Key oil and gas provisions of the Energy Act 2023 become effective from 11 January 2024

The Energy Act 2023 (the “Energy Act”) received Royal Assent on 26 October 2023. The Energy Act has been years in the making and represents a significant step in the UK's efforts to achieve net zero emissions by 2050. Please see here for our previous article summarising the key areas covered by the Energy Act.

Under the Energy Act 2023 (Commencement No 1) Regulations 2024 (the “Commencement No 1 Regulations”), certain provisions of the Energy Act of particular importance to United Kingdom oil and gas licence holders came into effect on 11 January 2024. Those provisions are in relation to changes in control of oil and gas licensees and in relation to a new charging scheme for approval of offshore decommissioning programmes.

Change in control of oil and gas licensees: Sections 300 and 301 and Schedule 21

Legislative amendments

Section 300 and Schedule 21 of the Energy Act amend the model clauses contained in the following pieces of legislation:

• the Petroleum (Production) (Landward Areas) Regulations 1995 (S.I. 1995/1436);
• the Petroleum (Current Model Clauses) Order 1999 (S.I. 1999/160);
• the Petroleum Licensing (Exploration and Production) (Seaward and Landward Areas) Regulations 2004 (S.I. 2004/352);
• the Petroleum Licensing (Production) (Seaward Areas) Regulations 2008 (S.I. 2008/225); and
• Petroleum Licensing (Exploration and Production) (Landward Areas) Regulations 2014 (S.I. 2014/1686).

By virtue of these amendments (and substantially in the words of the amendments), a change in control of a licence holder is now not permitted without the consent of the OGA.   Previously, although the OGA could revoke a licence as a result of a change of control, no prior OGA “approval” was required under the terms of the licence.  Although best transactional practice was to seek a comfort letter that the OGA would not exercise such powers in advance of any anticipated change of control, several recent licence transactions had taken place without such comfort being sought, in turn raising potential concerns as to timing implications around licence revocations some time following a change of control, and resultantly to the real level of OGA control over such transactions and identity of ultimate holders of licences in the North Sea.  A “change of control” is defined as a person taking control of the licence holder, not having previously been a person who controlled the licence holder. If a change in control of a licence holder is contemplated, the licence holder must apply in writing to the OGA for consent at least three months before the date on which it is proposed that the change would occur (if consent were given).

The OGA may:

(a)    consent to the change in control unconditionally;

(b)   consent to the change in control subject to conditions; or

(c)    refuse consent to the change in control.

If the OGA proposes to grant consent subject to any condition or to refuse consent, the OGA must, before making a final decision give the licence holder an opportunity to make representations; and consider any representations that are made.

Section 301 amends the Petroleum Act by giving the NSTA additional powers to obtain information in relation to a change of control.

Procedure for obtaining consent

The OGA website contains practical information on how to apply for consent. Details of the change of control should be emailed to [email protected] and include the following information:

• the name of the new corporate parent, country of incorporation and company registration number;
• a post-change of control pro-forma balance sheet for the licensee and a consolidated post-change of control pro-forma balance sheet for the new corporate parent; and
• a list from the new corporate parent of its prospective subsidiary’s UKCS licence holdings and commitments (especially those arising from work programmes, from the fallow initiative or the asset stewardship process) and a statement that it will support the licensee in meeting these commitments.

The above is a non-exhaustive list, and the OGA may require additional information to take a decision on whether or not to grant consent to a change of control.

The general rule is that the OGA must decide an application within three months of receiving it, but that OGA may delay its decision by notifying all holders of the relevant licence(s) and the person who (if consent were granted) would take control of the relevant licence holder.

Comment

The changes arising from Sections 300, 301 and Schedule 21 should not operate to cause parties to materially diverge from current practice (where, as mentioned above, practice is to obtain a comfort letter from the OGA that it will not seek to revoke a licence as a result of a change of control) but are nevertheless now statutory powers of the OGA and obligations of licence holders.  As such, a change of control cannot validly occur for the purpose of the relevant licence(s) without the OGA’s consent, and the OGA may revoke (wholly or partially) if there is a breach of any condition(s) subject to which the OGA gave its consent.

In this context, control is generally the possession of or entitlement to acquire 33% of the share capital or issued share capital of the licence holder or 33% of the voting power in the licence holder. As such, these change of control provisions apply more broadly than is often assumed to be the case.

In relation to any ongoing share transactions, it would be prudent to be aware that this approval will be required prior to change of control becoming effective.  In respect of future transactions, language used for conditions precedents should be updated accordingly.

Greater care should be taken on intra-group share restructurings, where practice has differed on obtaining comfort from the OGA where the ultimate parent remains the same (given a perceived low likelihood of revocation in that instance) – now consent will require to be sought.

New charging scheme for approval of offshore decommissioning programmes: Sections 299(1) and (2)

Section 299 of the Energy Act amends the Petroleum Act 1998 (the “Petroleum Act”), by introducing a new Section 38C, to implement a new charging regime introduced in connection with the approval of offshore decommissioning programmes.

Subsections (1), (2), (7) and (8) of the new section 38C of the Petroleum Act therefore allow the Secretary of State to consult on (with organisations in the United Kingdom that appear to the Secretary of State to be representative of persons who are likely to be affected by the regulations and with the Treasury), and then by regulations made by a further statutory instrument provide for, payment to the Secretary of State of charges for or in connection with the carrying out by the Secretary of State of the Secretary of State’s functions under Part 13 of the Energy Act (Offshore wind electricity general, oil and gas). The amount of the charge is to be specified in the regulations and determined by the Secretary of State in accordance with the regulations.

No timeframe has been announced for consulting on these charges. However, it is perhaps reasonable to assume this will be during 2024 given the provisions have now been brought into force.

Further provisions brought into effect by the Commencement No 1 Regulations

The Commencement No 1 Regulations also:

• brought into effect, with effect from 11 January 2024, certain provisions of the Energy Act relating to carbon storage licences, as well as certain provisions relating to energy smart appliances and load control and core fuel sector resilience; and
• will bring into effect, with effect from 31 January 2024, certain provisions of the Energy Act relating to the Independent System Operator and Planner, civil nuclear sites and the Civil Nuclear Constabulary.