Media Briefing Note: UKCS Maximising Recovery Report – Care will be Needed to Navigate Competition Law, Says Hogan Lovells

26 February 2014 - Sir Ian Wood this week published his final report on UK Continental Shelf (UKCS) offshore oil and gas recovery and its regulation - "UKCS Maximising Recovery", calling for greater collaboration across the energy sector.

However, as Mark Jones, competition partner at Hogan Lovells, points out:

"The emphasis in the report on the need for greater collaboration in key areas across the industry raises questions amongst other things about the compatibility of the recommendations with competition law

"A particular example is the sharing of strategic information which the report strongly supports.  Its suggestion that this is coordinated via the new Regulator as the way to avoid a competition law issue may not of itself be enough to address the point

"Absent legal or regulatory changes, the types of information which the Regulator could pass on from one industry participant to others may need to be restricted unless a clear case can be made either that valuable competition between them is not being lost as a result, or that there are sufficient net benefits, ultimately for consumers, to offset that loss."

David Moss, partner in Hogan Lovells' Energy Industry Group, added:

"UKCS is one of the most mature offshore basins in the world with the potential to produce a further 12 to 24 billion barrels of oil equivalent (boe). But there are real challenges to allow the UKCS to reach its full potential, given that many fields are inter-dependent.

"The recommendation to establish a new regulator with stronger powers is very material. There is, however, a great deal of detail, particularly in connection with the proposals concerning third party access, that has to be worked out."

Key recommendations include:
• Government and Industry to commit to Maximising Economic Recovery from the UKCS (MER UK)
• Creation of a new, stronger regulator (low in bureaucracy, high in skills and experience) with broader skills and capabilities to enhance the level of co-operation,   involving:
o establishment by the Regulator of a strong relationship with HM Treasury to adjust the fiscal regime to meet new challenges;
o development of regional plans across the UKCS;
o working with industry to improve production performance and reservoir recovery, and to tackle increasing costs, including attendance at consortia operator and technical management committee meetings.
• Licence holders should make their infrastructure and process facilities available, subject to their own capacity requirements and technical compatibility, at fair and economic commercial terms and rates to third party users.
• Licensees should commit to work with the Regulator and adjacent licensees to develop efficient and effective cluster field development plans; investigate new plays; increase rate of exploration drilling; facilitate rig sharing arrangements; carry out high quality seismic; facilitate sharing of information within current portfolios; and reduce decommissioning costs.
• Each asset should be reviewed annually, with the Regulator setting clear expectations on asset performance.
• The new Regulator would have responsibility for granting any new licenses and approving any transfer of interests in any licenses.
Hogan Lovells' recent north sea experience includes advising:
• ExxonMobil on the sale of all North Sea assets owned by affiliate Mobil North Sea LLC to Apache North Sea Ltd for US$1.75bn
• MOL Group on its agreement to acquire the entire issued share capital of Wintershall (UK North Sea) Limited for a base consideration of US$375m


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