Licence assignments

As from 1 October 2016, the Energy Act 2016, and Regulations made under it, transferred certain functions from the Secretary of State for Energy and Climate Change (now the Secretary of State for Business, Energy and Industrial Strategy) to the Oil and Gas Authority. These include the licensing function conferred by the Petroleum Act 1998 insofar as it affects existing licences. Consequently, any legal agreement that would previously have named the Secretary of State for Energy and Climate Change (which includes any Deed of Licence Assignment) must correspondingly name the Oil and Gas Authority instead (and all pre-existing agreements are deemed to refer to the OGA as necessary). If you have any queries, please email them to mike.hawkins@ogauthority.co.uk.


 

A company that is party to a licence may wish to sell its interest, or a part of it, to another company. It requires the OGA’s permission to do so.

Any transaction in which one or more companies enters a licence, and/or one or more companies withdraws from it, is referred to in this guidance as a licence assignment.

Licence assignments are prohibited unless they have the prior consent of the OGA. We will consider any assignment made without prior consent as a very serious breach of the model clauses attached to every licence, and as grounds for immediate revocation of the licence or to reverse the assignment using powers granted in the Energy Act 2008 (s76). This applies equally to assignments between unaffiliated companies, to assignments between sister companies within a single company group, and to the withdrawal of a company from a licence.

Assignment process

Offshore licence assignment applications are processed through the UK Energy Portal using the PEARS Guidance.

Onshore (and with rare exception Offshore) licence assignment applications should be submitted using the Licence assignment application form (MS Word Document, 83.5KB). The form must be fully completed and in accordance with the guidance note for licence assignment application (MS Word Document, 33KB). Submit completed forms (email preferred) to approvals@ogauthority.co.uk

In processing applications, the OGA Licensing Team routinely consults colleagues within the OGA and, where offshore licences are concerned, from BEIS and HSE in pursuit of the Offshore Safety Directive. We also circulate details of each application to HM Revenue & Customs (HMRC).

If there are no reasons to withhold it, the OGA will approve the assignment for execution by the applicant. We require notification of execution so that accurate records can be maintained and will not consider an assignment to be effective until we are satisfied with the validity of the documentation.

Assignment policy

The following areas will be examined when consider each assignment:

  • Compliance with the Offshore Safety Directive:

    We will consult BEIS and HSE about assignments that change the parties to an offshore licence.

    Under the Offshore Safety Directive, all licensees need to satisfy certain requirements on safety and environmental capability – see http://www.hse.gov.uk/osdr/guidance/consultation.htm

  • Technical and financial capacity of the licensee:

    We must be satisfied the proposed new company has the capacity to participate fully in licence operations and discharge its licence obligations. See licensee criteria for more information.

  • Decommissioning costs:

    Financial capacity will be a greater concern if significant decommissioning costs are likely to be incurred by licensees. We must ensure that decommissioning liabilities can be met.

  • Effect on operatorship arrangements:

    We will not approve an assignment if it would leave any operations without an approved operator. Applicants should allow time in their plans for the OGA to consider operator approvals.

  • Licence alignment:

    This is not usually a concern for the OGA but we might need to look carefully at a case in which one company gains a completely dominant position on a licence, or where one company has such a small interest that it is not motivated to participate in exploiting the licence but yet can block work.

  • Intragroup assignments:

    We have no objection, in principle, to assignments to a sister company but if they are made specifically to dispose of the licence interests via a corporate sale, the OGA will want to know who the buyer is before approval is granted. Where the reason for the assignment is tax related, we recommend that applicants discuss with HMRC in the first instance. We will routinely inform HMRC of new assignment cases as we receive them.

  • Fragmentation of licence interests:

    In some circumstances the creation of very small licence interests may be of questionable advantage to the UKCS.  It may, for instance, prejudice the licence group’s attempts to agree on new work by introducing new voices. However, such drawbacks may be outweighed by a new licensee’s expertise or experience. As a general rule, the OGA suggests any licensee seeking to create small licence interests (under 5%) should justify the transaction in the ‘extra information’ section of the application form.

  • Infrastructure:

    This is a conceivable rather than routine issue, but the OGA might be concerned if, for instance, it seemed an infrastructure owner was seeking to enter a licence group to influence tariffing negotiations.

  • Offshore Pollution Liability Association (OPOL):

    The OGA expects all offshore operators to be members of OPOL and to register each of its separate operatorships.

Application procedure

The current licensee needs permission to make the assignment so it is the assignor that needs to apply to the OGA, even though in many cases much of the information the OGA needs will come from the acquiring company. Consent will not be granted unless the OGA has all required information.

Assignment consents and operator approvals are valid for three months after the execution/handover dates specified in the application form. Completions delayed beyond three months will require a renewal. We will generally consider requests for extensions on receipt of a revised completion date and confirmation that the details in the original application are still valid.

Execution

Consent for assignment is conditional on the Deed of Assignment substantially conforming to a draft approved by the OGA. There are currently two such approved drafts. The first is contained in the Master Deed, which sets out agreed assignment procedures and forms. LOGIC offers guidance on using the Master Deed. The alternative is the Approved Model Deed of Assignment (MS Word Document, 1 page, 37KB).

If a company chooses to use this method, it can only depart from it in ways that do not materially alter its effect (for instance, the company names can be moved to a Schedule). It does not include execution or attestation clauses, which should be added as required. The company can disapply the Contracts (Rights of Third Parties) Act 1999 in relation to the deed, and/or provide for the execution of the deed in counterpart. It must also decide whether jurisdiction should lie with the English, Scottish or Northern Irish courts (refer to the Civil Jurisdiction (Offshore Activities) Order 1987 (1987/2197).

Use of either of the approved drafts is not compulsory, but if a company wants to use a different draft it must submit a copy in advance because it will need to be considered by the OGA's lawyers, and that will considerably increase our processing time.