Chapter 3 - Regulatory Regime

3 Regulatory Regime

3.1 A strong, fit for purpose, regulatory regime is essential to ensure that: the nation as a whole benefits from the UK’s oil and gas resources; the environment is safeguarded; the interests of workers in the industry are safeguarded and optimal use is made of petroleum reserves. The regulatory regime must also offer to both existing and potential investors in the UK’s upstream petroleum sector a stable environment in which to invest and operate.

3.2 The UK regulatory regime for exploration, development and production is enforced primarily through the licensing system administered by the Department of Trade and Industry (DTI). Environmental concerns are also dealt with by DTI (see Chapter 4). Offshore Health and Safety is regulated by the Health and Safety Executive. This Chapter aims to explain the licensing system and the legislation from which it is derived. It also summarises offshore health and safety arrangements and environmental safeguards.

LICENSING

Legislative Framework

3.3 The Petroleum Act 1998 provides for a consolidation of oil and gas legislation including the Petroleum (Production) Act 1934 and elements from the Continental Shelf Act 1964. The 1998 Act vests ownership of oil and gas within Great Britain and her territorial sea in the Crown and gives the Government rights to grant licences to explore for and exploit these resources. Similarly, the 1998 Act extends the powers of licensing to the UK Continental Shelf (UKCS). Any activity to seek or exploit petroleum in Great Britain and the UKCS can only be carried out under one of these licences.

3.4 Regulations made under the Petroleum (Production) Act 1934 and the Continental Shelf Act 1964 will continue in force for any licence rounds or awards after the coming into force of the 1998 Act until such time as they are superseded by regulations made under the 1998 Act. The Regulations prescribe how and by whom applications for petroleum licences can be made. The Model Clauses attached to certain existing petroleum licences have been re-enacted under the 1998 Act in the Petroleum (Current Model Clauses) Order 1999. As far as the grant of further licences is concerned, there are separate Regulations for the landward and seaward licensing regimes. The landward regime covers all of the onshore area of Great Britain and certain estuarine and near shore waters (‘watery areas’) within defined ‘bay closing lines’. The seaward regime applies to the remainder of the UKCS.

Types of Seaward Licences

3.5 For licensing purposes, the UKCS is divided into quadrants, each measuring 1° of longitude by 1° of latitude (except where a coastline or a neighbouring country’s continental shelf intervene). Each of the quadrants is given a unique number and a full quadrant is divided into 30 blocks. The southernmost blocks on the continental shelf are larger than those in the north because of the curvature of the earth, but the average size of each whole block is about 250 square kilometres. However, following surrenders and further subdivision, the number of ‘blocks’ (in effect, whole and part blocks) has increased in the more heavily licensed areas.

3.6 There are two types of licence:

exploration licences - these are non-exclusive and allow survey work and shallow drilling (not to exceed 350 metres in depth without the approval of the Secretary of State for Trade and Industry) in any part of the UKCS which is not held under a production licence (see below). They may be applied for at any time and are valid for three years, renewable at the Secretary of State’s discretion for one further term of three years.

production licences - grant the holder exclusive rights to explore for and produce petroleum in one or more specified blocks. They can be applied for only in response to invitations issued by the Secretary of State and in respect of blocks or areas specified in the invitation. Invitations have usually been made by way of ‘Rounds of Licensing’ where a large number of blocks on the UKCS have been made available for licence. In certain circumstances, however, a small number of blocks may be offered outside the normal ‘Round’ cycle. The duration of production licences has varied in different rounds - More information on Licensing Rounds can be found in Appendix 1

Types of Landward Licences

3.7 Licensing within Great Britain is based on the Ordnance Survey 10km x 10km grid. Whole blocks are, therefore, 100 square kilometres although, as with the seaward regime, licence surrenders have created a much more fragmented picture in some areas.

3.8 The Petroleum (Production) (Landward Areas) Regulations 1995 introduced a single landward licence - the Petroleum Exploration and Development Licence (PEDL) - to replace the previous three licence system. The PEDL is broadly similar to a seaward production licence in granting exclusive rights to explore for and produce petroleum in one or more specified blocks.

3.9 The other currently valid landward licences granted under previous systems include Mining Licences (MLs - issued before or during 1967); Production Licences (PLs. -issued between 1968 and 1984); and, the Exploration (EL), Appraisal (AL) and Development (DL) licences introduced in 1984. In addition, the Supplementary Seismic Survey Licence (SSSL), which is valid for one year only, allows the holder of one of the above licences to extend a seismic survey into unlicensed acreage a short distance beyond the specified boundary of the principal licences in order to allow data to be obtained over the full area of the principal licence. Finally, Methane Drainage Licences (MDLs) are issued to coal mine operators only and permit them to get natural gas released in the course of operations so that they can make and keep mines safe.

3.10 The rights granted by landward licences do not include any rights of entry onto land; licensees must obtain the prior permission of the owners and occupiers of any land which they may wish to enter in connection with their operations. Licensees must also obtain any consent which may be necessary under current legislation, including planning permission. Licensees wishing to enter or drill through coal seams in recognised coalfield areas must seek the permission of the Coal Authority.

