MER Revised Strategy Published

On 18 November 2015 we reported that the Department of Energy and Climate Change (“DECC”) had published for consultation a draft of its strategy for maximising economic recovery of petroleum from the United Kingdom Continental Shelf (“the MER UK strategy”).

The consultation closed on 8 January 2016 and DECC has now considered the written evidence submitted. Following this process, yesterday (28 January 2016), the Government laid a revised MER UK strategy in the House of Parliament for scrutiny. The revised MER UK strategy is available here.

Some of the key changes in this revised strategy include the following:

• In determining whether something is consistent with the principle objective of the strategy the Oil and Gas Authority ("OGA") will need to balance the benefit of economic recovery of petroleum with the need to maintain the confidence of new and current investors, taking into account market conditions at the time of making its determination.

• Where relevant persons cannot ensure the recovery of the maximum value of economically recoverable petroleum from their licenses or infrastructure for financial reasons they must seek to secure investment from other persons. If such investment cannot be obtained within a reasonable time they must allow others to seek to maximise the value of the economically recoverable petroleum by divesting themselves of such licences or assets.

• Where after a reasonable period the relevant person is unable to secure alternative funding or to divest themselves of the asset then, if the recovery of maximum value of economically recoverable petroleum would achieve a satisfactory expected commercial return they shall relinquish the related licenses.

• Where a relevant person intends to either delay investment or funding or decides not to undertake investment or funding because it will not produce a return that is sufficiently high, the OGA is obliged to discuss the situation with the relevant person before taking any enforcement action in relation to that decision.

• Where the strategy requires a person (A) to invest in or fund activity for the benefit of another person (B), then A may require a contribution to the cost associated with that activity from B as long as it is fair and reasonable in the circumstances, taking account of the importance of securing the maximum value of economically recoverable petroleum from B’s asset.

• It is noted that “optimum production efficiency” for the purposes of the strategy is not necessarily the same as the highest achievable levels of production efficiency.

• The safeguard which provides that no conduct is required that would be prohibited at law, now includes an express reference to legislation relating to competition law, as well as the common law.

The Government has stated that it will shortly publish a response document summarising the evidence received during the consultation process, and providing comment on how Government has amended the MER UK strategy in light of this. The intention remains that the MER UK strategy will be brought into force by April 2016. We will issue a further update on the content of the Government’s publication when it becomes available.