One of the frequently asked questions in relation to the oil & gas industry’s new regulatory regime and the MER UK Strategy runs something like: “how do I know what I need to do on a day to day basis to comply?” To try to help the industry answer that question and with a view to achieving consistent stewardship performance, the Oil and Gas Authority (OGA) developed Stewardship Expectations as part of its Assert Stewardship Strategy. Stewardship Expectations have been developed, in consultation with the industry, for all key areas of activity including licensing, collaboration and robust project delivery.
On 4 July 2017, the OGA completed its set of Asset Stewardship Implementation Guides, each designed to support one of the Expectations and to provide practical assistance to operators and licensees in achieving them.
The Implementation Guides that have been published are as follows:
The OGA has advised that, at present, it does not plan to produce an implementation guide for SE-07 Information Management.
In a previous Law Now, we commented on SE-09 Collaboration Implementation Guide and the associated Collaborative Behaviour Quantification Tool. In this Law Now, we focus on SE-04 - Licence Activity, Decision Points and Milestones and SE-05 - Robust Project Delivery.
The SE-04 - Licence Activity, Decision Points and Milestones Implementation Guide describes the OGA’s objectives in relation to the licensing landscape. These are to:
- Enable the OGA to facilitate licensee/joint venture alignment; and
- Advise licensees on good practice, including in relation to commercial activity.
The Guide sets out indicative factors by which delivery of the Expectation can be demonstrated. There are three key elements:
1. Notifying the OGA upon signature of a Joint Operating Agreement (JOA) within six months of licence award. For a JV group with an awarded production licence, the OGA expects to have a fully signed and executed JOA within the first six months of the licence’s initial term. OGA considers that absence of an agreed JOA can often lead to commercial disputes which in turn could have an adverse impact on the timely fulfilment of work programmes. Notification should be provided by email - if there is a delay by one of the signing parties, reasons for the delay must be given and the email should detail steps to be taken to get the JOA agreed within a reasonable timeframe. Although not obligatory, the OGA expects to receive a copy of the signed JOA. The OGA may also request copies of current JOAs for existing production licences in any term.
2. Notifying and engaging the OGA at least one month prior to the investment decision being taken to drill or drop a commitment well, or at least three months prior to entering into a new phase or term of an Innovate Production Licence. Again, this second element covers all production licences within their initial term. Ideally, the OGA would like to be notified when discussions begin.
3. Notifying the OGA of farm-out / divestment activity in a timely manner prior to the commencement of such activity. This element covers upstream asset acquisition and divestment activity on individual assets including partial and complete divestment, rather than corporate packages that may be marketed openly or more selectively. The OGA explains that this requirement is intended to aid it in anticipating and planning for future activity. The OGA would like to be informed prior to commencing formal marketing of assets for divestment or farm-out and ideally before potential bidders have been contacted. Included in this expectation is a “farm-out good practice guide”.
This Implementation Guide provides direction on good project delivery in line with MER UK expectations. The OGA expects accountable leadership and established project management systems to be in place (and used) and sufficient front-end preparation and benchmarking to be completed prior to project sanction.
The OGA will gauge the success of a project by its delivery at key milestones (rather than the operator’s processes used to deliver it). The Implementation Guide outlines three indicators which the OGA expects licencees to use to demonstrate compliance with MER UK obligations and delivery of this Stewardship Expectation:
1. Accountable Leadership and Delivery Organisation. Broadly, this indicator focuses on the need for strong leadership, with people applying judgment in executing their responsibilities and the right people being involved at the right time. In this regard, the OGA expects there to be clear governance structures with defined roles and responsibilities and singular accountability at key decision points (amongst other things).
2. Project Management System and Decision-Making. The elements expected within this indicator include having a published project management system, documenting a description of the decision making process, having project-specific risk management process and documenting the output on decision-making.
3. Front-end Preparation and Decision-Making. Within this indicator, the elements that must be demonstrated include benchmarking assessments for all major investment decisions; having a Project Execution Plan (PEP) with focus on project organisation, contracting strategy, cost estimate, and risk and opportunity management as well as having a resource-loaded, risk-based schedule with key decision points.
The Implementation Guide also sets out what is expected in order for licensees to demonstrate that they have given consideration to MER UK for new and existing infrastructure. Some of these expectations include compliance with other Implementation Guides, for example, compliance with SE01 – Joint Venture Hub Strategy.
It appears from the Implementation Guides SE-04 - Licence Activity, Decision Points and Milestones and SE-05 - Robust Project Delivery that the administrative burden on licencees is increasing as is the involvement of the OGA at a time when parties are involved in commercial processes and discussions.
In light of OGA comments that project success will be judged by the delivery at key milestones, rather than the processes used to get there, there may be little incentive to make internal changes as suggested in the Implementation Guides. The OGA does acknowledge, however, that introducing more process steps is unlikely to transform project delivery in the UKCS as this may dilute personal accountability and responsibility and take the focus away from project outcomes. Rather, the OGA considers a project culture that pulls together all employees to be equally as useful as the activities outlined in the Implementation Guides. This theme of “behavioural change” runs through implementation of MER UK and is emphasised in the SE-09 Collaboration Implementation Guide (see our Law-Now here).
It should be kept in mind, however, that although the Stewardship Expectations (and the Implementation Guides) do not have binding legal effect, if the OGA considers that a Stewardship Obligation has not been followed, this may lead the OGA to consider whether a company has complied with its obligations under the MER UK Strategy. This may lead to OGA-imposed sanctions.