Use the Lexology Getting the Deal Through tool to compare the answers in this article with those from other jurisdictions.
Identify the principal agencies that regulate the energy sector and briefly describe their general jurisdiction.
The principal regulators in the energy sector include BEIS, the OGA, the Office of Gas and Electricity Markets (OFGEM) and the Office for Nuclear Regulation (ONR). The Environmental Agency, the Health and Safety Executive, the Maritime and Coastguard Agency and the police also play an enforcement role in regulating the industry.
BEIS sets the UK’s energy and climate change mitigation policies, having replaced DECC as the governmental body responsible for UK energy policy following the post-Brexit change in government. It is responsible for establishing the framework for achieving the policy goals in these areas.
The OGA is responsible for regulating offshore and onshore oil and gas operations in the UK including licensing, with an emphasis on maximising oil and gas recovery in the North Sea. It was launched on 1 April 2015 as an executive agency of DECC (now BEIS) and took over a number of responsibilities for oil and gas regulation. The OGA became a government company in October 2016 and was established as a fully independent regulator by the Energy Act 2016, which granted it new powers and amended various statutory provisions, including provisions of the Petroleum Act 1998. The OGA took over the powers of the Secretary of State with regard to licenses for exploration and extraction of oil and gas resources. The OGA is now able to issue enforcement notices and financial penalties, and to revoke licences arising from breaches of the MER UK Strategy. In addition to these powers, the OGA has the power to investigate ‘qualifying disputes’ and make non-binding recommendations for the resolution of disputes that are intended to contribute to the fulfilment of the MER UK Strategy.
OFGEM is the government regulator for the downstream gas market and electricity market in the UK. The ONR carries out the function of the safety regulator for the civil nuclear industry in the UK.
The Environmental Agency (EA) is the environmental regulator for all onshore oil and gas operations in England. The EA must be consulted on a wide range of issues including on matters relating to shale gas.
The Health and Safety Executive (HSE) is responsible for enforcing health and safety legislation and principally acts through its Energy Division in regulating the oil and gas industry.
Access to infrastructure
Do new entrants to the market have rights to access infrastructure? If so, may the regulator intervene to facilitate access?
The Infrastructure Code of Practice (ICoP) was introduced in 2004 to ensure that new entrants and smaller players in the UK Continental Shelf could exploit discoveries that required access to existing third-party infrastructure to make the field commercially viable. ICoP requires owners to publish annually their main commercial conditions for access to their upstream infrastructure. These commercial conditions form the basis for negotiations between the owners and third parties. The ICoP and its accompanying guidance notes were updated in 2012 and were again most recently revised in August 2017 to reflect certain legislative changes (principally the transfer of power from DECC/BEIS to the OGA) and more general drafting improvements.
While ICoP is voluntary, non-binding and industry-led, it is supported by a statutory regime through which the OGA can intervene to grant access to infrastructure. The OGA may become involved where parties have had a reasonable time to reach an agreement but there is no realistic prospect of an agreement being reached or where a third party has made an application to the OGA for a notice granting the relevant rights. Importantly, it is worth noting that under section 83 of the Energy Act 2011, the OGA can issue an access notice under its own initiative; however, guidance from the OGA envisages that this power would only ever be used in very limited circumstances, as this would override the right of a prospective user to make an application to the OGA at the time that it sees fit.
Under the Gas Act 1995, a similar regime applies to downstream gas processing facilities (for example, facilities that process gas for the purpose of the gas being put into storage, an LNG import or export facility, a gas interconnector or a distribution system pipeline).
What is the mechanism for judicial review of decisions relating to the sector taken by administrative agencies and other public bodies? Are non-judicial procedures to challenge the decisions of the energy regulator available?
In England and Wales, judicial review is the mechanism that allows an affected party to request that the courts consider the lawfulness of a decision or action taken by a body exercising a public function. The court’s supervisory jurisdiction is found in the Senior Courts Acts 1981 but has largely developed through case law.
Judicial review is only available in limited circumstances and serves a specific function. The court’s role is not to remake the decision or to decide on the merits of the decision (other than for the purpose of considering whether it was lawful). It is to review the process by which the decision was reached and to determine whether that process was lawful or fair. If there is an appeal process, a claimant should exhaust this route before applying for judicial review.
To bring an application for judicial review:
- a party must have sufficient interest or ‘standing’;
- the decision or action must be amenable to judicial review, that is, there must be some exercise of public function, which can apply to government departments, public bodies and in certain circumstances, private parties;
- one of the substantive grounds for judicial review must apply:
- procedural unfairness; or
- breach of a legitimate expectation; and
- the application must be brought promptly and in any event within three months of the date when grounds for the application first arose.
