House of Commons - Explanatory Note

Energy Bill - continued	House of Commons

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COMMENTARY ON CLAUSES

Clause 70: Information about decommissioning of wells

323. This clause inserts a new section 45A at the beginning of Part 5 of the 1998 Act.

New section 45A: Abandoned wells

324. Section 45A gives the Secretary of State a power to require a person who has drilled or started drilling a well to provide information about that person's financial affairs within a specified period of time. The clause also allows the Secretary of State, under certain circumstances defined below, to require the person to take specified action. The relevant wells are those drilled pursuant to a petroleum licence (defined in subsection (9) as a licence under section 2 of the Petroleum (Production) Act 1934, or section 3 of the Petroleum Act 1998) or a licence under clause 3 of the Bill (gas storage and unloading licences).

325. Subsection (2) gives the Secretary of State a power to issue a notice requiring a person to provide specified information or documents relating to their financial affairs. Subsection (3) provides that this notice must specify the time allowed for this information to be provided.

326. Subsection (4) sets out the circumstances in which a further notice can be given under subsection (5); that is where:

having received the information or documents requested in the original notice (the notice given under subsection (2)), the Secretary of State is not satisfied that the person will be capable of plugging and abandoning a well; or

a person has failed to provide the information or documents requested in the original notice, within the specified period.

327. Subsection (5) provides a power for the Secretary of State, after consulting the Treasury, to give a person a notice setting out the action that person must take within the specified period. By implication, such action may include the provision of financial security for the purpose of ensuring that a person will be capable of plugging and abandoning a well when required to do so by the terms of a licence.

328. Before giving a notice to a person under subsection (5), subsection (6) requires that the Secretary of State gives that person an opportunity to make written representations as to whether such a notice should be given.

329. Subsection (7) makes it an offence for a person to fail to comply with a notice issued under either subsection (2) or subsection (5), unless that person can prove he exercised due diligence to avoid the failure.

330. Subsection (8) provides that a person found guilty of this offence 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); and

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

331. Subsection (9) applies section 41 of the 1998 Act (apart from subsection (5)) in relation to prosecutions for offences under this section. Section 41 of the 1998 Act provides that:

in England and Wales, proceedings may only be instituted by the Secretary of State (or a person authorised by the Secretary of State) or by the Director of Public Prosecutions (or with the consent of the Director of Public Prosecutions); and in Northern Ireland, proceedings cannot be instituted except by the Secretary of State (or by a person authorised by the Secretary of State) or by the Director of Public Prosecutions for Northern Ireland (or with the consent of the Director of Public Prosecutions for Northern Ireland);

where an offence committed by a body corporate is proved to have been committed with the consent or connivance of, or is attributable to any neglect

on the part of, any director, manager, secretary, or other similar officer of the body corporate (or any person purporting to act in any such capacity) that person will also be liable to be prosecuted and punished accordingly; and

where the affairs of a body corporate are managed by its members, and an offence committed by such a body corporate is proved to have been committed with the consent or connivance of, or is attributable to any neglect on behalf of, such a member in connection with that member's functions of management, such a member will be liable to be prosecuted and punished as if the member were the director of the body corporate.

PART 4: PROVISIONS RELATING TO OIL AND GAS

PETROLEUM LICENSING

SUMMARY AND BACKGROUND

332. Clause 71 makes amendments to Part 1 of the Petroleum Act 1998 (the "1998 Act") (which concerns the licensing of petroleum exploration and extraction). These amendments will give the Secretary of State new powers relating to the unconsented transfer of rights or benefits under petroleum licences. Clause 72 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.

333. Certain provisions of this element of the Bill may engage Article 1 of the First Protocol to the ECHR because they amend existing petroleum licences. However, the Secretary of State considers that the provisions strike the right balance between the demands of the public interest and the requirements of the protection of the individual's fundamental rights.

