The North Sea Transition Authority (“NSTA”) recognised early in its existence that the oil & gas industry’s supply chain has a key role to play in supporting delivery of its Maximising Economic Recovery (“MER UK”) ambitions, not least in terms of cost reduction and timely project delivery. Although the supply chain is not regulated by the NSTA, the NSTA has sought to influence that part of the sector by encouraging the companies that it does regulate to engage constructively and collaboratively with the supply chain to support MER UK. In particular, operators are required to prepare Supply Chain Action Plans (“SCAPs”) to support key project activity and decision-making. The NSTA has now introduced new guidance on SCAPs, replacing and updating the guidance it originally issued in 2018 (the “SCAPs Guidance”).
SCAPs were initially introduced in 2018, following consultation with the industry, so that operators and licensees could demonstrate effective working relationships across their supply chain and to assist operators in demonstrating that their contract strategies were well positioned to deliver the ‘best value’ pursuant to their Field Development Plans (“FDP”), Field Development Plan Addendum (“FDPA”) or Decommissioning Plans (“DP”).
The NSTA has consistently emphasised the importance of collaboration in the industry, and, in February 2021, the NSTA issued a revised Strategy, which (amongst other things) placed an express obligation on the industry to collaborate and co-operate with its supply chain. The revised Strategy also placed an obligation on the industry to assist the UK Government in meeting the net zero target by 2050.
The NSTA has now updated its guidance on SCAPs to ensure it aligns with that revised Strategy, commenting that it believes that the supply chain has the infrastructure and skills to help the industry operate in a way that is consistent with these targets.
What is the purpose of SCAPs?
The SCAPs Guidance provides that the purpose of SCAPs is to “facilitate and evidence that relevant persons are deriving maximum value from UKCS projects activity whilst maintaining fair and equitable relationships with their chosen supply chain.”
SCAPs will also assist the NSTA to (amongst other things) monitor trends and potential gaps in the capability of the supply chain; identify lessons learned; and promote collaboration. The NSTA will use SCAPs to monitor the progress of the industry in complying with the targets outlined in the recently agreed North Sea Transition Deal. This includes a provision for a voluntary industry target of 50% local UK content across all new energy technology projects by 2030, in addition to oil and gas decommissioning.
When is a SCAP required and how is it submitted?
The NSTA expects operators with any project requiring an FDP, FDPA or DP to submit a SCAP for review and approval. This includes, but is not limited to, new developments, greenhouse gas reduction projects and electrification of existing oil and gas assets (including floating offshore wind). The NSTA has stated that it expects SCAPs to be project specific and clearly relevant to an operator’s overall contracting strategy.
The timing for submission of a SCAP will vary project to project, however the NSTA expects SCAPs to be developed as early as possible in a project, prior to contract award, and probably during the “concept select” stage. They are intended to be an informed part of the NSTA’s FDP consent process and DP consultation process and the NSTA expects that operators will share a first draft of their SCAP document with the NSTA before it is formally submitted in order to encourage early discussion.
SCAPs should include details regarding the project and a project plan including details of key interactions with the supply chain. The NSTA has published SCAP template documents at Annex E of the SCAPs Guidance. which the NSTA intends should be used in conjunction with the SCAPs Guidance to assist operators in their preparations.
NSTA’s evaluation of SCAPs
The NSTA has stated that each SCAP will be reviewed on an individual basis, but all SCAPs will be evaluated based on the evidence provided in terms of four broad criteria (which remains unchanged from the NSTA’s original SCAPs Guidance published in 2018):
Engagement: the specifics of any project should be discussed with the supply chain at an early stage and should continue throughout the project. Evidence may include the adoption of current industry tool kits, for example, Stewardship Expectation 12 (Supply Chain Collaboration and Co-operation) and the Offshore Energies UK Supply Chain Principles.
Trust: trust throughout the project must be evidenced, including supporting the supply chain to deliver their contractual commitments.
Innovation: the NSTA encourages the use of alternative and/or new products and processes and will consider any evidence of this.
Quality: evidence of the use of industry accredited metrics and tools and inclusion of any relevant lessons learned will be reviewed.
Further details of the criteria can be found in Annexes B and C of the SCAPs Guidance. A timeline and outline of the assessment process can also be found at Annex A of the SCAPs Guidance, and the NSTA has indicated that it will seek to respond to submitted SCAPs within 60 days.
In 2020, fewer SCAPs were submitted than expected: this is most likely due to reduced activity due to the Covid-19 pandemic. Despite this, the NSTA reports that it nonetheless received SCAPs relating to projects worth a total of £1.98 billion, as well as decommissioning plans estimated at £950 million. The NSTA noted in its SCAP Report 2021 that, in 2020, it observed a number of positive behaviours from operators in relation to their work with the supply chain.
The NSTA’s SCAPs Guidance is available here.