Oil companies face historic change in regulatory regime

The UK oil and gas industry is on the verge of one of the most fundamental changes in its history when the Energy Bill receives Royal Assent, according to an oil and gas specialist at Bond Dickinson LLP.

The MER Strategy became law in March and the bill is likely to become law in the coming weeks. When it does so, for the first time ever UK Continental Shelf (“UKCS”) companies will have to make certain key decisions based on economic analysis and not firmly established legal rules.

Bond Dickinson has undertaken an in-depth study of the implications of the Act and the MER (Maximising Economic Recovery) Strategy, the final version of which was published on 18 March and which is central to the bill’s powers.

Key points in the firm’s analysis include:

Uisdean Vass, oil and gas partner at Bond Dickinson, said the transformation of the industry’s regulatory regime, borne out of Sir Ian Wood’slandmark review on how to make the most of the opportunity the UKCS continues to offer, poses an enormous challenge.

“It will be vital for oil companies to stay abreast of the rapid developments taking place and fully understand how MER will impact them. Failure to understand this could have important consequences as the OGA will have significant powers from demanding data generated by oil companies to imposing a wide range of sanctions including financial penalties and revocation of licences.

“The long term future of the UK North Sea oil and gas industry, which is so vital to ensuring that the North-east of Scotland retains the expertise to make it a respected international hub, depends on the success of the OGA and the Strategy.

“While it is visionary, it may well create some legal headaches in the months ahead. For example, we are already being asked questions relating to late life/decommissioning infrastructure and whether precedence will be given to extending life to achieve MER or minimising cost by closing loss-making fields.”

The implications of the changes will be discussed at a seminar at the firm’s London office on 26 May and in Aberdeen on 2 June. For further information please see www.bonddickinson.com/insights/events.