Changes to DTI consents and permissions in the oil and gas industry

United Kingdom

As of 18 December 2002, the process for obtaining licence assignment consents, permissions where security rights are being created over a licence and permissions for the creation, amendment or novation of Operating Agreements, changed in several significant ways.

These changes further implement the government's drive towards online services by 2005 at the latest and streamline the procedure for licence assignments.

Licence assignment

Process

The Secretary of State's consent is still required under the Model Clauses for each assignment of a licence interest. The new Licence Assignment Consent System is based around a revised application form, which is now more like an actual application form to be filled in and submitted to the DTI, rather than, as was the case with the previous format, a list of information required to be submitted to the DTI. The categories of information are essentially the same. Although the form no longer requires a "rationale" for the transaction it does still require a description of the transaction and requires more detail with respect to fallow acreage and specific information on pre-emption.

The DTI does not envisage requiring any information other than that requested on the form but it does reserve the right to call for additional information if it thinks it necessary.

The application form can be downloaded from the DTI Oil and Gas website (www.og.dti.gov.uk) and can be submitted by e-mail ([email protected]) or by post.

It is clear that the DTI would prefer the document to be submitted by email.

Consent

If the DTI considers that the transfer should proceed, the Secretary of State's consent will be emailed to the applicant. It can be copied to other e-mail addresses or sent to a different e-mail address than the originating address, if requested. It can also be posted if specifically requested.

As before, the consent is conditional on the Deed of Assignment being in the model form (as set out on the DTI's website). Use of a different form of the deed will require prior approval by the DTI.

The DTI hopes to be able to issue consents within ten to twelve working days for a straightforward licence transfer. Obviously, consent will take longer if the transfer is more complicated (such as if a proposed new licensee is new to the United Kingdom Continental Shelf (UKCS) or there are particular financial considerations (e.g. concerns regarding decommissioning costs) or there is a transfer of operatorship to a new operator).

As before, it is the applicant's responsibility to check that the consent is in the necessary terms.

Duration of consent

It is important to note that the Secretary of State's consent is now only valid for three months after the completion date predicted in the form. If completion is delayed beyond that period, an extension will be required. This extension can be obtained by advising the DTI of a revised completion date and confirming that the information contained in the original application is still valid.

Under the new system, the DTI no longer requires copies of executed documents but it is essential that the DTI is notified within two weeks of execution that the assignment has been made.

Operating Agreements: Open Permission

The creation or amendment of a joint operating agreement or a unit operating agreement usually requires the assignment of some or more of the rights granted under a licence and so the creation or amendment of the operating agreement itself requires the Secretary of State's Consent.

It is now no longer necessary to apply, in most cases, for consent for the creation, amendment and novation of an Operating Agreement since the Open Permission (Operating Agreements), which was issued by the DTI on 18 December 2002, grants prior approval. An Operating Agreement is defined as "an operating agreement or other similar agreement made in respect of a licence". Therefore, both joint and unit operating agreements are covered.

Conditions

There are some exclusions from the Open Permission and, where the Operating Agreement does not comply with the requirements of the Open Permission, the Secretary of State's express permission to the creation, amendment or novation is still required. These requirements are:

  • the Operating Agreement does not assign or re-assign any rights granted by the licence to any person who is not a party to the licence
  • the Operating Agreement either does not contain any pre-emption provisions (for licences which came into force after 30 June 2002) or, for licences which came into force before 1 July 2002, any pre-emption provisions which it does contain are exactly in the form set out in the schedule attached to the Open Permission (this is available on the DTI website)
  • the Operating Agreement must contain a condition that the operator must register its appointment as such with OPOL before any drilling operations may commence.

Generally the Open Permission is as its name suggests. It is not granted to any particular company or in respect of any particular licence – it can be relied on by anyone at any time and covers a whole class of regulated acts. Therefore, if the parties to a proposed assignment are satisfied that the Operating Agreement falls within the requirements, then further consent from the Secretary of State is not required.

If the proposed creation or amendment of the Operating Agreement does not comply with the requirements, the proposed assignee may still apply to the DTI for consent.

It is important to note that the Open Permission does not cover any Licence Assignment or any appointment of an operator.

Notification

Even where an Open Permission applies, the licensee must still notify the Secretary of State within two weeks of the creation, novation or amendment of the Operating Agreement of:

  • the area covered by the Operating Agreement
  • the full name and registered number of every party to the Operating Agreement
  • the date on which the Operating Agreement was created, novated or amended.

The Open Permission came into effect on 19 December 2002.

Creation of Security Rights over Licences: Open Permission

Model Clause 41 requires the Secretary of State's consent before a charge is created over a licence and this Open Permission gives a general consent to the creation of such charges but, as with the Open Permission for Operating Agreements, this is subject to certain conditions.

Conditions

The conditions are as follows:

  • the chargee must have an office within the UK
  • the chargee must be authorised to carry on banking business in the UK or be a trustee appointed by a person so authorised for the purpose of holding and dealing with the security
  • the security must be a fixed or floating charge (including the crystallisation of a floating charge into a fixed charge) share pledge, share mortgage or debenture and, in Scotland, an assignment by way of security.

The Open Permission does not permit the sale or transfer of a licence interest pursuant to the terms of a charge, debenture or similar instrument or otherwise.

It should be noted that where the chargee is a syndicate of financial institutions, each of them must conform with the conditions, as the DTI considers each chargee separately, irrespective of the fact that they are part of a syndicate.

As with the Operating Agreement Open Permission, if the charge does not fall within the conditions, it is still possible to apply for consent on an individual basis.

Notification

The DTI must be notified within ten days of the date of creation of the charge of:

  • the amount of money or other liabilities secured by the charge
  • the licences which were the subject of the charge;
  • the identity of the chargee
  • the manner in which the conditions with respect to the identity of the chargee are satisfied.

Further information

The DTI Oil and Gas website, www.og.dti.gov.uk, contains information on each of these topics as well as downloadable versions of the application form, the Open Permissions and relevant guidance and explanatory notes.

For further information please contact Lorna Ingram at [email protected] or on +44 (0)1224 622002.