It is likely to be a busy year for industry in adapting to the demands of the Oil & Gas Authority (“OGA”) as it clarifies its expectations, identifies its priorities and grows more confident in applying its powers. As the new year begins, we consider what is to be expected from OGA in the coming months.
Model Clause amendments and the ‘Innovate Licence’
OGA’s consultation on changes to the standard clauses incorporated into offshore production licences (discussed in our previous Law Now) closed on 6 January. The regulator will now review industry responses to its proposals to amend the date on which a licence is considered to have commenced, add new provisions to allow a licence to be extended more easily where production is continuing at its normal expiry date, and to implement fully the ‘Innovate Licence’. The latter concept, first used for the 29th Licensing Round, offers a more flexible type of licence where the Initial Term is tailored to the applicant’s Work Programme. Should the proposals be implemented, the new licence and altered model clauses will be available from the 30th Seaward Licensing Round onwards.
Annual Stewardship Survey
Responses from operators are due by 17 February to OGA’s first Annual Stewardship Survey. This survey replaces nine existing surveys run by multiple organisations which should reduce time and effort for operators. As the results will underpin all aspects of OGA’s work – informing asset stewardship reviews and benchmarking, allowing robust economic modelling of UKCS fields, and aiding the construction of regional strategies and area plans – operators should ensure they submit the best available information in order to encourage appropriate outcomes.
Following receipt and analysis of survey responses operators can expect to receive benchmarked scores for production efficiency, recovery factor, operating cost and decommissioning cost. Operators will initially see only their own asset performance compared against non-attributable, anonymised trends. OGA’s aims are to see the industry’s production efficiency at 80% by the end of 2016 and cuts in overall operating costs of 30% by 2018, although some will have more scope for cuts than others.
Where performance is below the benchmark trend, this is likely to be an issue raised during Stewardship Reviews. OGA has already begun to carry out these reviews and in future will prioritise who to review and at what level (directors, senior management, subject matter experts) based on analysis from the Stewardship Survey. The aim will be to align reviews with the company’s business planning cycle to allow influence on investment plans and operators should expect follow up on areas of performance improvement identified by the review.
Retention and disclosure of information regulations
A draft consultation is expected in Q1 2017 on new regulations for the retention and publication of information and samples by OGA and industry, including limitations on OGA’s disclosure of information given to it by licensees and operators. Associated guidelines to replace PON 9 are also expected. For a further discussion of OGA’s powers in relation to information and samples, see our previous Law Now.
Offshore Licensing Rounds and the seismic acquisition programme
On 7 March bidding closes for the fourteen blocks across the UKCS on offer in the Offshore 2016 Supplementary Round. This adds to the blocks on offer in the 29th Oil and Gas Licensing Round which closed in October and the results of which are due “as early as possible in 2017”.
OGA has awarded contracts worth approximately £1 million to supply more than 10,000 kilometres of reprocessed proprietary 2D seismic data of the UKCS including the Anglo-Paris basin offshore, the Wessex and Weald Basins onshore, the South West Approaches, the Solway Firth, the Unst Basin and the East Shetland Platform. These data have the potential to unlock areas that have not been explored for decades and will support the evaluation of acreage to be made available in future OGA licensing rounds. They are scheduled to be openly released to the industry in Q2/Q3 2017 alongside the recently acquired new seismic, gravity and magnetics data of South West Britain and East Shetland Platform. OGA has also recently announced two Invitations to Tender for geotechnical studies in the latter areas.
Where decommissioning is concerned, OGA is due to publish imminently its preferred approach to cost estimation on decommissioning which is a precondition to being able to produce an accurate estimate for overall costs of decommissioning in the basin, and then to the reduction of that figure. OGA is likely to focus its cost reduction efforts on well P&A, topsides removal and post cessation of production operating costs, with an overall target of a reduction of 35%. Operators may find pressure to apply those standard cost estimation methodologies, share information and adopt new technologies.
Whether proposals on new business models are forthcoming in 2017 will to some extent depend on what emerges in the Budget in terms of transferability of tax relief for decommissioning but there may be pilots of cross-operator well P&A campaigns. We should certainly expect early in the year updated guidance from the Department for Business, Energy & Industrial Strategy (“BEIS”) on decommissioning and accompanying guidance on OGA’s role in approval of decommissioning plans, together with a regulatory roadmap for decommissioning planning, and guidance on stakeholder engagement, comparative assessment methodology and decommissioning scope.
2017 is also likely to see the issuing of OGA’s first regional or area plans. All in all, a lot to look forward to and a lot of work to do.