334. Certain provisions of this element may also involve what is likely to amount to a determination of a person's civil rights and obligations, and consequently engage Article 6(1) of the ECHR; but the Secretary of State considers that the remedies available will provide an adequate safeguard of any rights that may arise under Article 6(1).

335. This element of the Bill also includes a reverse burden defence; such defences can engage Article 6(2) (presumption of innocence). In this case the Secretary of State considers that the provision is compatible with the ECHR. Finally, certain provisions may engage Article 8 of the ECHR (privacy) but the Secretary of State considers these to pursue a legitimate aim and to be proportionate. Moreover, information received from a company pursuant to these powers is protected from onward disclosure, except in certain limited circumstances, by a criminal offence provision.

COMMENTARY ON CLAUSES

Clause71: Transfers without the consent of the Secretary of State

336. 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.

337. This clause 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

338. 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)).

339. 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.

340. 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

341. 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.

342. 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.

343. Under subsection (4), a person commits an offence if they disclose 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.

344. 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.

345. 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

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

347. 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.

348. 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.

349. 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.

Clause 72: Model clauses of petroleum licences & Schedule 3: Petroleum Licences: Amendments to Model Clauses

350. This clause, 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 clause amends all existing licences that contain the relevant model clauses we are amending (as set out in the Schedule).

351. 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 clause and Schedule, the Secretary of State and the licensee may nevertheless agree to alter or delete the provisions by deed.

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

Provision of contact details to Minister

353. 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.

354. 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

355. 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.

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

357. Subsection (4) of clause 72 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

358. 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.

359. 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.

360. Subsection (5) of clause 72 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

361. 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.

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

363. 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.

364. Subsection (5) of clause 72 provides that the power of partial revocation only applies if the event happens after the relevant provisions of the Schedule come into force.

THIRD PARTY ACCESS

SUMMARY AND BACKGROUND

365. The Government considers that access to infrastructure on fair and reasonable terms is crucial to maximising the economic recovery of the UK's oil and, particularly, gas. This is because many fields on the UK Continental Shelf (UKCS) and in the territorial sea do not contain sufficient reserves to justify their own infrastructure, but are economic as satellite developments utilising existing infrastructure.

366. There is a voluntary "Infrastructure Code of Practice" (The Code of Practice on Access to Upstream Oil and Gas Infrastructure on the UK Continental Shelf) which sets out principles and procedures to guide all those involved in negotiating third-party access to oil and gas infrastructure on the UK Continental Shelf. There is existing legislation in the Acts listed below under which, if a third party is unable to agree satisfactory terms of access with the owner of most upstream infrastructure, the third party seeking such access can - and under the terms of the Infrastructure Code of Practice is obliged to - make an application to the Secretary of State to decide whether access should be granted and, if so, on what terms:

The Pipe-lines Act 1962 (c.58)

The Gas Act 1995 (c.45)

The Petroleum Act 1998 (c.17)

367. In the existing regulatory framework there are gaps in the coverage of the Secretary of State's powers to determine third party access that mean some parts of the upstream petroleum infrastructure are not covered. "Upstream infrastructure" refers to infrastructure relating to the production of oil and gas including transportation and processing required to get it into a saleable state. Downstream infrastructure refers to facilities such as oil refineries and the distribution and storage network required to get oil products and gas to consumers. Gaps in the legislation exist, for example, in relation to access to oil processing facilities, certain gas processing facilities and services associated with pipelines. This means that a party seeking access to all links in the chain of the infrastructure would currently be able to ask the Secretary of State to determine a dispute over only certain parts of it. The legislation can only be wholly effective as a backstop if it covers the entire range of upstream infrastructure. If it did so, the Secretary of State would be able to be a more effective arbiter in situations where interested parties cannot reach commercial agreement.

368. The Bill extends the existing regime so that, if he is requested to intervene in the case of disputes over third party access, the Secretary of State will have the power to determine third party access rights to all upstream petroleum infrastructure.

