Following extensive consultation with licensees, infrastructure owners and those seeking to access the United Kingdom Continental Shelf (UKCS), the North Sea Transition Authority (NSTA) has finalised and published updated guidance on licence assignment, aimed at facilitating merger and acquisition transactions (M&A) and to encourage completion of the transaction without unreasonable delay.
The guidance document contains a set of recommended principles and practices for current and potential offshore license holders with the intention of minimising transaction delays and obstacles, which can result in an increase in costs, prolong operational and strategic decision making, damage working relationships amongst companies and discourage investment in the industry.
Background
Industry participants raised issues to the NSTA relating to the length of time taken to obtain consent required from the relevant parties to allow assignment to proceed and indicated that these delays have threatened various transactions.
The NSTA has seen an increase in acquisition and disposal of licence interests which has brought new capital and innovative ideas to the UKCS. The NSTA has acknowledged that delays to assignments could discourage these investments consequently, they held a consultation from March 2023 to May 2023 which invited views on proposed NSTA Guidance on the conduct of licence assignments from those who will be required to act in accordance with the Strategy and those seeking to invest in the UKCS.
Aim of Guidance
The Guidance recognises that transaction delays can lead to additional costs, reducing economic value of natural resources, jeopardise investment and more widely undermine investor confidence and commercial activity in the UK.
M&A transactions are complex; therefore, the Guidance sets out to provide a simple framework to support licensees and investors and to clarify the role each member can play in helping these deals run smoothly. This will help streamline transactions in the North Sea, with the primary objective of securing the maximum value of petroleum, while meeting the energy transition’s net zero requirements by reducing greenhouse gas emissions. Furthermore, it will support the wider North Sea Transition Deal, enabling the sector to transform its UK supply chains, jobs, and local communities.
Main principles
The Guidance clarifies expectations placed on parties involved in such transactions, such as the Buyer, Seller, and Consenting Parties.
In particular, the Buyer and Seller are expected to: -
- Create and agree on a plan for the project, identifying key resources, risks, and roles.
- Provide the Consenting Party with a 'Capability Pack' containing information on the Buyers financial and technical capability required for consent.
- Respond to queries from consenting parties in a constructive and efficient manner.
- Present appropriate and practical terms to the Consenting Party where they have raised significant issues to obtain the Consenting Party's consent.
The Consenting Parties are expected to: -
- Review and agree proposed requests for consent in a prompt manner. The Guidance provides principles which they should apply to assist them in doing so.
- Attend an initial planning meeting with the Buyer and Seller and request any additional information and explain why this is necessary as soon as possible. The Guidance outlines main principles that the Consenting Parties should consider when reviewing information, to identify any issues which may delay proceedings as soon as possible
- Provide the reason for any condition on consent and provide details for any withholding of consent.
The document also sets out principals that Relevant Persons should apply when endeavouring to conclude an assignment. Most importantly however, the central expectation, highlighted throughout the guidance, is for all parties involved to work together to cooperate and engage with each other in open, constructive negotiations, and in a collaborative and timely manner, to promote efficient completion of the transaction.
Jane de Lozey, NSTA Director of Regulation, stated: “The energy transition requires significant investment as well as collaborative working between the many companies operating in the North Sea. This Guidance will assist that important process.”
Overall, this Guidance underscores the NSTA's proactive approach to managing the North Sea's resources, ensuring the full potential of the North Sea is met in alignment with the UK's broader energy transition goals.
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