The North Sea Transition Authority (NSTA) has this week published updated guidance for licence assignments in the UK Continental Shelf (UKCS) (the Guidance). Developed following consultation with industry, the Guidance is aimed at streamlining the transfer of interests in UKCS production licences to avoid ‘transaction drag’.   

It sets out a series of “recommended principles and practices” designed to encourage parties to collaborate effectively to ensure transactions are completed promptly and without unnecessary delays, creating a more structured and efficient process and supporting ongoing industry consolidation. 

The due diligence required to fulfil the Guidance recommendations is unlikely, in theory, to ignite any additional material concerns for those involved in UKCS transactions, but rather aid them by presenting the necessary information to Consenting Parties in a manner that should make it difficult for consent to be withheld or unduly delayed. Whilst the Guidance is not legally binding, its purpose is to add structure to and speed up M&A transactions for the benefit of all parties, so resistance to adoption of the Guidelines is unlikely.

It should be noted that the Guidance does not cover the separate process for obtaining the NSTA’s consent to a proposed transfer. This remains under the existing, separate, procedure.

The key recommendations arising from the Guidance are:

• The early development of a Project Plan for transactions, ensuring clear timelines and resource allocation. Annex 1 to the Guidance sets out further details of the content and expected timeline for the Project Plan, but in brief it should identify:
  • any Consenting Parties. 
  • the roles and responsibilities of each of the Buyer and Seller, 
  • any identified risks to the successful completion of the transfer and how those risks are to be mitigated, and
  • the resources needed to implement the Project Plan efficiently and effectively.
• Creation of a Capability Pack by the Buyer and Seller to be provided to any Consenting Parties to the transfer, as part of the initial stage of any request for consent. The Capability Pack should include details of the proposed Buyer’s corporate, financial and technical capabilities to enable the Consenting Parties’ assessment of the proposed transfer.
• An expectation that in most cases a field-wide decommissioning security agreement (DSA) will exist and, if it doesn’t, that the parties will be expected to have made a determined effort to put one in place as an initial step in the proposed transaction (or provide an explanation as to why this is not possible).
• Open, constructive communication during negotiations to avoid delays.

The emphasis on the financial robustness of proposed Buyers, as well as their technical and operational capabilities, may also attract more responsible investment, especially from entities looking to contribute to long-term energy sustainability.