Energy Update 18 June 2013
Welcome to this edition of Fieldfisher's Energy Update. This fortnight we look at the proposed Economic Crime Bill and Ofgem's call for evidence in relation to price-reporting benchmarks and its consultation on REMIT. There are new European disclosure rules and new UK anti-tax avoidance measures, which will both affect energy companies. An independent review into oil & gas resources in the UK has just been announced. There are also developments in relation to potentially new and abundant fuel sources – shale and methane hydrate. There is recent news that oil & gas assets in West Africa may be reclaimed by the national oil company. We explore a recent Court of Appeal judgment in relation to the enforceability of a mining industry commercial contract where terms were "to be agreed" and include a wide-ranging interview with Dr. Robert Trice, CEO of Hurricane Energy PLC.
We hope you will find this of interest.
Criminal liability for energy companies that fail to prevent fraud?
On 14 June the shadow attorney general Emily Thornberry unveiled Labour's plans to combat corporate fraud. This follows an earlier announcement by the shadow home secretary of a proposed Economic Crime Bill.
The plans include:
- updating the UK's laws on corporate criminal liability, and
- considering whether more of the proceeds of crime can be ploughed back into law enforcement
The aim is to transform the UK's enforcement record on economic crime, and to create a "profit centre for the criminal justice system", similar to the US.
Click here to read more.
Ofgem considers regulating price-reporting agencies
UK energy watchdog Ofgem has issued a call for evidence to ascertain if stakeholders feel that current arrangements regarding benchmarking services for gas and electricity markets are fit for purpose or if they think that further action is necessary. The alleged manipulation of benchmarks that underpin financial transactions such as LIBOR and EURIBOR has recently been the subject of significant regulatory scrutiny. The call for evidence is open until 31 July 2013.
For Ofgem's statement click here
For our recent piece on the EC energy price-fixing probe click here
Show me the money: new European disclosure requirements announced for companies in extractive industries – including oil & gas and mining
The European Union has recently proposed new accounting and disclosure rules that will oblige European listed and other large companies in extractive industries to disclose material payments to the governments in countries where they operate. It follows similar rules being implemented in the United States under the Dodd-Frank Act, and other global initiatives.
For our recent article about these developments click here
Sir Ian Wood to lead an independent review into the UK's oil and gas resources
The UK Department of Energy and Climate Change (DECC) has launched an independent review of the UK oil & gas industry to better understand and address the challenges during production in the UK continental shelf (UKCS). It will be conducted by Sir Ian Wood who is widely known for his work in the North Sea oil industry. The review was announced on 10 June 2013 by Edward Davey MP and Secretary of State for Energy and Climate Change. Initial conclusions from the review are likely to be published in the autumn of this year and the final report and recommendations are expected to follow in early 2014. We will monitor these developments and provide updates in future editions of this newsletter.
For the full announcement click here
Tax – the energy sector is not shielded from the UK Government's glare
Tax avoidance, and perceived even if not actual tax avoidance, is fast rising up the political agenda. On 29 May 2013 the Chancellor, George Osborne, announced measures to prevent utility companies (and others) from claiming capital allowances for expenditure which they have incurred, but which has been funded by others (e.g. their business customers).
For the full article please click here.
Shale – can the UK replicate the US boom?
One of the energy companies with shale gas licences in the UK has vastly increased its estimate for the amount of gas it is sitting on, enhancing optimism about the UK’s fledgling shale prospects. IGas says there may be up to 170 trillion cubic feet (tcf) of gas in its licence area – enough to meet the UK’s needs for about 60 years. It previously said it had 9 tcf of gas in place. The figures are comparable with those put out by Cuadrilla, which says its UK licences could hold as much as 200 tcf of gas.
