There are two developments in the offshore oil and gas industry which some of you may not be aware of:

1. The Offshore Industry Consultation on the new Oil & Gas UK/DECC (Department of Energy and Climate Change) Financial Responsibility Guidelines
2. European Union Contract Notice for Civil Liability and Financial Security for Offshore Oil and Gas Activities

The Offshore Industry Consultation on the new Oil & Gas UK/DECC Financial Responsibility Guidelines

Members of Oil & Gas UK and the Oil and Gas Independents’ Association (OGIA) were recently requested to comment on financial responsibility guidelines, which were developed following recommendations from the Oil Spill Prevention and Response Advisory Group (OSPRAG) and the Maitland Review of the regulatory regime in the Offshore Oil and Gas in the UK (http://www.decc.gov.uk/assets/decc/11/meeting-energy-demand/oil-gas/3875-offshore-oil-gas-uk-ind-rev.pdf)

The covering letter from Oil & Gas UK stated:

“DECC has made it clear that it considers the demonstration of financial responsibility for both control of well and remediation/compensation to be critical. Therefore compliance with these Guidelines will become an effective requirement of the granting of drilling consents for future exploration and appraisal wells and DECC would like to introduce this from mid July [2012]”

The highlights of the guidelines are:

• It currently applies to all new exploration and appraisal wells in the UK Continental Shelf
• We understand that it will be followed by similar guidelines for all wells already drilled (and not abandoned)
• It sets out requirements for companies to evidence their financial capability to:
  • Control a well following a blowout
  • Meet the cost of remedial measure and third party compensation payments
• Such financial capability will be audited by an independent person
• Methodology of calculating financial responsibility is outlined
• Financial Responsibility can be demonstrated by:
  • Credit Rating of Oil Company
  • Insurance with minimum credit ratings
  • Parent Company Guarantee

We understand that Oil & Gas UK received a significant number of responses to the guidelines by the deadline which will be discussed with their members, DECC, audit companies and the insurance industry in the coming weeks.
European Union Contract Notice for Civil Liability and Financial Security for Offshore Oil and Gas Activities

In March 2012, the European Union issued the above contract notice. The objective of the study is described as:

“…to provide the Commission with expert advice on civil liability provisions and identify financial security mechanisms available to cover civil liability damages following an offshore oil and gas accident in EU waters. The study will assist the Commission to develop policy options for ensuring that the EU has a comprehensive liability regime not only for environmental damage but also for traditional damage such as civil and economic damages that may occur to fishing, tourism and other coastal economic activities. The options should identify appropriate means and tools (such as funds, guarantees, insurance products, etc.) that will enable the liable operator to use them to both cover the full costs of such resulting liabilities and to be flexible enough to render early compensation to victims of the accident.”

Although the impact of such a study is less imminent than the UK Financial Responsibility Guidelines described above, this is further evidence of the Commission’s concerns over the existing regulatory regimes in Europe, and the future impact on the purchase of insurance in the offshore oil and industry in this area.

The contract will be awarded to the selected tenderer within 6 months of the bid. The duration of the contract is 9 months from the award.

Full details of the contract notice can be found on Contract notice: JO S 064-103002

Future INSIGHTS:

Look out for forthcoming articles on Oil Sands and Limited Liability. As always, if there are specific areas you would like us to address within an INSIGHT please do not hesitate to contact us.