The ramifications of the events last year in the Gulf of Mexico continue to impact the industry. Last week, Greenpeace was successful in obtaining permission from the High Court for a full hearing of its application for judicial review of DECC’s decision by way of its latest licensing round to grant exploration and production licences for deepwater areas. The latest round of licence offers (26th Round) involve a further 144 licences, although these have yet to be formally granted. Of these, only around 40 relate to areas West of Shetland or in the Western North Sea, with offers made to around a dozen different companies and it is this proposed deep water activity which Greenpeace is now challenging.

In addition, Greenpeace are seeking the revocation of a Seaward Production Licence which would allow deep water drilling in the West of Shetland. This Licence was granted to Faroe Petroleum on 4 October 2010 as a delayed award under the 25th Licensing Round.

Greenpeace seeks to quash the licences and/or obtain a declaration that the granting of such licences would be unlawful. The High Court has ruled that there was sufficient argument in Greenpeace’s written application to require a full hearing.

Greenpeace’s case is based on the contention that no deepwater licences should be issued pending completion and assessment of the ongoing investigation into the causes and implications of the Deepwater Horizon incident. It claims that in light of that incident, a DECC decision of 22 October 2010 that there is no need for an environmental assessment under Article 6 of the Habitats Directive for the licences offered in October is unlawful and that it is also unlawful for DECC to continue to rely on the conclusions reached in the Strategic Environmental Assessment of June 2009, at least insofar as these relate to exploiting deepwater oil reserves.

Application of the Habitats Directive

The Offshore Petroleum Activities (Conservation of Habitats) Regulations 2001 (as amended) (OPAR 2001) implement the requirements of Article 6(3) and Article 6(4) of the Habitats Directive (92/43/EEC) with respect to oil and gas activities in UK waters. To comply with its obligations under OPAR 2001, DECC undertook a Habitats Regulations Assessment, the first stage of which was a screening assessment to determine whether award of any Blocks applied for was likely to have a significant effect on a site, either individually or in combination with other plans or projects. On 22nd October 2010, DECC decided that no significant effect was likely in respect of a large number of the Blocks applied for, although it required further investigations with respect to around 99 blocks. (A copy of DECC’s report can be found here)

DECC’s report specifically refers to the Macondo incident. In relation to deepwater drilling in the areas west of Shetland they comment: “There have been numerous Blocks licensed in these deep water areas in previous licensing rounds and extensive exploration drilling has been undertaken to the west of Shetland over several decades and a number of hydrocarbon field developments. In connection with this exploration and field development, assessment has been undertaken of the behaviour of spills and contingency planning. The presence of the North Atlantic Drift/shelf edge current strongly flowing to the northeast, and legal requirements on well design safety and spill contingency planning, mitigate against the likelihood of significant effects on Natura 2000 and other conservation sites arising from oil spills from activities in those areas. The award of Seaward Production Licences for the Blocks in this area will not in itself lead to significant effects on Natura 2000 sites, since they do not permit subsequent field activities. DECC will ensure that the relevant lessons learned from the recent deep water spill in the Gulf of Mexico, including any additional mitigation measures considered necessary to prevent major oil spillage, will be implemented in UK waters and required as part of activity permitting for exploration and development drilling.”

Strategic Environmental Assessments

Strategic Environmental Assessment (SEA) is the process of appraisal through which environmental protection and sustainable development may be considered, and factored into national and local decisions regarding Government (and other) plans and programmes – such as oil and gas licensing rounds and other offshore energy developments. The process aims to help inform Ministerial decisions through consideration of the environmental implications of the proposed action. DECC began a sequence of sectoral SEAs of the implications of further licensing of the UKCS for oil and gas exploration and production in 1999. SEA is now a requirement of UK law as a result of the incorporation of the European Strategic Environmental Assessment Directive (Directive 2001/42/EC) through the Environmental Assessment of Plans and Programmes Regulations 2004 (and similar regulations for Scotland, Wales and Northern Ireland).