Meanwhile in the US, the Energy Information Administration has released a report on the global reserves of shale, adding the potential of 299 tcf of natural gas and 345 billion barrels (Bbbl) of oil to global reserves. The US is ranked second globally behind Russia in terms of technically recoverable shale oil resources and fourth (behind China, Argentina and Algeria) in terms of technically recoverable shale gas resources.
For more information click here
Gabon looks to reclaim oil assets
West African nation Gabon is planning to take assets back from three international oil companies in a sign of Africa’s growing assertiveness as competition intensifies for its natural resources. Gabon plans to reclaim the Tsiengui field once the contract comes up for renewal in 2015 due to alleged contract breaches according to remarks made by its oil minister, Etienne Ngoubou. This follows Gabon’s decision last year to strip an oil company of the Obangue field, also for alleged breaches of contract. The reclaimed assets are now managed by the recently-created national champion Gabon Oil Company.
If you are worried about the impact of such developments in relation to your assets please speak to your usual Fieldfisher contact or a member of the Energy team.
For more information click here
Methane hydrate and the endless supply of fossil fuels
In the 70s, geologists discovered crystalline natural gas (methane hydrate) beneath the seafloor as water molecules laced into frigid cages that trap “guest molecules” of natural gas. Thought of as "inflammable ice", it had long been subject to petroleum-industry scepticism but as petroleum prices rose and undersea-drilling technology improved, worldwide interest has risen. Stored mostly in broad, shallow layers on continental margins, methane hydrate exists in immense quantities and some estimates say it is twice as abundant as all other fossil fuels combined.
An extensive article examines the potential impact of methane hydrate and this can be found by clicking here
Ofgem consults on REMIT enforcement and procedural guidelines
The EU Regulation on wholesale energy market integrity and transparency (‘REMIT’), which came into force in 2011, prohibits insider trading and attempted or actual market manipulation in wholesale energy markets. The UK Government has set out, in regulations that are currently before Parliament, the investigatory and enforcement powers that will, subject to the Parliamentary process, be available to Ofgem. Ofgem is now consulting on procedural guidelines on the use of its investigatory and enforcement powers under REMIT. Ofgem proposes to model its approach to REMIT on its guidance for licence breaches, except where a different approach is necessary to comply with REMIT or the Government’s regulations. Ofgem does not, for instance, propose at this stage to adopt the Financial Conduct Authority’s approach to imposing a penalty and calculating its amount. The consultation is open until is 29 August 2013.
For Ofgem's consultation click here
Provisions "shall be agreed" did not stop a commercial contract from being enforceable – Court of Appeal, England
In a recent decision (MRI Trading AG v Erdenet Mining Corporation LLC (2013) EWCA Civ 156) the Court of Appeal held that a commercial supply contract for the supply of copper concentrates was enforceable despite there being provisions that still had to be agreed. These related to the shipping schedule and certain charges, which the contract said "shall be agreed" although all major contract items including the pricing mechanism had been agreed.
The main factors that led the Court to uphold the contract's enforceability were that the terms left to be agreed were not "key", the contract had already been partially performed which reflected the parties’ long term relationship, there was mandatory language - the verb "shall" as opposed to "may" and the contract contained an arbitration clause which indicated that the parties did not intend it to fail.
This decision does not alter the basic principle applying to the non-enforceability of a so-called "agreements to agree" but it does provide useful guidance on when such agreements could be held to be enforceable.
To view the full text of the judgment (see particular paragraphs 16 and 21-22) please click here
An interview with Dr Robert Trice, CEO, Hurricane
Dr. Robert Trice is Founder and CEO of Hurricane Energy PLC (formerly known as Hurricane Exploration PLC). Dr. Trice has over 25 years’ oil industry experience. He has specialist technical expertise in fractured reservoirs’ characterisation & evaluation and exploration for stratigraphic traps. He has worked in field development, exploration, well-site operations and geological consultancy. He has held the position of Visiting Professor at Trondheim University (Norway). He has a PhD in Geology from Birkbeck College, University of London.
Click here for the interview.