Central Obligation

Regulatory Powers

Facilitation

Licensing regime Strategies and

delivery programmes

MER UK plans

Regulatory powers

Non-binding dispute resolution

Information and samples

Meetings Licence

model clauses Third party

access

Exploration Regional development Asset stewardship Technology Decommissioning

Collaboration

Cost reduction

Principal Objective The principal objective is that of ‘maximising the economic recovery of UK petroleum’

MER UK Strategy: ‘to take the steps necessary to secure that

the maximum value of economically recoverable petroleum is recovered’

Sanctions

Infrastructure Act 2015 Petroleum Act 1998 Energy Acts 2011 and 2016

Integration of Powers

* Failure to provide relevant information to the OGA is sanctionable.

§ Issues that are subsequently found not to be in scope for Thrid party access or Sanctions may be considered for dispute resolution.

‡ Evidence in support of a failure to comply with the Central Obligation may include, depending on the context, such things as a person’s underperformance against the OGA’s published Stewardship Expectations or an OGA Plan.

OGA Board Decision

Third party access*

Third party access Procedure§

Impose

Recommendation

Licensing Regime*

Assessment of Provisions

Impose

Recommendation

Sanctions*

Impose

Evidence of failure to comply§ ‡

Recommendation

Facilitation of Activity

Triage

Senior Leadership Decision

Disputes*

Consideration

Recommendation

Propose

Mediate

MER UK in Practice

Licence Powers

Licence Powers

If exercised these powers generally act to prevent activity

UK has sovereign rights to exploit petroleum

Licensing regime OGA grants licences that confer exclusive rights to "search for bore for and get" petroleum

Work Programme for First Term

Approval of Field Development Programme, including field determination and unitisation if needed

Development consents: Wells and Pipeline Works Authorisations

No production consent: field management governed by FDP plus flare and vent consents

Cessation of Production

Assignments and Changes of Control

MER UK in Practice

Third Party Access

Third Party Access – History

Pipe-lines Act 1962

(onshore pipelines)

Petroleum and

Submarine Pipe-lines

Act 1975

(offshore pipelines)

Gas Acts 1986 & 1995

(onshore gas

processing facilities)

Energy Act 2008

(oil processing

facilities)

Energy Act 2011

(upstream petroleum pipelines and

oil & gas processing facilities,

onshore and offshore)

All earlier legislation

essentially replaced by:

Guidance on legislation in place since 2002

Petroleum Act 1998

(offshore pipelines)

Third Party Access and ICOP

Infrastructure Code of Practice (ICoP)

ICoP Guidance Notes

Guidance on Disputes over Third Party

Access to Upstream Oil & Gas

Infrastructure (OGA)

Legislation

(Energy Act 2011) Commercial Code of Practice (CCoP)

The CCoP & ICoP are voluntary industry codes with broad

support but no legal obligation to use them

When a user submits an Automatic Referral Notice (ARN), they

are making a commitment to make an application to OGA to

impose terms if they do not reach agreement within the defined

period

The Guidance refers to the ICoP and encourages its use

However, there is no reference to the ICoP in the legislation,

and terms are imposed under the Energy Act 2011

Yes

Consider further

Third Party Access Process

Application Made (s.82)

OGA reviews, seeks owner view

Action? End

OGA considers

acting on own

initiative (s.83)

Inform parties and

seek views

Reject

Minded to

set terms? Draft ‘Minded To’ letter and/or

draft Notice

Allow time for

comment(s)

Draft Notice and offer to User

User

Accepts?

Impose terms on Owner

End

Adjourn for further

negotiation

(Parties may

negotiate further)

No Yes

No

Yes

Decide to

act?

Offer parties opportunity to be heard

Seek information from Owner

MER UK in Practice

Non Binding Dispute Resolution

Issue timetable s.23

(3)(a) (and directions)

Issue non-binding recommendation to

relevant parties s.23 (2)(b)

End

No

Possible sanctions for breaches:

of timetable, directions, non-

provision of information

Consider significance of dispute

Consider key factors likely to affect

recommendation

Request information and/or meetings

s.24 and/or 25

Dispute referred

(Energy Act 2016

s.20)

Action

End

Reject

s.21

(1)(a)

Consider further

s.21 (1)(c)

Adjourn for further

negotiation s.21 (1)(b)

OGA considers

acting on own

initiative (Energy

Act 2016 s.22)

Request information

s.24(1)(d)

Decide

to act?

Failure to follow may be

evidence of failure of MERUK

Notify parties

Yes

Issue timetable

s.21 (5)(a)

(and possible mediation)

Non Binding

Dispute

Resolution

MER UK in Practice

Sanctions

Sanctions

Central Obligation,

Supporting Obligations

and Behaviors MER UK

Strategy

Petroleum-related requirements:

- MER UK Strategy

- Licence terms

- 2016 Act (meetings, information etc.) Sanctions

Sanction Notices Enforcement

notice

Financial

penalty notice

Operator

removal notice

Licence

revocation notice

Sanctions Procedure – Figure 1

Facilitation

Deviation from Expectation?

Initial Triage

Undertake Enquiry

Suspected Failure? ¥

Continue with sanctions?

Conduct Investigation

Deploy other powers?

Deploy other

powers

N*

Y

Y

N *

N

Y

N

Y

• ‘Facilitation’ is led by the Initiating Directorate (e.g. EPD)

• ‘Triage’ is conducted by the Initiating Directorate and the Disputes and Sanctions Team

• Subsequent application of powers are led by the Disputes and Sanctions Team

Disclaimer: The flowchart is for indicative guidance purposes only and does not provide legal advice.

* ¥ Sanctions apply to a Failure to Comply with a Petroleum-Related Requirement.

* Triage process is repeated following each exit from the sanction procedure.

Sanctions Procedure – Figure 2

Recommend draft SWN

D+S issues SWN

Representations

Redraft

SWN

Evaluation

Continue to SWN?

Board rejects SWN?

Board varies SWN?

Board decision

Deploy other powers?

Deploy

other

powers

Y

N *

Y

N

Y *

N

Y

N

Facilitation

* Triage process is repeated following each exit from the sanction procedure.

Disclaimer: The flowchart is for indicative guidance purposes only and does not provide legal advice.

Sanctions Procedure – Figure 3

D+S recommendation to

vary / stop / issue SN

Board rejects SN?

Board decision

D+S issues / publishes SN

Board varies SN?

Redraft SN

Deploy other powers?

Deploy other

powers

Y

N

Y *

N

Y

N

Facilitation

* Triage process is repeated following each exit from the sanction procedure.

Disclaimer: The flowchart is for indicative guidance purposes only and does not provide legal advice.