DECC's draft plan to offer licences for offshore oil and gas exploration and production through a 26th licensing round was the subject of a Strategic Environmental Assessment (SEA) completed in 2009. The SEA is documented on a dedicated website and includes commissioned reports on various components of the natural environment, cultural features and socio-economic considerations. In addition, as part of the SEA new information was collected in particular on selected seabed features through seafloor mapping, sampling and photography, on the offshore distribution of large cetaceans, and on important navigation routes and commercial fishing areas.

The potential implications of the exploration and production activities which could follow if the draft plan was adopted were considered at an expert assessment workshop and a series of stakeholder workshops. The results of these workshops were assessed further and documented in an Environmental Report (available here) which then formed the basis for consultation with the consultation bodies and the public.

In deciding to proceed with a 26th offshore licensing round DECC had regard to the conclusions and recommendations of the Environmental Report together with feedback received from consultees. As a result of the SEA process, various blocks were withheld from licensing including some blocks in the deepest part of the SW approaches because of inadequacy of data, blocks in or overlapping with the boundaries of the Moray Firth and Cardigan Bay SACs (where further assessments initiated following the 24th Licensing Round applications are ongoing) and a large number of blocks withheld at the request of the Ministry of Defence.

Greenpeace’s argument is that in light of the Macondo incident, the current SEA is wholly inadequate and there requires to be a re-assessment of the potential risks of oil spills for particularly sensitive sites.

Potential arguments which DECC may raise in judicial review proceedings

One argument which DECC may raise in these proceedings is that the licence process is not the process under which the implications of the Deepwater Horizon incident would most appropriately be addressed and that to refuse to grant any licences at all in deepwater areas would (given the UK’s history of successful offshore drilling) have been a disproportionate response.

The licence is the general authorisation for exploration and production in a particular area. Such a licence does not allow a licensee to carry out all petroleum-related activities from then on. Field activities, such as seismic survey or drilling, are subject to further individual controls by DECC, and a licensee also remains subject to controls by other bodies such as the Health and Safety Executive (HSE).

It is notable that none of the proposed deepwater licences appears to include a firm commitment by the licensees concerned to drill any exploration wells. Of course, this does not rule out the possibility of wells being drilled during the initial term to meet contingent well commitments or in order to satisfy “drill or drop” provisions under which a well must be drilled in order to permit the licence to continue to its next stage. DECC’s experience is that Drill-or-Drop and Contingent work programmes (subject to further studies by the licensees) tend to result in a well being drilled in less than 50% of cases.

As noted, in order to drill a specific well, a series of further consents would be required from DECC and HSE. The regime applicable to drilling in the UKCS includes the following protections:

  • The Offshore Installations (Safety Case) Regulations 2005 require written safety cases and risk assessments to be prepared by the operator, and then approved by HSE, for all mobile offshore drilling rigs operating in the UK.
  • A system of well notification, where the HSE reviews well design and procedures.
  • A requirement for the design and construction of a well to be examined by an independent and competent specialist.
  • A scheme of independent verification of offshore safety critical equipment such as blowout preventers to ensure they are fit for purpose.
  • Checks that workers involved in well operations have received suitable information, instruction, training and supervision.
  • Offshore inspections of well control and integrity arrangements, and related safety issues, by specialist inspectors from HSE’s Offshore Division.
  • Weekly drilling reports submitted to HSE by operators.

In addition, operators must prepare Oil Spill Emergency Plans (OPEPs) under the Merchant Shipping (Oil Pollution Preparedness, Response and Co-operation Convention) Regulations 1998 to ensure that they are prepared for the contingency of an oil spill.

It is these various consents and mechanisms which would be (and indeed are being) varied to address the lessons learned from the Deepwater Horizon incident. For instance since December, OPEPs associated with exploration, appraisal and development drilling operations, or work-over and intervention operations on hydrocarbon producing wells, on the UKCS must assess and provide for an effective response to an identified worst-case scenario where all containment barriers have failed resulting in a blow-out, that would normally require the drilling of a relief well.

DECC now has 35 days to prepare a full written defence, and has confirmed that the application will be robustly defended. Affected oil companies may also be permitted to join in defending the case. A date for a full hearing has yet to be fixed.