If a judicial review claim is successful, the principal remedies that the court may grant are a mandatory order requiring the body being reviewed to do something; a prohibiting order restraining the body being reviewed from doing something; or a quashing order that sets aside the decision of the body being reviewed. It is worth noting that the result of a successful judicial review might be the same as the impugned decision but reached in a lawful way.
What is the legal and regulatory position on hydraulic fracturing in your jurisdiction?
If shale gas can be extracted at a commercial rate from local sources, it is estimated that it could meet around 10 per cent of the UK’s gas needs. In its 2017 Guidance on Fracking, BEIS reiterated the government’s commitment to shale gas and its ability to provide the UK with greater energy security, growth and jobs.
Under the Petroleum Act 1998, the Crown owns the mineral rights in relation to land and not the landowner; the OGA is responsible for regulating onshore and offshore oil and gas operations in the UK, including granting licences for exploration and production of shale gas on behalf of the Crown.
The Infrastructure Act 2015 contained some key provisions relating to shale gas exploration. These provisions include a new underground access regime to use deep-level land (300 metres below the surface), which prevents landowners who have not agreed to drilling access under their land from claiming that there has been a trespass. The Infrastructure Act separately introduced a number of safeguards against hydraulic fracturing as well as bans to fracturing in certain protected areas (eg, National Parks, Areas of Outstanding National Beauty, the Broads and World Heritage Sites).
The Finance Act 2014 introduced a new tax regime to encourage the exploration of shale gas, which the government believes will make the shale gas regime in the UK the most competitive in Europe.
For exploration and production a number of consents are required and may include: a Petroleum Exploration and Development Licence (PEDL) as issued by the OGA, planning permission from the relevant minerals planning authority, environmental permits (from the Environment Agency, Natural Resources Wales or the Scottish Environment Protection Agency), abstraction licence, authorisation from the coal authority, well consent and notification, field development consent, flaring and venting consent and consents from the landowners whose land is affected by the exploration. In August 2015, DECC (now BEIS) and the Department for Communities and Local Government implemented new planning processes to allow shale gas planning applications to be fast-tracked, with the aim that faster decision making on shale gas will promote economic growth and energy security. In February 2017, BEIS published further guidance on the process of seeking consent to commence hydraulic fracturing operations within the UK. Additional guidance on ‘Developing Shale Gas in the UK’ was published by BEIS in October 2018.
Fracking has recently become the subject of intense public scrutiny. Operations at Cuadrilla’s Lancashire fracking site (UK’s only fracking site) were suspended in 2011 but recommenced in October 2018, after a failed legal challenge by environmental groups. However, tremors in Lancashire attributed to the fracking have forced Cuadrilla to halt operations repeatedly. It remains to be seen how this affects the regulatory framework surrounding shale gas exploration in general, and fracking in particular.
Other regulatory issues
Describe any statutory or regulatory protection for indigenous groups.
Describe any legal or regulatory barriers to entry for foreign companies looking to participate in energy development in your jurisdiction.
Every licence issued for the exploration and production of oil and gas will have attached to it detailed terms and conditions, which are set out in model clauses enshrined in secondary legislation under the Petroleum Act 1998. The main ways in which a licence can be obtained are through assignment of licences from an existing licensee with the permission of the OGA, or through competitive licensing rounds that generally take place every year. Before approving the transfer of a licence or awarding licences the OGA must be satisfied that the applicant meets certain criteria that focus on the technical and financial capacity of the prospective licensee. These criteria apply equally to domestic companies as to foreign companies.
What criminal, health and safety, and environmental liability do companies in the energy sector most commonly face, and what are the associated penalties?
The UK energy sector is highly regulated and companies are expected to conform to strict health and safety and environmental standards. Unlimited fines for offences under the Health and Safety at Work Act 1974, Environmental Damage Regulations 2009 and related legislation can be ordered by the courts.
The HSE’s Energy Division regulates the risks to health and safety arising from work activity in the offshore oil and gas industry on the UKCS. The OGA separately has the power to issue financial penalty notices of up to £1 million for a failure to comply with a ‘petroleum-related requirement’.
The level of fines for health and safety and environmental offences has been steadily increasing, as has the willingness of judges to impose custodial sentences on individuals (including company directors and employers) for serious offences resulting in fatalities in the workplace. New sentencing guidelines set out ranges for fines that apply in respect of breaches of health and safety legislation as well as those payable in the event of a corporate manslaughter conviction. These range from £10-£50 million (for health and safety breaches) and £180,000-£20 million (for corporate manslaughter). The guideline expressly provides that where an offending organisation’s turnover or equivalent very greatly exceeds the threshold applicable for large organisations (£50 million), it may be necessary to move outside the suggested ranges to achieve a proportionate sentence.