OGA publishes guidance on cessation of oil production

The Oil & Gas Authority (“OGA”) has released guidance on requirements for the cessation of oil production (“CoP”). Field operators and licensees are being encouraged to confirm with OGA whether there is any objection to field CoP during late field life. CoP refers to the licensees ceasing production permanently from a field, a group of fields, an asset within a field or a field acting as a hub.

Licensees and operators must be able to show OGA that all economic development opportunities have been pursued for the field, including any future development opportunities and alternative use, such as storage of CO2. Initial discussions with OGA by licensees or field operators should be pursued through the stewardship process in a timely manner. As a minimum, and depending on the size of the platform development, discussions should begin three years in advance of any CoP date.

To apply for CoP, a field operator must submit a CoP document to support their request and seek confirmation from OGA that it has no objections to CoP. This CoP document will represent a single view of all relevant licensees under the licence(s) for the relevant fields in which CoP is being sought.

The central obligation of the Maximising Economic Recovery Strategy for the UK (“MER UK”) which came into force on 18 March 2016 states, “relevant persons must take the steps necessary to secure that the maximum value of economically recoverable petroleum is recovered from the strata beneath UK waters.” When considering a CoP proposal, OGA must assess whether the proposal is in line with MER UK Strategy and work with licensees to ensure the central obligation is fulfilled.

The steps to enable licensees to reach CoP for a field include:

1. Early engagement through the annual stewardship submission and tier reviews;
2. A preparation plan for decommissioning;
3. Submission of a CoP document; and
4. Final decision on CoP timing

Engagement between the field operator and OGA is an important part of the stewardship process. The field operator will submit an annual stewardship survey and OGA will request stewardship reviews. The reviews will form the basis for initial discussion and criteria for CoP and OGA’s decision on CoP timing.

In relation to timing of the process, OGA should receive from the field operator:

1. A preparation plan for decommissioning no less than 6 years prior to CoP;
2. A decommissioning execution and contracting strategy no less than 3 years prior to CoP;
3. A CoP document to be prepared at least 3 years in advance of the proposed CoP date or 6 years for larger platform developments, further information on which can be found at Appendix A of the guidance; and
4. A Standard Economics Template in support of the CoP document

The CoP document will form the basis of OGA’s consideration of CoP of the field and should include the expected date for CoP. Evidence must also be submitted by the field operator to show all commitments in its field development plan have been implemented, other licence commitments have been fulfilled (or the justification for them not being fulfilled), all economic development opportunities have been pursued and that the value of hydrocarbons will no longer cover the costs of production (considered within a reasonable period). Should there be any material change since the submission of the CoP document, the field operator should inform OGA and consider whether the CoP date is still suitable.

If OGA is satisfied with the information submitted to it by the field operator for CoP, it will confirm to the licensees it has no objections and provide an earliest CoP date. Some flexibility is provided so licensees can optimise economic recovery or facilitate decommissioning work schedules. Well abandonment applications are submitted in the normal way and plugging and abandoning the well can begin prior to CoP.

Transboundary fields may be subject to a different process depending on the project and government agreements involved. As there may be a greater level of consultation on any transboundary field CoP, timescales may be longer than the standard process set out in the OGA guidance.

Post CoP considerations must also be taken into account by licence holders. The licensees should include with their CoP document and supporting information a statement of their intentions on licence retention following CoP. Once production has ceased permanently, OGA would expect licence holders to relinquish parts of their licence that are relevant to CoP. Any further licence activity should be stated on the CoP document for OGA to consider. OGA may have the right to terminate the licence should production fall below the minimum amount stipulated in the licence over a specified period.

CoP is a licence event for the purposes of the Retention of Information and Samples Regulations 2018 so any information relating to CoP should be retained and reported in accordance with those Regulations. Our Law Now on the Retention of Information and Samples Regulations can be found here. Field operators and licensees may also have obligations to retain and report certain information and samples under their licence or under other relevant legislation.

It should be noted that decommissioning approval is separate from consideration of CoP by OGA.

The OGA document ‘Guidance on requirements for the planning for Cessation of Production’ can be found here.