The coming into force of the MER UK Strategy (the “Strategy”) on 18 March 2016 brought with it the possibility of “OGA Plans” (paragraphs 23 to 25 of the Strategy). OGA has the option of deploying these plans in order to set out its view on how any of the obligations in the Strategy may be met. Whilst a raft of further sub-strategies and guidance has since been published, it has not always been clear what form these plans might take, or indeed whether they would be utilised at all. However, this week OGA has published its “Guidance on the Development and Use of Area Plans” (available here), bringing some much-anticipated clarity to the topic.
Area Plans, MER UK Plans, and Regional Strategies
Importantly, OGA has defined the plan nomenclature. Previously, the use of varying terminology such as “regional”, “area”, “plans” and “strategies” had led to a degree of ambiguity around how the plans might look. It is now apparent OGA considers there to be three distinct forms of plan. These are:
- An Area Plan, being “a proposal for action developed in partnership between the OGA and industry as to how economic recovery should be maximised in a particular geographical area”;
- A MER UK Plan, being “a plan as described in paragraphs 23 to 25 of the MER UK Strategy as an ‘OGA Plan’ that sets out the OGA’s views of how any obligations of the MER UK Strategy may be met”; and
- A Regional Strategy, being an “aggregate of a number of relevant Area Plans in a specific region”. OGA reserves the right to add further direction at a regional level.
Notably, the newly published Area Plan Guidance does not cover MER UK Plans. It does, however, state that “insufficient progress” in fulfilling an Area Plan may lead OGA to intervene – which may in turn mean the production of a MER UK Plan. Other than to say this would be based on an Area Plan, OGA gives no further guidance on what guise such a MER UK Plan might take. To that extent, the details of the “OGA Plans” of the MER UK Strategy remain somewhat elusive.
Focusing on the Area Plans, the Guidance describes a tripartite split in the format, consisting of the Initiate Phase, Work Phase, and Execute Phase. For those it considers to be ‘key’ Area Plans, OGA will take the lead in the Initiate Phase and may do so by sending an ‘initiate letter’ which may be published on the OGA website. During this phase, the first deliverable will be the scope of work document ("SOW"), drafted by OGA. The SOW should identify relevant opportunities, establish goals and scope, identify participants for delivery and execution of the plan, and identify data requirements for the project.
Following the production of the SOW, industry are expected to take the lead on developing a project execution plan (“PEP”) (although Figure 2 still describes the PEP as being drafted by OGA). The PEP ought to set out the mechanics of execution, consider competition law requirements, and identify the deliverables, roles, and responsibilities of OGA and industry. In determining whether the PEP is suitable, OGA will assess it against three 'critical success factors’ and four other ‘success factors’, including matters such as time-line targets, the use of appropriate people, and the development of a shared view to achieve MER UK.
Following the Initiate Phase, industry are to progress into the Work Phase. An ‘Industry Project Lead’ is expected to take responsibility for assessing, selecting, and defining scenarios for the Area Plan. At a minimum, the Plan must have the prescribed sections set out in the SOW document at Annex A of the Guidance. The OGA Area Manager and OGA Operations Director will review the Plan and determine whether it is ‘robust’; the Plan will only be considered to be so where it is broadly consistent with the principal objective.
OGA is expected to have a lesser role during this phase. However, what it describes as a ‘light touch’ role may nevertheless include attending meetings in order to, for instance, consider whether the scope of the Plan has changed.
Finally, industry are expected to lead on execution of the Area Plan. If adequate and timely steps are taken to fulfil the Plan, OGA states it will support industry activities through its regulatory role. If, however, industry does not execute the specific actions per the agreed schedule, OGA may steward the Area Plan using the wide range of powers and tools at its disposal. Whilst OGA does not expressly state this will include the use of sanctions, the Guidance does later reiterate the sanctionable requirements of the Energy Act 2016 (which include a duty to act in accordance with the MER UK Strategy and, therefore, the central obligation).
Impact for operators and licensees
All parties will be required to cover their own costs of involvement in all phases of an Area Plan.
OGA states that the Plans are “not intended to guarantee commercial returns for participants", but are instead intended to demonstrate achievement of the principal objective and the meeting of MER UK obligations, required actions, and behaviours. The regulator intends to prioritise its efforts on what it terms ‘Tier 1’ and ‘Tier 2’ Area Plans. ‘Tier 1’ plans are those which are thought to have significant impact on MER UK and to be of significant complexity, whilst ‘Tier 2’ plans are considered to be of moderate impact and moderate complexity.
OGA states it is currently working closely with operators, licence holders and other parties to develop Area Plans across the oil and gas lifecycle. As OGA wishes to publish as many of these Plans as possible, we look forward to seeing how the finalised document looks and how it operates in practice.
The Guidance contains three “case studies” of unnamed areas in the SNS and CNS which have already produced plans in conjunction with OGA for (i) development of small pools through subsea reconfiguration, (ii) for a combined development through a single host and (iii) for rapid connection of an area production hub to an oil pipeline system to take advantage of a connection point made available as a result of disconnection of another field (assumed to refer to the Southern Wye Project). However, the plans themselves are not yet published.
While the Guidance does not explicitly state whether OGA considers involvement in an Area Plan development process to be compulsory, failure to engage with a process initiated by OGA is likely to be viewed prima facie as a failure to comply with MER UK obligations. A more difficult question for industry revolves around OGA's statement in Annex A that “an important principle is for the OGA and industry (i.e. the whole workgroup) to share the necessary relevant datasets”. Industry will need to consider whether and to what extent to share data which may be viewed as potentially anti-competitive before it is known whether or not a proposed collaboration would lead to more production than a ‘go it alone’ option, and therefore before it is clear whether an exemption from competition law prohibitions is likely to be available. OGA mentions the use of modelling input from outside the project team including from an independent third party - this can be a useful tool to ensure that data is not shared until such a justification is established.