Consultation on “satisfactory expected commercial return” safeguard (SECR)
The Oil and Gas Authority (OGA) has launched a consultation on the OGA’s approach to assessing the “satisfactory expected commercial return” (SECR) safeguard as set out in the MER UK Strategy.
SECR is an important safeguard for companies seeking to follow the MER UK Strategy and was introduced at the request of industry. It makes clear that companies are not obliged to invest in projects which, while they meet MER UK, do not pass the objective SECR test. In any case where SECR is applied, the OGA will take a pragmatic approach including full detailed discussions between the OGA and companies.
The SECR safeguard provides the same protection in the Strategy’s “use it or lose it” process – where companies might otherwise face being required to relinquish licences if they choose not to maximise economic recovery and, after a reasonable period of time, have been unable to secure investment or divest their assets.
The OGA is aware companies use a wide range of metrics and inputs in assessing returns, not all of which are included in the proposed SECR safeguard and fully expects companies to continue to use their own systems for their purposes. The OGA will assess SECR only for the purposes of and as set out in the Strategy, and has no intention of expanding the application of SECR.
The purpose of the consultation, which opens today (13 December 2017), and closes on 1 March 2018, is to provide clarity and seek views on the OGA’s proposed guidance on how SECR safeguard should be assessed.
Notes to Editors:
- The consultation is available here
- The consultation will run for 11 weeks and will close on 1, March 2018.
- The Maximising Economic Recovery Strategy places an obligation on companies and the OGA to take the steps necessary to secure the maximum value of economically recoverable petroleum from the United Kingdom’s continental shelf, this is termed “MER UK”.
- The MER UK Strategy includes a safeguard to ensure that companies would not be obliged to make an investment that did not meet an objective satisfactory commercial return, this is the SECR safeguard.
- In the consultation, the OGA is presenting (draft) guidance which seeks to provide a clear analytical framework and a test to establish how the OGA will consider whether a specific investment or activity (referred to collectively as a “project”) achieves a SECR, based on an objective assessment of whether the expected return would be considered satisfactory by an efficient relevant person (i.e. company).
- The OGA intends to minimise the complexity of the test so it will be useable in practice. The OGA recognises there is a range of methods and approaches across industry and is not imposing a new standard for commerciality on industry. The SECR safeguard will be used by the OGA for the purposes set out in the Strategy.
- The new guidance is intended to be objective, robust, transparent and minimise complexity. In conjunction with the consultation process, the aim is to provide industry with a better understanding of how the OGA will consider a project to establish whether it achieves a SECR under the Strategy.