Summary
Transfers of interests in oil and gas production licences can be made in two ways; either by an "asset sale": the transfer of the licence(s) and associated agreements themselves; or by a "share sale": the sale of the shares in the company holding the licence(s) (or that company's parent). Licensees looking to transfer their licence interests through a share sale should consider the recently increased information requirements relating to the application for a letter of comfort from the Department of Energy and Climate Change ("DECC").
Background
In the UK the Secretary of State is empowered to grant licences for the exploration and production of petroleum. The detailed terms of any licence lie within the model clauses which are traditionally in the form of a statutory instrument and are incorporated by reference. However, since the 20th offshore licensing round in 2002, the applicable model clauses have been set out in full within the licence itself.
The consent of the Secretary of State must be sought before transferring any interest in a licence. Consent is not necessary to transfer the shares in a licensee. However, the government has the power under the model clauses to revoke the licence if a "change of control" of a licensee takes place which is not, at the request of the government, unwound. "Change of control" is widely defined and captures both direct and indirect ownership. The purpose of the right to revoke is to prevent UK oil and gas licences being ultimately controlled by persons undesirable to the government. It is therefore common in oil and gas share transactions for parties envisaging a share transfer to apply to the government for assurance that upon the change in share ownership it will not exercise its powers to revoke the licence.
Traditionally where there is a change of control of the licence, the licensee has provided details of the prospective transfer to the government, including corporate information about the company acquiring control. The government reviews these details and then issues a letter of comfort if the transfer is considered acceptable.
New Information Requirements
DECC has recently increased the information requirement in relation to the details required in support of the application and now the following must be provided:
- the new corporate parent's name, place of incorporation and company registration number
- 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 stewardship process) and a statement that it will support the licensee in meeting these commitments.
The above information must be e-mailed to DECC at the address on webpage – see: "Links" section below.
DECC has advised that the increased information requirement was primarily implemented to assist with the review of change of control in relation to corporate sales between two unrelated companies. It has also advised that it may not require the same level of information in relation to change of control resulting from inter-affiliate transactions such as corporate restructuring. In this situation DECC has indicated that it may only require details of the licensee affected by the change of control, the company acquiring control and the identity of the corporate group. However, as there is no formal policy for this reduced requirement, DECC should be contacted on a case-by-case basis.
Links
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This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq
Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.
The original publication date for this article was 17/03/2009.