In its latest publication, “Competition and Collaboration” (accessible here), the Oil and Gas Authority (“OGA”) has urged industry to consider the benefits of collaboration when determining how to act in light of competition law. Collaboration forms one of the core policy themes under MER: its importance was emphasised in the Wood Review and section 9A of the Petroleum Act 1998 (as amended) defines the “principal objective” as being the objective of maximising the economic recovery of UK petroleum, partly through “collaboration among [relevant] persons”. Consequently, OGA argues that collaboration has been “elevated from being a matter of general practice to a statutory obligation”.
It was quickly identified by the industry that this new focus on collaboration becomes complicated where the outcome of that collaboration risks being deemed anti-competitive. Article 101(1) of the Treaty on the Functioning of the European Union (“TFEU”) and section 2(1) of the Competition Act 1998 prohibit, in certain circumstances, decisions, practices, or agreements between undertakings that have the object or effect of preventing, restricting or distorting competition. In its letter to the Secretary of State for Energy and Climate change in December 2015, the Competition and Markets Authority (“CMA”) emphasised the need for OGA to ensure that it did not, even inadvertently, encourage or facilitate breaches of competition law. This concern was recognised, for example, in the MER UK Strategy, which provides that the obligations it describes must be read subject to the Safeguards that also form an integral part of the Strategy. The first such Safeguard provides that no obligation imposed by or under MER UK permits or requires any conduct which would otherwise be prohibited by or under any legislation – of course, that must include competition law. OGA has considered this caution and now seeks to offer some assistance to industry for navigating this area, in particular by drawing attention to certain exemptions and exceptions that exist under the competition law rules, principally those relating to pro-competitive outcomes, de minimis arrangements and block exemptions.
Exception: pro-competitive outcomes
An agreement or conduct that might otherwise infringe competition law prohibitions may be excepted if it can be shown to produce pro-competitive benefits that are shared with consumers. Those benefits must outweigh any anti-competitive impacts and the measures must be no more restrictive than necessary to achieve those benefits. OGA is of the view that any project which is intended to increase supply should, in turn, contribute to a reduction in prices for those products and, ultimately, reduce the prices paid by consumers. On that basis, OGA considers there “is little reason to believe that ultimately consumers will not benefit from the development and production of such additional resources”. The regulator therefore concludes that measures leading to efficiency gains, such as agreements on “technical or operational matters”, are “unlikely to raise concerns”.
Exception: de minimis
OGA goes on to highlight that where competitors have low market shares, there may not be an appreciable impact on competition. The European Commission has issued a notice indicating that agreements between undertakings will not appreciably restrict competition if the aggregate market share of the parties to the agreement does not exceed 10% for ‘horizontal agreements’ (i.e. between competitors), or 15% for ‘vertical agreements’ (i.e. between businesses at different levels in the supply chain). The Commission’s notice is a matter to which the CMA must have regard. OGA suggests that an agreement falling within the parameters set out in the notice would be unlikely to fall within the Chapter I Competition Act prohibitions.
Exception: block exemption
Finally, OGA reminds industry of those exemptions applying generally to any agreement where certain requirements are met. These block exemptions are available for particular categories of agreement, such as technology transfer agreements and research and development (“R&D”) agreements (both of which are relevant to OGA’s Technology Strategy). These agreements will be exempt so long as they do not contain any ‘hard-core’ restrictions such as price fixing, market sharing or limitations of output or sales, or any excluded restrictions such as ‘no-challenge’ clauses for intellectual property rights. In order for the exemption to apply, all the parties must have full access to the final results of the R&D for the purposes of further R&D and exploitation.
OGA encourages industry to consider whether UK or EU competition rules apply in the first place and, if they do, whether: (1) there are any pro-competitive outcomes, (2) the agreement is de minimis, or (3) there is an applicable block exemption. OGA is firmly of the view that “[competition] considerations should not be used as an excuse not to comply with the obligations set out in the MER UK Strategy, unless they are well-founded”.
Nevertheless, businesses would be well advised to remember that the TFEU and Competition Act regimes are based on the principle of self-assessment. The onus of determining whether an agreement or conduct is competition law compliant rests with the individual business. The fact that an agreement is sanctioned by OGA does not necessarily prevent it from falling foul of national or European competition law. Therefore, whilst OGA may highlight for industry’s attention certain factors to consider, OGA’s new guidance acknowledges that the ultimate decision (and ultimate responsibility) remains solely with the individual business. Parties must think carefully about how to balance their obligations and accomplish the less-than-straightforward task of ensuring overall regulatory and legislative compliance in this area.