Criteria for Awarding Licences

3.11 Production licences are awarded under a discretionary system, which allows the Secretary of State to judge applications against a set of agreed criteria which are published at the same time as the invitation to apply for licences is made. All applications are judged against the background that they fully meet the general objective of encouraging expeditious, thorough and efficient exploration to identify the oil and gas resources of Great Britain and the UKCS. Applicants must meet threshold standards on financial and technical capability and environmental management. If these thresholds are met, then the key factors in determining licence awards are the geological rationale for the application and the programme of exploration work that is proposed to test the perceived petroleum prospectivity identified in it.

3.12 On three occasions, applications for seaward production licences were invited for a minority of blocks in a larger round by competitive cash tender. Fifteen blocks were offered on this basis in each of the 4th (1971/72), 8th (1982/83) and 9th (1984/85) Rounds and 15, 7 and 13 blocks respectively were awarded. Blocks were not automatically awarded to the highest bidders as financial, technical and environmental criteria had to be met.

Applications for Licences

3.13 All applications for production licences must be accompanied by suitable material to allow the DTI to properly assess all aspects of the application. The outline information requirements are set out in the Petroleum (Production) (Seaward Areas) Regulations 1988 as amended and the Petroleum (Production) (Landward Areas) Regulations 1995. In addition, the Department issues guidance notes for potential applicants which explain how to complete the application form and what sort of supporting information is required.

Financial Terms

3.14 Any application for one of the licences set out above is subject to the payment of a fee. The fee varies depending on the type of licence being applied for; from Ł2,820 for a seaward production licence in the 18th Round of Seaward Licensing, to Ł1,000 for a PEDL and Ł50 for a Methane Drainage Licence. In addition, the holders of seaward or landward production licences must pay a licence rental which is based on the area held under the licence. A first rental payment covering the initial six years of the licence is payable upon acceptance of a seaward licence for a particular block. In the case of landward licences, annual rentals are now charged over the initial six year term. If a licensee retains a licence beyond the initial term, then the annual rentals escalate until a specified maximum is reached.

OFFSHORE HEALTH AND SAFETY

3.15 Since April 1991, following the recommendation in Lord Cullen’s report on the Piper Alpha tragedy, the Health and Safety Commission (HSC) and the Health and Safety Executive (HSE) have been responsible for offshore workforce health and safety on the UKCS. The location of HSE’s Offshore Safety Division is given in Appendix 16.

3.16 The offshore legislative regime developed by HSE is based around the Offshore Installations (Safety Case) Regulations 1992 (SCR). These require operators to have a safety case for fixed and mobile installations accepted by HSE before operations can begin, and for safety cases to be maintained and submitted to HSE at various times throughout the life-cycle of the installation. Other regulations cover the management and administration of installations, the prevention of fire and explosion and emergency response and the design and construction of installation including the maintenance of integrity throughout its life-cycle, the workplace environment and the safety of wells.

3.17 Although the major programme of legislative reforms recommended by Lord Cullen is complete, 1998 saw three significant developments:

	the transitional period for operators to complete the switch from the old ‘Certificate of Fitness’ regime to the verification of safety critical elements of installations by independent and competent persons ended in June;
	following detailed consultation with industry and workforce representatives, revised guidance to the Offshore Installations (Safety Representatives and Safety Committees) Regulations 1989 was published in May. Among other things, the new guidance more clearly explains the role of safety representatives and contains expanded guidance on the format of safety committee meetings and procedural matters;
	in July, HSE published ‘Assessment Principles for Offshore Safety Cases’ (APOSC). The document aims to promote a better and wider understanding of the principles against which HSE assessors evaluate the acceptability of safety cases. Linked to the issue of the APOSC document, revised guidance to the Offshore Installations (Safety Case) Regulations 1992 was published in December. The revision took account of subsequent legislative changes and substantial experience of operating the safety case system.

3.18 1998 saw the industry continue work on its cross-sector ‘A Step Change in Safety’ initiative. This major initiative launched in September 1997, which involves all elements of the industry - employees, service companies, operators, trades unions and regulators - aims, among other things to deliver a 50% improvement in the whole industry’s safety performance over the next 3 years;

3.19 July saw the Health and Safety Executive’s (HSE) Offshore Safety Division stage a major conference in Aberdeen, ‘Changing Health & Safety Offshore - The Agenda for the next 10 years’. Major speakers from industry, the workforce and HSE led sessions over the three day conference, aimed at identifying issues to be taken forward now that the major review and reform of offshore has been completed. The conference attracted a large audience from across the industry, workforce and academic institutions as well as a number of international regulators.

3.20 Following the conference, the Health and Safety Commissionís tripartite Oil Industry Advisory Committee (OIAC) considered the outcome and has established a working group to take forward developing an agreed programme for health and safety for the next 5-10 years. Initially, a mapping project is to be undertaken to identify current health and safety interests and initiatives. Consultations and involvement of interested groups from across industry and government will be central to this work.

