The Oil and Gas Authority (OGA), otherwise known as the North Sea Transition Authority (NSTA) has just issued fresh guidance on the conduct of offshore petroleum licence assignments.
The guidelines introduce a set of recommended principles and practices designed to encourage buyers, sellers and other key stakeholders to “play nice”, when it comes to M&A deals in the North Sea Basin.
The guidelines aim to do this by reducing delays to deals which can increase costs and sometimes create tense working relationships, seeking to remove barriers to investment and streamlining transactions related to the assignment of offshore petroleum production licences.
How to get a “gold star”
In short, you act in a fair, transparent way and ensure that any extra demands are justified and equally applied (paragraph numbers refer to the guidance):
- Buyers and sellers must work together closely from the start. They should aim to develop a detailed project plan early on to reduce delays. (3.1)
- Parties should act collaboratively. Joint venture party A should not refuse its consent for joint venture party B to transfer its interest as a way to gain an advantage in an unrelated business matter. This kind of behaviour goes against the agreed-upon industry standards (OEUK Commercial Code of Practice) and the expectations set by the NSTA Stewardship Expectation 7. (4.3.11.2)
- If a party wants to impose extra conditions beyond the current safeguards already agreed upon (such as asking for more financial security than what is already covered by an agreement e.g. decommissioning security agreements), they need to explain why the existing safeguards are not enough. If new conditions are necessary, they should be fair to all parties involved and agreed upon together. There should not be a situation where one party demands terms that others cannot meet or would not be required to meet themselves. (4.3.11.3)
- Buyers must be financially and technically capable of completing the transaction, but also have the ability to fund decommissioning liabilities or liabilities arising from a hazard loss incident, or concerns about a buyer’s ability to meet JV billings following a business interruption event. (5.2)
Free pass or punishment?
Like other NSTA guidance, the guidance on licence assignments is presented as an elaboration of the OGA strategy, with which licence holders must comply under the Petroleum Act 1998: failure to do so carries an enforcement risk under the Energy Act 2016. The consequences of not adhering to the guidelines could entail:
- Formal explanation: Being required to write to the NSTA explaining how a party’s approach achieves the aim of closing the transaction in a way that is expedient and collaborative. Supporting evidence may need to be given where applicable (1.12)
- Enforcement notices: If a party is found to be obstructing or delaying a transaction, the NSTA has the power to issue an enforcement notice. This will require the party to take specific actions to rectify its behaviour. (1.14.1)
- Financial penalties: These are intended to prevent parties from using delays or unreasonable demands as leverage in negotiations or for unrelated commercial reasons. (1.14.2)
- Revocation notice: The NSTA can go as far as revoking a party’s licence. (1.14.3)
- Operator removal notice: This prevents a party from continuing in its role as the operator of a field. (1.14.4)
- Public naming and shaming: The NSTA may publish details of investigations, including the identities of non-compliant parties and the outcomes of the investigations. This transparency is intended to encourage responsible behaviour and hold companies accountable. (1.15, 1.17)
Conclusion
The NSTA’s guidance highlights the critical need for efficiency and collaboration in managing offshore petroleum licence M&A transactions. Delays not only affect the pace of individual transactions, but also pose a broader risk to the industry’s overall goal of maximising economic recovery. By ensuring that offshore assets are transferred to those most capable of optimising their productive potential, the industry can continue to support energy security and the efficient exploitation of the UK’s petroleum resources. Therefore, proactive communication and early engagement are fundamental to successful licence assignments and, ultimately, the sustainable growth of the sector.
