In a written ministerial statement today, Chris Huhne has attempted to offer clarification on the question of consent under the Petroleum Act 1998 for any oil and gas development where it appears that the development can proceed only if the oil and gas clause in a renewables lease, or agreement for lease, is invoked, and also on the matter of compensation where Crown Estate leases are terminated.
The Oil and Gas Clause, as it is known, is a clause in Crown Estate Leases enabling the Crown Estate- at the request of the Secretary of State - to terminate a lease (e.g. for subsea cabling from offshore wind projects) where it wants to allow an oil and gas development to proceed. It is widely regarded as a potential stumbling block for investors in offshore renewables projects, as the clause makes no reference to payment of compensation for the termination.
The Minister has confirmed that it is up to the parties concerned to reach agreement on the basis on which a Crown Estate lease may be terminated using the Oil and Gas Clause, and that he would expect that the agreement would include appropriate termination compensation. Importantly, he has stated that in future he will only make a request for termination using the Oil and Gas Clause where he has: “confirmation from the affected leaseholder that agreement had been reached on acceptable terms”.
If the DECC is to approach requests to enforce the Oil and Gas clause in future on this basis, it represents quite a powerful protection for renewables developers, in that the ministerial clarification refers to the renewables developer first having to confirm that agreement has been reached on acceptable terms (i.e. terms acceptable to it, with no reference to reasonableness or independent determination of compensation). It is not likely to offer a solution to resolve the conflicting interests of competing renewables and oil and gas developers - and so a bigger question possibly remains unanswered - but it does at least enable a renewables developer to stand its ground, which must be an important win for investors.