MER UK: Update on OGA powers

On 1 October, the provisions of the Energy Act 2016 formally transferring offshore oil and gas regulatory functions to the Oil and Gas Authority and giving it its additional powers were brought into force.

22 November 2016

On 1 October, the provisions of the Energy Act 2016 (the "Act") formally transferring offshore oil and gas regulatory functions to the Oil and Gas Authority (the "OGA") and giving it its additional powers were brought into force.

Two of those powers are the rights to attend meetings and the ability to impose financial penalties on operators and licence holders. The OGA has now issued a statutory notice in relation to the former and is consulting on guidance in respect of the latter.

OGA statutory notice on rights to attend meetings 
To allow the OGA to effectively exercise its power to attend meetings, obligations are placed on industry to: 

  • inform the OGA, in writing, of all 'relevant meetings';
  • provide sufficient details to enable the OGA to participate in the meeting at least 14 days prior to the date of the meeting (providing a written explanation if the 14 day timescale is not possible); 
  • provide the OGA with any information provided to other attendees, including in particular the agenda and any other documents relevant to the meeting; and 
  • if the OGA does not attend the meeting, provide it with a written summary of the relevant parts of the meeting and any decisions made at the meeting.

Despite statements from the OGA that the powers would be used in a manner appropriate to its needs, avoiding any undue burdens being placed on industry, concerns understandably arose when the Act first came into force around the potentially wide definition of 'relevant meetings' that the OGA would require notification of and would be given the right to attend.  

A relevant meeting is defined in the Act as being any meeting between representatives of two or more 'relevant persons' (broadly, holders and operators of petroleum licences, owners of upstream petroleum infrastructure and relevant offshore installations) where 'relevant issues' are discussed.  Relevant issues are in turn defined as issues which are either relevant to the fulfilment of the 'Principal Objective' of maximising the economic recovery of UK petroleum, or relate to activities under an offshore licence – a broad definition which could arguably mean that any meeting between relevant persons would be caught, placing a high administrative burden on industry.

Section 37 of the Act gives the OGA the power to issue a statutory notice to provide that certain classes or descriptions of meetings will not be classified as 'relevant meetings' for the purposes of the obligations set out above. The OGA have now published such a notice (the "Notice"), a copy of which can be found here.

The Notice provides that a meeting between two or more relevant persons or involving discussion of relevant issues will not be a relevant meeting that entitles the OGA to be notified and participate unless it is:

  • an operator committee meeting (OCM) or Technical Committee Meeting (TCM) under a joint operating agreement ("JOA") where the joint venture operates one of a set list of fields / priorities identified by the OGA and listed in the Notice;
  • a meeting where there is a technical peer review on prospects and undeveloped discoveries, where the intent is that this will lead to an investment decision regarding exploration and appraisal wells; or
  • a decision-gate meeting between joint venture partners for major investment projects of £300m or more for greenfield, brownfield and decommissioning projects.

Whilst this clarification will be a welcome development for industry, it remains unclear exactly how these powers operate in practice. It will be interesting to see whether the OGA's use of these powers serves to encourage greater cooperation and harmonisation amongst different stakeholders in the industry, or, despite reassurance from the OGA that there is no intention to place burdens on the industry, nevertheless has the unwanted effect of hampering constructive discussions amongst parties.

Consultation on financial penalty guidance
The Act also gives the OGA power to issue sanction notices for failure to comply with a petroleum-related requirement, including the power to impose financial.  

Part 2 of the Act enables the OGA to impose civil sanction notices in order to regulate and ensure compliance both with offshore petroleum licences, and with the duty to act in accordance with the MER UK Strategy under section 9C of the Petroleum Act 1998.

Under section 45 of the Act the OGA must issue guidance as to matters which it will have regard to in determining the level of financial penalty to be imposed. The OGA has now published draft guidance and is consulting on it. 

The draft guidance provides that any financial penalty determined should be:

  • effective in addressing the underlying cause of the failure to comply;
  • dissuasive of future failure to comply, either by the person concerned or other persons in similar circumstances; and
  • proportionate to the significance of the failure in the context of the petroleum related requirement and the impact on the relevant persons.

When determining the amount of the financial penalty, the draft guidance also stipulates that the OGA may also have regard to the specific circumstances of the failure to comply, such as:

  • whether there are any specific criteria relevant to adjust the starting figure of any financial penalty – for example any gain made as a consequence of the failure to comply, the degree of harm caused, any increased cost incurred, the severity of the failure to comply, the extent to which the persons may have sought to benefit from the failure to comply and the extent to which parties have followed industry codes of practice;
  • whether there are any mitigating circumstances or behaviours associated with the failure to comply – for example action taken by the persons in advance to address the failure to comply, previous conduct, the presence of internal mechanisms and processes to prevent a failure to comply, and cooperation with the OGA's investigation; and
  • whether there are any aggravating circumstances or behaviours associated with the failure to comply – for example persistent inaction to address the failure to comply, the previous conduct of the person, the absence of internal mechanisms and processes to prevent such a failure, and evidence of senior management involvement in support of the failure to comply,

The consultation closed on 3 November 2016.  The OGA will publish the final guidance within 12 weeks of this date. The guidance will come into force after being laid before both Houses of Parliament.  

The OGA has promised that the guidance will be kept under review and will be revised as appropriate in light of further experience gained together with developing law and practice, as well as any changes to the OGA's powers and responsibilities.

For further information on the subject, join our upcoming webinars:

  • 23 November: MER UK - The dividing line between collaboration and competition
  • 5 December: MER UK - Assessing the new regulatory regime