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Energy Act 2008

Petroleum Licensing

Summary and Background

365.Section 76 makes amendments to Part 1 of the Petroleum Act 1998 (the “1998 Act”) (which concerns the licensing of petroleum exploration and extraction). These amendments give the Secretary of State new powers relating to the unconsented transfer of rights or benefits under petroleum licences. Section 77 and Schedule 3 amend various model clauses of petroleum licences granted pursuant to the 1998 Act or the Petroleum (Production) Act 1934 (c.34) (the “1934 Act”). The amendments to model clauses are intended to ensure the more efficient management of the licence and to ensure that suspended petroleum wells are properly abandoned including:

  • a power of partial revocation of a licence in the event of, for example, the insolvency of one, but not all, of the persons constituting the licensee;

  • a new obligation for the licensee to provide contact details to the Minister; and

  • a new power to require a licensee to plug and abandon a well which has been suspended for at least one month.

Commentary on Sections

Section 76: Transfers without the consent of the Secretary of State

366.Petroleum licences issued under the 1934 Act and the 1998 Act grant a licensee the right to search, bore for or get petroleum. Under the terms of certain petroleum licences issued under the 1998 Act or the 1934 Act, the licensee must obtain the Secretary of State’s prior written consent before assigning or transferring any right or benefit in the licence. Nevertheless, such rights or benefits are sometimes transferred without the Secretary of State’s prior consent having been obtained.

367.This section inserts three new sections after section 5 of the 1998 Act dealing with transfers of rights in a licence, or rights or benefits derived from such rights, (other than by way of security for a loan) which have not received the Secretary of State’s prior consent (an “unconsented transfer”). The three new sections are:

  • 5A Rights transferred without consent of the Secretary of State

  • 5B Information

  • 5C Offences under section 5B: supplemental

New section 5A : Rights transferred without consent of the Secretary of State

368.Where there has been an unconsented transfer, subsection (2) gives the Secretary of State a power to issue a notice to both the transferor and the transferee directing that the right or benefit in the licence revert back to the transferor from a date specified in the notice. That date must not be earlier than the date the notice is given (subsection (3)).

369.During the period of the transfer the transferee will take any rights to search for, bore for or get petroleum which have in fact been transferred. The transferee will therefore effectively take any petroleum extracted or monies received in respect of any such petroleum (and consequently will be responsible for any tax liabilities associated with such petroleum or monies). The transferor will nevertheless remain liable for any obligations arising under the licence. Following a direction under subsection (2) the assigned rights and benefits will revert back to the transferor from the date specified in the notice (and consequently any associated tax liabilities which relate to the ownership of petroleum may apply to the transferor as from that time). Under subsection (4), the Secretary of State must notify both the transferor and the transferee of any proposal to issue a notice under subsection (2) and the Secretary of State must also give both parties a reasonable opportunity to make representations.

370.Under subsection (5), a notice under subsection (2) must be issued within 3 months of the Secretary of State learning of the unconsented transfer.

New section 5B: Information

371.For the purpose of enabling the Secretary of State to determine whether an unconsented transfer has occurred, subsection (1) of Section 5B allows the Commissioners for Her Majesty’s Revenue and Customs (the “Commissioners”) to disclose to the Secretary of State information relating to the transfer of rights granted under petroleum licences.

372.Under subsection (3), information disclosed under this section may only be further disclosed:

  • for the purposes of enabling the Secretary of State to determine whether an unconsented transfer has occurred – but only with the consent of the Commissioners (which may be general or specific);

  • pursuant to a court order; or

  • with the consent of the person(s) to whom the information relates.

373.Under subsection (4), a person commits an offence if he discloses information – except in circumstances set out under subsection (3) – which specifies the identity of the person to whom the information relates, or from which that person’s identity can be deduced.

374.Subsection (5) provides a defence to a person who is charged with an offence under subsection (4). The defence applies where a person charged proves that they reasonably believed either that the disclosure of the information was lawful, or that the information had already and lawfully been made available to the public.

375.Under subsection (6), a person found guilty of unlawfully disclosing the information is liable:

  • on summary conviction, to a fine not exceeding the statutory maximum (currently £5,000 in England, Wales and Northern Ireland and £10,000 in Scotland), a maximum of 12 months in prison, or both; or

  • on conviction on indictment, to an unlimited fine, a maximum of 2 years’ imprisonment, or both.

New section 5C: Offences under section 5B: supplemental

376.Section 5C makes further provision in respect of proceedings brought in England and Wales and Northern Ireland for offences committed under section 5B.

377.Subsection (1) provides that in England and Wales no proceedings for an offence under section 5B may be instituted except by the Director of Revenue and Customs Prosecutions, or with the consent of the Director of Public Prosecutions. Subsection (2) provides that in Northern Ireland no proceedings can be instituted except by the Commissioners or with the consent of the Director of Public Prosecutions for Northern Ireland.

