On 31 December 2020 the Brexit transition period will end and despite talks continuing on a potential deal in recent weeks, the outcome is not yet guaranteed. The triple whammy of a low oil price, low gas price, and operational challenges posed by COVID-19 has resulted in many North Sea operators putting their Brexit plans on hold. However, with the clock now ticking, the following points should be considered as plans are dusted off and refreshed.

1.  Contracts

A comprehensive review of the company's operation-critical contracts should be carried out.

Key points to consider:

  • Terminology. This is relevant for contracts which will continue after the transition period has ended. Agreement between the parties in relation to the operation of EU references is recommended - for example, a contract amendment making it clear that EU laws and regulations will include succeeding laws and regulations in the UK.

  • Territorial scope and jurisdiction. Where does the contract apply? Where is the counterparty to the contract based? While there is a possibility that the courts of EU countries will recognise a UK jurisdiction clause and enforce a UK judgement (where proceedings are commenced after 31 December 2020), this is by no means guaranteed. Companies in a potential dispute with an EU counterparty should therefore consider raising court proceedings before the end of the transition period to ensure enforceability.

  • Termination. Can parties cancel contracts for reasons related to Brexit? Is there potential for operators (or their suppliers) to terminate contracts for convenience or economic reasons?

  • Duration, extension and variation. What is the term of the contract? Are there options to extend? Is there a (non-Brexit) reason for the contract to be varied?

New contracts being negotiated with a view to being effective in 2021 should be drafted with the above issues, and the new non-EU regime, in mind.

2.  Supply chain

Operators' entire supply chains should be evaluated – determining where the goods and services that they obtain come from. Having a handle on this, as well as creating dialogue and engaging with suppliers, is important.

Key points to consider:

  • Customs procedures and tariffs. As the UK will leave the EU Customs Union when the transition period comes to an end, all goods moving between the UK and EU will require customs declarations and may be subject to tariffs. New tariff arrangements will mean registration and application requirements. In the event of no deal, parties to contracts will need to determine who will be responsible for paying tariffs and how they are calculated, as well as determining any potential ways of mitigating or reducing tariff payments. A helpful summary of the new UK Global Tariff (which replaces the EU Common Customs Tariff) can be found here.

  • Tax. The UK will become a 'third country' for the purposes of EU VAT and will no longer assume the EU VAT Directive rules into the VAT Act. The tax consequences of contracting with suppliers in the EU should be worked through. All movement of goods will become imports and exports, subject to UK or EU import VAT. In addition, businesses with a foreign VAT registration in the EU may be obliged to appoint a VAT fiscal representative (this currently applies in 19 of the 27 EU member states).

The UK Border Operating Model will mean deferment of customs declarations and import tariffs until 1 July 2021. However, given the current continued economic uncertainty, it is important that operators have a sound grasp of the immediate financial impact of these (and changes to the VAT regime).

3.  Regulatory

The Oil and Gas Authority (OGA) will remain the regulator in terms of oil and gas operations. However, the wider regulatory regimes associated with operator businesses should be considered.

Key points to consider include:

  • Emissions. Significant sections of the Greenhouse Gas Emissions Trading Scheme Order 2020 came into force in mid-November. While this makes a UK Emissions Trading Scheme likely (by giving it a legislative basis), the UK Government has yet to clarify the precise nature of carbon pricing after 31 December 2020. Some sort of carbon emissions tax is still a possibility.

  • Competition law. As regards anti-trust and merger control, there is a risk of parallel investigations between the European Commission and the Competition and Markets Authority. This may place an increased burden on businesses and so assessing organisational strategic plans (including potential mergers and acquisitions) should be included in any planning.

  • Data transfers. In relation to UK data protection legislation, the Information Commissioner's Office will remain the independent supervisory body. In the first instance, operator information management and human resource colleagues should be positioned and tasked with identifying all personal data of EU citizens held by them.

4.  Data and Intellectual Property

The crucial point in terms of data protection (and GDPR), is whether the UK will be granted adequacy status by the EU. This is yet to be determined. In a no deal situation GDPR will still apply to any data coming from the European Economic Area to the UK. Operators should consider what safeguards can be developed and put in place within their organisation to ensure that data can continue to flow freely into the UK. A helpful checklist can be found here.

In relation to IP, from 1 January 2021 lawyers will be unable to represent clients on new applications or proceedings at the EU Intellectual Property Office (EUIPO).

Key points to consider:

  • Trademarks and designs. As of 1 January 2021, registered EU trademarks and registered community designs (RCDs) will be recorded on the UK trademark register or design register respectively. Both will have the same legal status as if they had been applied for under UK law. There will be no need to file an application (or pay a fee) for this to happen. UK businesses with pending applications for EU trademarks or RCDs have nine months to apply in the UK for the same protection.

  • Patents will be less affected and will continue to be granted by both the UK Intellectual Property Office (UKIPO) and the European Patent Office (EPO), using the European Patent Convention (EPC). As the EPO is not an EU agency, leaving the EU does not affect the current European patent system. Existing European patents covering the UK are also unaffected.

5.  Immigration

As the transition period ends, operators should consider the impact on their workers (both EU workers in the UK and UK workers in the EU). All personnel who will be affected by the new immigration regime should be identified and engaged with. Having a base level of understanding of the new process for individuals will allow those pursuing immigration applications to be supported as necessary. This exercise may lead to new or amended contracts of employment being drafted.

6.  Business planning and energy transition

With the end of the transition period now only a matter of weeks away, input from management will be critical to both the immediate plans and the future success of the business. Preparing well now will be important as we enter 2021 and the oil and gas sector faces its next big challenge – the energy transition.

Contributor

Clare Munro

Partner