OGA: Asset Stewardship

The Oil and Gas Authority (“OGA”) had long promised to expand upon its plans for achieving its MER UK objective. Although a handful of Strategies had been published in recent months, the pace has accelerated in the last few weeks with the publication of a considerable number more. This coincides with the vesting in the OGA of most of its powers set out in the Energy Act 2016, and its recent OGA MER UK Conference (considered in our previous Law Now). We now have seven Strategies covering Asset Stewardship, Decommissioning, Exploration, Enhanced Oil Recovery, Information Management, Supply Chain and Technology. Three of those Strategies have accompanying Delivery Plans, with more on the way.

There’s certainly much to work through. Perhaps a good starting point is the new Asset Stewardship Strategy. For the OGA, effective asset stewardship is crucial to achieving MER – it means “asset owners consistently do the right things to identify and then exploit opportunities” and “assets are in the hands of those with the collective will, behaviours and capabilities to achieve this”. To ensure this happens the OGA has published a counterpart document: the Asset Stewardship Expectations. Contained within this are ten key and detailed Expectations covering:

1. Joint venture hub strategy;
2. Exploration and appraisal subsurface work programmes;
3. Optimum use of subsurface data;
4. Licence activity, decision points and milestones;
5. Robust project delivery;
6. Production optimisation;
7. Information management;
8. Technology plans;
9. Collaboration; and
10. Planning for decommissioning.

According to the Expectations operators will, for instance, be expected to submit to the OGA annually a Technology Plan. This ought to demonstrate that both existing and new technologies have been considered for deployment to their optimum effect and should identify the top three technology priorities for each operated asset, along with plans to address those, and the procedure for measuring progress against the Plan. In addition, the parties to a joint venture will be expected to produce a Hub Strategy, to be reviewed and updated at least once every two years. The Strategy is to include information on the hub, the relevant strategic options considered and eventually chosen, the associated risks and opportunities, and an activity plan. Licensees are also expected to demonstrate their penchant for collaboration: they should be able to provide evidence of senior leadership commitment to a ‘culture of collaboration’ and an assessment of collaborative behaviour is to be carried out at least once every two years.

The Expectations are not legally binding but companies should resist the urge to set these aside as simply ‘nice to have’ aspirations. Failure to meet these Expectations may be viewed as a failure to comply with the MER Strategy – of course that in turn brings the risk of OGA imposed sanctions. Companies will therefore have to consider carefully how the Expectations, as well as the Strategy and the Delivery Plan for Asset Stewardship, apply to their particular assets and business and ensure that their internal processes and systems are set up to monitor and report on the various factors which companies will now have to demonstrate they have considered and implemented as appropriate.

In order to establish how companies are performing against those Expectations, the OGA has rationalised nine industry surveys by various bodies into one annual UKCS Stewardship Survey, which it will use to benchmark companies against their peers for matters such as production efficiency, recovery factor, operating cost and decommissioning cost. It will also use this data to build economic models and inform its regional and area plans. Given that reliance, operators will be well advised to ensure that the data they provide is robust to ensure that OGA’s intentions for a region are based on an accurate understanding of the area. The data will also be used to inform Stewardship reviews which will be prioritised based on delivery performance against the Stewardship Expectations and will focus on those with the greatest potential impact on MER.

Although we are now better placed to understand the OGA’s MER UK intentions, it is yet early days for the industry’s new regulatory regime. There are many new issues and new ways of working to consider and their true implications may only become clear after the industry has had time to seek to implement the new guidance in their day to day working. We will continue to review further OGA guidance in subsequent Law Nows.