BEIS issues draft revised Decommissioning Guidelines

Just before Christmas BEIS finally issued its draft revised Decommissioning Guidelines, originally expected to be produced this time last year. Whether this was a welcome Christmas present probably depends on whether you are a lawyer, in operations, or an environmental specialist. The Guidelines have been issued in draft by way of informal consultation, and BEIS states on its website that it welcomes comments until 12 February 2018. The intention is understood to be that the draft Guidelines should come into force in April 2018, although it is notable that the current guidelines are no longer available on the BEIS website. The draft guidelines are available here.

The structure remains almost identical to the previous Version 6, from March 2011 – except for the addition of one new chapter on decommissioning protective deposits and some changes to the Annexes, discussed further below. Within the chapters, there has been some reordering and redrafting, largely for clarity, particularly in Chapter 6 (Decommissioning Programmes). A new section has been added to Chapter 10 (Pipeline Decommissioning) on assessing the risks of decommissioning complex pipelines or pipelines in environmentally sensitive areas.

Operations

For those involved in decommissioning operations, although there are few substantive changes from the 2011 Guidelines, there have been amendments to provide greater clarity on what is required at the various stages of the decommissioning process. This includes the addition of a flow diagram showing the different pathways for approval for ordinary installations, derogation candidates and pipelines.

The description in the draft Guidelines themselves of what needs to go into a decommissioning programme reflects the new streamlined template, although Annex C to the draft guidelines continues to contain the rather longer structure suggested in the 2011 Guidelines.

There is acknowledgment that close out reports may be provided within 12 months of completing operations, rather than the previous - rather tight - four months.

There is no reference to the change of approach to derogation mentioned by Wendy Kennedy at the Oil & Gas UK/Decom North Sea Decommissioning Conference in November, under which the 10,000 tonne metric for steel jackets is to be based on ‘in place’ rather than ‘in air’ weight – perhaps this change in interpretation came too late for the draft.

Environment

For environmental specialists, updated guidance on the environmental appraisal requirements for decommissioning (which was expected to encourage operators away from conducting a full environmental impact assessment in all cases, even when not required by the relevant legislation) is still to come. It is notable that the description in Annex C of what is required to be included in a decommissioning programme in relation to the environment, although now relabelled as an environmental appraisal rather than an EIA, is substantially identical to the 2011 Guidelines.

It is interesting that a number, although not all, of the references to climate change in the 2011 Guidelines have been removed. This remains of relevance in comparative assessment for derogation and in considering environmental impacts, but this no longer appears as one of the fundamental principles underpinning the approach to decommissioning. These do, however, include a precautionary principle (resulting in the aim of a clean seabed) and a polluter pays principle, which means that BEIS expects those who have benefitted from the production of hydrocarbons to bear the responsibility for decommissioning, and that the taxpayer is protected from this cost.

Legal

For the lawyers, there are some interesting changes:

• There is recognition of the new role played by the OGA following the changes made by the Infrastructure Act 2015 and the Energy Act 2016, such as the requirement for consultation with the OGA prior to submission of a decommissioning programme, or in relation to proposals for re-use. There is also comment that early decommissioning before approval of a decommissioning programme will now require consent, although no explanation of what would and would not constitute decommissioning for this purpose.
• Some useful guidance in the 2011 Guidelines has been removed from the draft guidelines, regarding policy on who will be served with a Section 29 Notice (particularly around the interpretation of section 30(1) (a) on management of an installation, around the treatment of tiebacks and regarding the interpretation of “benefit” for the purposes of application of section 31A(1)) – it is not clear whether this is because policy on these issues has changed, but it seems more likely that BEIS considers the matter settled. The draft guidelines state that for installations, notices may be served on the Operator, licensees, owners of the installation and parties to a joint operating agreement (JOA) or similar agreement, and from which they derive a financial benefit. Current policy is that notices will be served on all the companies in these categories. For pipelines, notices may be served on owners of the pipeline and parties to a JOA or similar agreement (although the latter does not seem consistent with s. 31(2) of the Petroleum Act 1998).
• There is reference at a number of points to the requirement for operators to outline plans for managing liability in perpetuity for anything left in situ following decommissioning.
• Annex F, which previously addressed in some detail government policy on how the government would calculate risk in relation to decommissioning liabilities and how, therefore, it would be likely to consider applications for the withdrawal of section 29 Notices, has been omitted from the draft. We are told that “the Government has developed an enhanced decommissioning financial policy to ensure that adequate funding and security for decommissioning costs is maintained on a field by field basis….The details of this policy, including the circumstances in which decommissioning security may be appropriate, will be covered in separate Financial Guidance due to be published in 2018.”
• In Annex E (formerly G), addressing DSAs to which the Secretary of State is a party, the required credit rating for security instruments has dropped from AA to A-, and the acceptable contingency has been reduced from the previous 50% to 10-30%, with a recognition that security can be given on a post-tax basis. These changes will make it far easier for licensees to meet BEIS’s requirements and are arguably closer to what is now often seen in the market.

Comment

Considering the length of time the revisions have been underway, it seems that not a great deal has changed. However, it may be that the challenge has been to finalise the two sections that are still awaited, namely the chapter on Environmental Considerations and the new Financial Guidance.