3.21 Towards the end of the year, field work commenced on the second phase of evaluation of the offshore health and safety legislative regime. The independent evaluation, which is being conducted by Aberdeen University’s Petroleum and Economic Consultants Ltd, will examine the working of the four major sets of regulations introduced following the recommendations made by Lord Cullen. The evaluation report is expected in Spring 1999; as well as informing any necessary legislative changes, it will feed into the work to develop the offshore health and safety programme for the next 5 to 10 years.

3.22. HSE publishes regularly statistics relating to injuries, fatalities and dangerous occurrences in the offshore oil and gas industry. The most recent statistics up to 1997/98 are available free of charge as ‘Offshore Accident and Incident Statistics Report 1998’ (ref. OTO 98 952) from Research Administration, Offshore Safety Division, HSE, Room 203, Merton House, Bootle, Merseyside, L20 3DL ( 0151-951-4871/FAX: 0151-951-3098)

DECOMMISSIONING

3.23 The Department of Trade and Industry (DTI) is responsible for the implementation and development of Government policy on decommissioning offshore oil and gas installations and pipe-lines.

Legislation

3.24 Until February 1999, the primary legislation which regulated the decommissioning and disposal of redundant installations and pipe-lines was the Petroleum Act 1987 (the 1987 Act). The 1987 Act was recently consolidated with other petroleum legislation within the Petroleum Act 1998 (the 1998 Act). The 1998 Act came into force on 15 February 1999.

3.25 The 1998 Act enables the Department to place a decommissioning obligation on the co-venturers of every offshore installation, and the owners of every offshore pipe-line, on the UK continental shelf. The companies served with a notice will be jointly and severally liable to submit a decommissioning programme for Ministerial approval and ensure that the provisions of the programme are implemented.

Policy

3.26 An agreement was reached in July 1998 at the OSPAR Commission (Commission for the Protection of the Marine Environment of the North East Atlantic) Ministerial meeting in Sintra, Portugal on the future rules to be applied to the disposal of offshore installations at sea.

3.27 Large steel installations can no longer be toppled in situ or disposed of at sea. The topsides of all installations will be brought ashore. Ministers agreed that all steel installations with a jacket weighing less than 10,000 tonnes should be completely removed. Above that weight, derogations may be considered from the main rule that all installations should be returned to land for disposal. An application for such a derogation will be considered in the light of the outcome of an internationally agreed assessment and consultations procedure. Derogations can only be considered for the footings or ‘bottle’ legs of the heavier steel installations. Ministers agreed that installations emplaced after 9 February 1999 must be completely removed. A derogation which allows concrete platforms to be left in place was also agreed. Use of this derogation will also be subject to an internationally agreed assessment and consultation procedure. The new rules will be reviewed in 2003.

3.28 The full OSPAR Decision 98/3 on the Disposal of Disused Offshore Installations is currently available from the OSPAR web site (www.ospar.org).

Brent Spar

3.29 The revised Brent Spar decommissioning programme received Ministerial approval in August 1998. The Spar’s topsides have been removed for recycling and the hull sections of the installations are being reused in a Norwegian Harbour development. It is anticipated that the harbour development will be completed by the end of 1999.

3.30 The decision to approve Shell’s proposal was based on sound scientific analysis. Before reaching a decision the Government received advice from the expert group set up in 1995 under the auspices of Professor Krebs, Chief Executive of the Natural Environment Research Council. Full consultations with the Government of Norway and other relevant interested parties were conducted throughout the approval process.

Cuttings Pile Research

3.31 The United Kingdom Offshore Operators Association (UKOOA) is currently conducting an in-depth study of issues associated with the accumulation of drill cuttings beneath some offshore installations. The objective of the initiative is ‘to identify the best environmental practice and the best available techniques in accordance with the principles set out by the OSPAR Commission’ (Commission for the Protection of the Marine Environment of the North East Atlantic). The UK Government is committed to reporting the UKOOA findings to the OSPAR Working Group on Sea Based Activities (SEBA) which is now considering the environmental impact of, the need for, and the possible means for cleaning up seabeds contaminated by oily cuttings.

3.32 The information generated by this study will also be useful in the consideration of decommissioning programmes.

Guidance Notes

3.33 The Department has revised the consultative document issued in 1995 which provides guidance notes for industry on the decommissioning of offshore installations and pipe-lines under the 1998 Act. The notes provide guidance on preparing decommissioning programmes. They also examine how the OSPAR Decision will be implemented under the existing provisions of the 1998 Act.

3.34 The Secretary of State for Trade and Industry must ensure the existence of adequate financial security arrangements for the decommissioning of all installations and pipe-lines. Measures required to satisfy the Secretary of State are discussed within the guidance notes.

3.35 The guidance notes will be available on the Departmental web site (www.og.dti.gov.uk). See Appendix 12 for information on decommissioned installations.

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