378.Subsection (3) provides that the maximum term of imprisonment that can be imposed on summary conviction in Northern Ireland is 6 months rather than 12 months.

379.Subsection (4) provides that if the offence is committed in England and Wales before commencement of section 282 of the Criminal Justice Act 2003 (c.44), the maximum imprisonment on summary conviction is 6 months rather than 12 months.

Section 77: Model clauses of petroleum licences & Schedule 3: Petroleum Licences: Amendments to Model Clauses

380.This section, together with Schedule 3, amends the secondary legislation containing model clauses for certain existing licences granted under the 1934 Act or the 1998 Act (“relevant licences”), with the effect that new clauses, and amendments to existing clauses, will be included in relevant licences from the date that the relevant provisions of the Schedule come into force. In other words, this section amends all existing licences that contain the relevant model clauses we are amending (as set out in the Schedule).

381.Subsection (2) provides that relevant licences granted under the 1934 Act or the 1998 Act and which are still in existence immediately before the relevant provisions of the Schedule come into force, will also contain the relevant model clauses as set out in the Schedule. Subsection (3) ensures that the new provisions will also be inserted into existing licences which incorporate modified or amended versions of the model clauses (including cases where particular model clauses have been omitted). Subsection (7) provides that where any provision is added to the terms of an existing licence by this section and Schedule, the Secretary of State and the licensee may nevertheless agree to alter or delete the provisions by deed.

382.The amendments contained in the Schedule are as follows:

Provision of contact details to Minister

383.The Schedule inserts clauses into relevant licences which require licensees to provide the Minister with contact details for the person to whom notices, directions and other documents under the licence are to be sent.

384.If the licensee fails to comply, the licensee may be served with a notice which requires the provision of such details within a month. The notice will also inform the licensee that if there is a failure to provide the information required within the one month time limit, the Minister will treat the licensee as having supplied the contact details which the Minister has specified in the notice. It is the licensee’s responsibility to ensure that the contact details held by the Minister are up to date.

The power to issue a notice to plug and abandon a well

385.The Schedule also inserts clauses into relevant licences which give the Minister the power to issue a notice requiring the licensee to plug and abandon a well which has been suspended for a period of at least a month. The licensee will be required to plug and abandon the well within the period set out in the notice.

386.A notice requiring a licensee to plug and abandon a well under this section must be given more than one month before the natural expiry or termination of the licensee’s rights in relation to the licence.

387.Subsection (4) of section 77 provides that the power to require that a suspended well be plugged and abandoned cannot be exercised in relation to a well where drilling started before the relevant provisions of the Schedule come into force.

Revocation on change of control

388.Under the terms of existing model clauses of relevant licences, the Minister may revoke a licence whenever there is a change of control in a licensee in circumstances where:

  • the Minister serves notice on the licensee stating that the Minister intends to revoke the licence unless a further change in the control of the licensee as is specified in the notice takes place within a period of three months; and

  • that further change does not take place within that period.

389.The existing model clauses of relevant licences provide that there is a change of control (hence requiring the consent of the Secretary of State) whenever a person has control of the licensee who did not have control of the licensee when the licence was originally granted. The Schedule extends this by providing that where rights have been assigned, there will also now be said to be a change of control whenever a person takes control over an assignee who did not control that assignee when the rights were assigned.

390.Subsection (5) of section 74 provides that this extended power of revocation only applies if the change of control occurred after the relevant provisions of the Schedule come into force.

The power of partial revocation

391.The Schedule also inserts clauses into relevant licences which apply when more than one person holds the licence. Whilst the Minister already has the power to revoke the entire licence in the circumstances set out below (on account of the licence being joint and several in nature) this provision supplements that power by giving the Minister a power to revoke the interests of one or more, rather than all, of the persons which are the licensee. This power applies where:

  • the person or persons concerned become bankrupt or insolvent;

  • there is a change of control of the person or persons concerned and the person or persons fail to take steps to address the Minister’s objections to that change in control; or

  • the person or persons concerned cease to have a fixed place of business in the UK from which operations under the licence are carried out.

392.Obligations and liabilities arising before the partial revocation of an interest in a licence are not affected by the partial revocation.

393.Where a licence interest is revoked in relation to one person on the licence, the person whose interest has been revoked remains jointly and severally liable for any obligations arising before the partial revocation takes place. After partial revocation, the rights, obligations and liabilities associated with the licence continues to have effect in respect of all the remaining persons on the licence. In practice, the Secretary of State would expect to consult the non-defaulting parties before exercising this power of partial revocation.

394.Subsection (5) of section 77 provides that the power of partial revocation only applies if the event happens after the relevant provisions of the Schedule come into force.

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