UK: DTI Consults On Changes To The Decommissioning Regime For Oil And Gas Offshore Renewables

The offshore energy industry is in a period of rapid change. In oil and gas, the arrival of many smaller players on the UKCS, while offering opportunities for extending the life of the basin, also raises financial viability issues, as demonstrated by the Ardmore partners’ collapse. Although the cost of decommissioning of the FPSO on this field was a relatively modest £5 million, the event looms large over the consultation paper, as it clearly gave the DTI a wake-up call. Many of the installations designed to generate offshore renewable energy are likely to be relatively cheap to decommission when compared to oil and gas assets but the companies operating them may again be relatively small and therefore vulnerable.

The DTI published on 21st June a consultation paper on proposed changes to the decommissioning regimes for both offshore oil and gas production and offshore renewables. The consultation deals with a number of changes to close what the DTI sees as loopholes in the decommissioning schemes for the two sectors.

DTI consults on changes to the decommissioning regime for oil and gas offshore renewables

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The offshore energy industry is in a period of rapid change. In oil and gas, the arrival of many smaller players on the UKCS, while offering opportunities for extending the life of the basin, also raises financial viability issues, as demonstrated by the Ardmore partners’ collapse. Although the cost of decommissioning of the FPSO on this field was a relatively modest £5 million, the event looms large over the consultation paper, as it clearly gave the DTI a wake-up call. Many of the installations designed to generate offshore renewable energy are likely to be relatively cheap to decommission when compared to oil and gas assets but the companies operating them may again be relatively small and therefore vulnerable.

The DTI published on 21st June a consultation paper on proposed changes to the decommissioning regimes for both offshore oil and gas production and offshore renewables. The consultation deals with a number of changes to close what the DTI sees as loopholes in the decommissioning schemes for the two sectors.
The main changes proposed to the oil and gas decommissioning regime under the Petroleum Act 1998 are:

• To enable the DTI to seek security for decommissioning costs at any stage of the life of a development if the risk is judged to be unacceptable - currently the DTI may only seek security after a decommissioning programme has been approved but that tends to be done very late in the life of the field. The taxpayer is also exposed early in the development, when it is unclear whether production levels will meet expectations and therefore justify the investment made;

• To extend the persons on whom a section 29 notice (imposing liability for decommissioning) may be served:

1. To enable notices to be served on the corporate members of a Limited Liability Partnership;
2. To allow section 29 notices to be served at an earlier stage than at present - when an activity is intended to be carried on from an installation or pipeline rather than just when it is being carried on;
3. To permit the DTI to serve a section 29 notice on the owners of an interest in an installation even if the DTI is satisfied that other persons may have made adequate arrangements - this is currently constrained by the terms of section 31(1) of the Petroleum Act 1998;
4. To allow section 29 notices to be served on the licensees or JOA parties in respect of a pipeline even if they do not own it;

• To permit the DTI to obtain information about the financial position of a company before as well as after serving a section 29 notice.

• To ring-fence funds set aside to provide for decommissioning against the insolvency of the party providing those funds by disapplying the Insolvency Act 1986 by statute.

In relation to offshore renewable energy installations the proposals to amend the Energy Act 2004 are:

• To ring-fence funds set aside to provide for decommissioning against the insolvency of the party providing those funds by disapplying the Insolvency Act 1986 by statute;

• To enable the DTI to place decommissioning obligations on associated companies (parent or sister companies) of those primarily liable, if the DTI is not satisfied with the decommissioning arrangements made by those persons;

• To allow corporate members of Limited Liability Partnerships to be made liable for decommissioning where the LLP is the developer or associated with the developer;

• To permit the DTI to obtain information about the financial position of a company before as well as after serving a decommissioning notice.

The consultation document and response form are available on the DTI website.

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

The original publication date for this article was 27/06/2007.