Since its inception the NSTA has highlighted the importance of “right assets, right hands” i.e. of ensuring that offshore petroleum licences are held by the right companies to ensure their development, production and management in compliance with good practice and the “MERUK” (maximising economic recovery) regulatory regime. In the last year we have seen the NSTA increase its focus on the corporate governance of the companies it regulates, and on ensuring compliance with licence terms and timeframes. It has introduced new requirements in the NSTA Strategy and in its Governance Guidance and made clear that it expects companies to comply with the terms of the licences under which they operate, for example, imposing financial penalties for failures to comply with field production and flare consents. It has also opened a number of investigations into suspected failures to meet licence obligations.
That focus has now been reinforced by a recent and significant decision by the NSTA to exercise, for the first time, its power to partially revoke a licence.
Power to revoke licences on change of control
A ‘change of control’ of a company (the “licensee”) which holds an offshore petroleum licence (the “licence”) can be understood as any event by which a person who did not have control of a licensee when that licence was granted, or last assigned, comes to control that licensee.
Licences do not impose any requirement to obtain NSTA approval in respect of a change of control of a licensee. Such an approval requirement was proposed in the Energy Bill 2022, but it remains unclear if or when the relevant provisions will come into force (see our previous law-now on this - Energy Bill 2022 - Key proposals for the offshore oil & gas industry (cms-lawnow.com). However, licences do grant the NSTA the power to require a further change of control in the event that: (i) there is a change of control of the licensee; and (ii) the licensee does not comply with an NSTA notice requiring a further change of control within three months of the date of the notice.
Although there is no requirement to seek consent or approval prior to a change of control, the NSTA considers it good practice for a company to seek a letter of comfort from the NSTA in respect of a change of control – that letter of comfort does not bind the NSTA as to its future decisions, but does permit the NSTA the opportunity to consider in advance whether the change of control will prejudice the ability of the licensee to meet its licence commitments, liabilities and obligations. Where granted, the letter of comfort gives an indication that the NSTA is not minded to exercise its powers regarding change of control under the licence at that time. It has become common practice for such letters of comfort to be sought in respect of most instances of a change of control, for example where assets are acquired by way of a share purchase of the licensee entity.
In a letter addressed to all licensees in December 2021, the NSTA affirmed its approach to changes of control of licensees and described in some detail how it takes decisions on the exercise of its change of control powers, including taking into consideration the licensee’s ability to satisfy its commitments under the licence and in terms of the NSTA Strategy.
Licences partially revoked
Prior to 2008, the above-mentioned revocation power that is open to the NSTA was in respect of the whole licence (i.e. the interests of all licensees) but since then, licences have been amended to add, in addition, a power of partial revocation, which has the effect of terminating an individual licensee’s interest in the licence, rather than the licence as a whole.
For the first time, the NSTA has partially revoked three offshore petroleum licences for reason of a failure to comply with a notice requiring a further change of control. The licenses in question have been revoked insofar as they relate to Fujairah Oil and Gas UK 12 Limited (“FOGUK12”). The NSTA has explained that the action was taken because FOGUK12 did not meet regulatory requirements (although it has not explained in any detail what that failure comprised).
However, as a result of the failure to meet regulatory requirements, notices requiring a further change of control were served by the NSTA on FOGUK12 in January 2023, requiring a change of control within three months. No further change of control was implemented, so the NSTA used its powers to partially revoke the licences.
The NSTA’s decision means that FOGUK12 has been removed from the licences. However, the licences concerned remain in force insofar as they relate to the other licensees.
Comment
This is a significant example demonstrating that the NSTA is advancing its regulatory approach and taking increasingly proactive measures to ensure that those active in the industry are able to meet their commitments and obligations and comply properly with the regulatory regime in which they are expected to operate.
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