Energy Update 26 February 2014
Welcome to this month's edition of Fieldfisher's Energy Update. In this issue we look at the final report and recommendations of Sir Ian Wood's review of the UK offshore oil& gas industry. Although onshore wind farms may attract controversy, the UK is a world leader in offshore wind and we consider the Offshore Wind Programme Board's recent annual report. We examine the government response to the consultation on UK planning requirements for onshore oil & gas (including shale). We look at a recent article about the Dunlop Oil cartel case and the record of the Office of Fair Trading (soon to become the Competition and Markets Authority) in securing criminal convictions. Finally, we consider the issues in relation to the termination of contracts that appear in a recent case - SABIC UK Petrochemicals Ltd v Punj Lloyd Ltd.
UK Government to set up new oil & gas regulator following Sir Ian Wood's review
In our December 2013 edition, we reported on Sir Ian Wood's interim report on the offshore oil & gas industry in the UK. Sir Ian has on 24 February 2014 published his final report entitled “UKCS Maximising Recovery Review”. The core recommendations of the report are:
- a new shared strategy for maximising economic recovery (of oil & gas) for the UK, with commitment from the government (HM Treasury and a new regulator) and the industry;
- the creation of a new arm’s length regulatory body to oversee and develop this programme of change and growth; and
- greater collaboration and commitments by industry in areas such as development of regional hubs, sharing of infrastructure and reducing the complexity and delays in current legal and commercial processes.
The UK government has announced it will act on the key recommendations of the report and plans to create a powerful new regulatory body to oversee the maximisation of production from the country’s limited North Sea oil fields. The new body will be responsible for realising an additional 3 to 4 billion barrels of oil & gas, worth up to £200 billion over the next 20 years.
The new regulator will be charged with ensuring closer cooperation between firms working in the field, the exploration of new sites and the implementation of a codified, long term strategy for the country’s oil & gas future. It will also act as an intermediary between firms and help to increase the currently low levels of interest large oil companies are showing in the region. This is a major change since historically the UK’s oil & gas industry has always been regulated by the government.
Click here for the final report
For further information click here
Offshore Wind Programme Board sets out plans for UK to stay world leader
As of January 2014 the UK is the clear world leader in offshore wind with some 3.6GW of installed operating capacity and a further 1.4GW under construction. Maximising the economic benefit from offshore wind is a key priority for the government and together with the industry they have set out a plan to continue to be the largest global market for offshore wind, with the scenarios envisaging deployment of 8-15GW by 2020 and up to 41GW by 2030.
The Offshore Wind Programme Board (OWPB) brings together senior representatives from industry, UK and Scottish government, The Crown Estate and statutory nature conservation bodies. It published its annual report on 19 February 2013. To enable the UK to retain its position as the world leader in offshore wind deployment, the OWPB has set out various proposals including it acting as a hub for developers and supply chain companies to share experiences and best practice to drive cost reduction and exploring the opportunity to collaborate with other international players in the North Sea region to deliver cost reduction and development at scale.
Click here for more information:
UK Government publishes response to consultation on planning requirements for onshore oil & gas (including shale gas)
On 24 January 2014, the UK's Department for Communities and Local Government (DCLG) published the government's response to its September 2013 consultation on revised requirements for planning applications for onshore oil & gas (including shale gas) developments. The response explains the government's reasons for making the following changes in relation to onshore oil & gas development:
- altering some notice requirements for planning permission applications by: (i) retaining the requirement that applicants serve notice on owners and tenants of land above ground; (ii) retaining the requirement that applicants publish notices in a newspaper and have site displays in parishes; (iii) removing the requirement for applicants to serve notice on owners of land in relation to solely underground operations; and (iv) adding a new requirement – a site display in every local authority ward where no parish exists, or where the parish only covers part of the ward;
- introducing a simplified standard application form to be published by the Secretary of State, which will not include specific questions in relation to climate change; and
- clarifying the application fees, which will be calculated on the basis of the area of the above ground works only. The government will also increase fees by 10% on the basis of surface area works.
The changes to the notice requirements and the requirement for applicants to use a standard application form came into force on 13 January 2014.
For the full response click here
If you can't do the time …
In 2008, at Southwark Crown Court in London, the UK's Office of Fair Trading ("OFT") successfully prosecuted three former executives of Dunlop Oil who were found to have been involved in the marine hoses cartel. The cartel is believed to have inflated the price of marine hoses – used to transport oil from tankers to shore – by around 18% and cost the UK Ministry of Defence millions of pounds.
Fieldfisher's John Cassels and Jessica Burns examine the record of the OFT - soon to be superseded by the new Competition and Markets Authority ("CMA") - in securing criminal convictions and the requirement of establishing dishonesty being removed from cartel offences from 1 April 2014 to make it easier for the CMA to secure future convictions.
Click here for more
Termination of a commercial contract – validly notified?
A recent case SABIC UK Petrochemicals Ltd v Punj Lloyd Ltd  EWHC 2916 (TCC) discusses some issues and risks that arise when terminating a contract. The case involved an EPC contract awarded to a subsidiary of the Defendant for the development of a polyethylene plant for SABIC (the Claimant) in the UK. Ultimately, after a number of delays in carrying out the works, the Claimant, after first sending a warning letter to the Defendant, terminated the contract and called in various payment and performance guarantees.
The key issue in the case was that the Defendant argued that the termination was invalid because the notice did not identify the termination clause by number, it did not identify the breach in sufficient detail and that the seven-day rectification period in the warning letter was too short.
The judge, in deciding for the Claimant, held that:
- such a termination notice, although required to refer to the actual termination clause in the contract, did not need to identify it by clause number;
- where a warning is given of a failure to exercise due diligence, the grounds for termination did not necessarily need to particularise the Defendant's failures; and
- even if the seven-day rectification period was too short, this would not take away from the fact it was a termination notice – it would merely allow for more time to be given to the recipient before termination. In actual fact, a month had been allowed before termination.
The case also discussed repudiatory breach – i.e. where a party by its conduct indicates an intention not to perform its obligations and how this might be relevant in the context of partial performance (as in this case) where determining a repudiatory breach may be difficult. On the facts, it was held that the Defendant's conduct came close to being repudiatory e.g. demobilising sub-contractors but it “didn’t cross the line”.
This demonstrates that establishing repudiatory breach in situations where there is not an absolute refusal to perform may be difficult and a termination notice which relies on an express ground for termination should be preferred.
For the case see the link (especially paragraphs 8, 10 and 11)