The House of Lords’ Committee stage review of the Energy Bill concluded on 14 September 2015.   The Report stage review began on 14 October and concluded on 21 October 2015.  The next and final stage of the House of Lords’ review, the 3rd Reading stage, is scheduled for 2 November 2015. The Bill will then pass to the House of Commons, with the 1st Reading there scheduled for 3 November 2015.

The amendments accepted at Report stage focussed on three key areas: decommissioning, carbon capture and storage, and disclosure.  The House of Lords also agreed amendments relating to the Energy Bill’s onshore wind provisions. Read our Law-Now on this topic here.  

Amendment of the principal objective/MER UK definition

The most significant amendment which was approved by the House of Lords during the Report Stage was to amend the definition of the “principle objective”, which underlines all aspects of the proposed approach to implementation of MER UK.  Following amendment, the Energy Bill now provides that the definition of the “principal objective” (section 9A of the Petroleum Act 1998), will read as follows (new wording in bold):

the “principal objective” is the objective of maximising the economic return of UK petroleum, while retaining oversight of the decommissioning of oil and gas infrastructure, and securing its re-use for transportation and storage of greenhouse gases, in particular through—

a)  development, construction, deployment and use of equipment used in the petroleum industry (including upstream petroleum infrastructure), and

b)  collaboration among the following persons—

(i)  holders of petroleum licences;

(ii)  operators under petroleum licences;

(iii)  owners of upstream petroleum infrastructure;

(iv)  persons planning and carrying out the commissioning of upstream petroleum infrastructure;

(v)  owners of offshore installations.” 

This amendment significantly extends the scope of the MER UK definition and, therefore, the role of the OGA.  Among its headline implications are that:

  1. Persons in whom offshore installations are vested, lessees of offshore installations and any person occupying or controlling the installation (i.e. owners of offshore installations, as defined) will have to comply with the MER UK strategy;
  2. The MER UK strategy will have to include provisions on decommissioning oil and gas infrastructure and securing its re-use for transportation and storage of greenhouse gases;
  3. Operators, licence holders, owners and persons commissioning upstream petroleum infrastructure will be obliged to act in accordance with the decommissioning and transportation and storage of greenhouse gases provisions of the MER UK strategy (as well as the other provisions of the strategy). 

It is possible that this amendment will further delay publication of a draft MER UK strategy.  The OGA has previously indicated that public consultation on a draft MER UK strategy would take place in autumn 2015 but the draft strategy has yet to be published.    

Other amendments accepted at Report stage flesh out this fundamental change, as further discussed below.

Decommissioning

A new Schedule 2 has been added to the Energy Bill that inserts new provisions into the Part 4 of the Petroleum Act 1998, which deals with abandonment of offshore installations.

Under a new section 28A, anyone who could be given a section 29(1) notice requiring them to prepare an abandonment programme in relation to an offshore installation or submarine pipeline “may not abandon, or begin or continue the decommissioning of, the installation or pipeline unless an abandonment programme approved by the Secretary of State has effect in relation to the installation or pipeline”. A person who contravenes section 28A(1) without reasonable excuse will be guilty of an offence.

A person preparing an abandonment programme must consult the OGA before submitting the programme to the Secretary of State and must “frame the programme so as to ensure that the cost of carrying it out is kept to the minimum that is reasonably practicable in the circumstances”. In turn, the OGA must consider and advise the person preparing the abandonment programme on “alternatives to abandoning or decommissioning the installation or pipeline, such as re-using or preserving it”.  This amendment raises important questions regarding whether the OGA could require a person to maintain assets that it would otherwise abandon or decommission and who would pay for such maintenance.

Keeping the cost of abandonment or decommissioning to a minimum and considering alternatives to abandonment and decommissioning must also be considered when:

  1. The Secretary of State proposes modifications or conditions to an abandonment programme;
  2. he Secretary of State approves an abandonment programme;
  3. A person proposes to revise an abandonment programme on the basis that revision could result in costs being kept to a minimum or an alternative  to abandonment or decommissioning has been found; and
  4. A person proposes to amend of an abandonment programme.

Significantly, under the proposed amendments to the Petroleum Act 1998 contained in the Energy Bill, the Secretary of State would have the power to “require any person who submitted [an abandonment] programme to take, or refrain from taking, action of a description specified in written notice”. The notice may, in particular, require:

  1. changes to the times at which the measures proposed in the programme are to be carried out;
  2. the persons who are under a duty to secure that the programme is carried out to collaborate with other persons.

If a notice under this section is not complied with, the Secretary of State will have power to do “anything necessary to give effect to the notice” and “recover from the person to whom the notice was given any expenditure incurred” in doing so.  Failure to comply with such a notice without reasonable excuse will be an offence.    

Some comfort may perhaps be taken from provisions stating that “a notice given under this section may not increase the total costs to be met by any person who is to be subject to obligations under the programme or under any other abandonment programme” and “the Secretary of State may not give a notice to a person under this section without first giving the person an opportunity to make written representation as to whether the notice should be given”.  However, the current drafting gives no detail as to what, for example, “anything necessary” extends to cover, what might be a “reasonable excuse”, or how “total costs” might be calculated, and so what these terms might mean and how they might be implemented in practice is unclear.

Carbon capture and storage

One of the amendments approved by the House of Lords amends Clause 9(1) of the Energy Bill to provide that, in the exercise of its functions, the OGA will be required to have regard to “the development and use of facilities for the storage of carbon dioxide, and of anything else (including, in particular, pipelines) needed in connection with the development and use of such facilities, and how that may assist the Secretary of State to meet the target in section 1 of the Climate Change Act 2008”, (which is currently that the UK carbon account for 2050 is at least 50% lower than the 1990 baseline).

This wording was initially tabled by the Opposition along with other amendments relating to carbon capture and storage, climate change and decarbonisation.  The House of Lords accepted the amendment to clause 4(1) (despite opposition from Conservative peers) by a vote of 251 for and 179 against. If this level of support continues it seems likely that the amendments relating to carbon capture and storage, climate change and decarbonisation will form part of the Bill when it is enacted. 

Disclosure

The provisions relating to disclosure have been restated and extended, particularly in relation to the OGA’s ability to share information disclosed to it with certain branches of government and regulators.

Clause 62 generally prohibits the OGA from disclosing information provided to it under the Bill.  Clause 64 contains an exception to this general prohibition allowing disclosure (without the consent of the person who provided it) to certain branches of government/regulators where information has been gathered by the OGA in carrying out certain of its functions.  Those branches and functions are:

Click here to view table.

There are three main checks on this exception:

  1. The OGA’s information gathering powers are not extended and can only be exercised for the purpose of carrying out its functions; and
  2. The OGA may only disclose information to these branches of government and regulators for the purpose of carrying out the functions of that branch or regulator; and
  3. The branch or regulator whom the information is disclosed to can only use the information for the purpose of carrying out its functions, that may involve further disclosure to other persons.

Despite these checks, there is concern that the new disclosure provisions could allow the named government branches and regulators to access information that they would not otherwise be able to.

A clean version of the Energy Bill as amended at Report stage is available online, as are the Hansard reports for each debate of the Bill.