369. These clauses potentially engage several of the Articles of the ECHR. Certain of the provisions involve what is likely to amount to a determination of a person's civil rights and obligations, and consequently engage Article 6(1) of the ECHR. The Secretary of State considers that the availability of procedural protections within the clauses (such as the granting of a hearing), and the remedies available through judicial review provide a safeguard of any rights that may arise under Article 6(1).

370. This element also contains an offence which carries a reverse burden defence of "due diligence". Although such defences engage Article 6(2) of the ECHR (presumption of innocence), since they place a legal burden of proof on the defendant, in this case the Secretary of State is satisfied that the burden is fair and proportionate, and that the provisions are compatible with the ECHR

371. Certain of the provisions may also engage Article 8(1) of the ECHR (privacy). However, the provisions of Article 8(2) provide scope for justifying infringements of Article 8(1) and the Secretary of State considers that any infringement of Article 8(1) is proportionate and justified in this instance.

372. Finally, because this element of the Bill deals with third party access to upstream petroleum infrastructure (and modification of pipe-lines) which is privately owned, it engages Article 1 of the First Protocol of the ECHR (protection of property). However, since the powers of the Secretary of State to determine access are based on resolving disputes where the parties have been unable to agree access on commercial terms among themselves first, the Secretary of State considers that any infringement is proportionate in this instance. Moreover, the Secretary of State believes that it is justified due to the public interest in having natural oil and gas resources exploited fully through use of the existing upstream petroleum infrastructure.

COMMENTARY ON CLAUSES

Clause 73: Third party access to infrastructure

373. This clause extends the scope of definitions in the existing legislation, so that parts of the upstream petroleum infrastructure not currently covered by the third party access regulatory regime are brought within their scope.

374. Subsection (1) amends section 66(1) of the Pipe-lines Act 1962 (c.58) (interpretation) to expand the definitions of:

"Gas processing operation" to include separating, purifying, blending, odorising or compressing gas to convert it into a form in which a purchaser is willing to accept delivery from a seller, or to enable the gas to be delivered to another place either inside or outside Great Britain. The expanded definition also covers the loading of gas for the purpose of enabling the processed gas to be transported to another place (whether inside or outside Great Britain) either at a facility carrying out gas processing operations (as described above) or where the gas has been piped from such a facility.

"Terminal" to include oil processing facilities (oil processing facilities are defined at clause 76)

"Upstream petroleum pipe-line" to include apparatus, works and services that are associated with the operation of a pipe-line or network. As a result, the new definition captures services used for operating upstream petroleum pipelines which are not currently part of the third party access regulatory regime.

The effect of the expanded definitions is to increase the scope of the Secretary of State's powers over third party access to upstream petroleum pipe-lines provided by section 10E of the Pipe-lines Act 1962 (c58).

375. Subsection (2) amends subsection (6) of section 12 of the Gas Act 1995 (c.45) (acquisition of rights to use gas processing facilities) to expand the definition of:

"Gas processing operation" to include separating, purifying, blending, odorising or compressing gas to convert it into a form in which a purchaser is willing to accept delivery from a seller, or to enable the gas to be delivered to another place either inside or outside Great Britain. The expanded definition also covers the loading of gas for the purpose of enabling the processed gas to be transported to another place (whether inside or outside Great Britain) either at a facility carrying out gas processing operations (as described above) or where the gas has been piped from such a facility.

376. Subsection (2) also amends subsection (7) of section 12 of the Gas Act 1995 to expand the definition of

"Associate" to bring it in line with the new provisions covering third party access to oil processing facilities in this Bill. The definition of associate is set out in clause 77 and is explained in the detailed commentary to that clause. These changes ensure the definition of associate is consistent across the whole of the third party access regime for upstream petroleum infrastructure.

The effect of the expanded definitions is to increase the scope of the Secretary of State's powers over third party access to gas processing facilities under section 12 of the Gas Act 1995 (c 45).

377. Subsections (3) and (4) amend sections 26 and 28 of the Petroleum Act 1998 (c.17) respectively. Subsection (3) amends section 26 ("meaning of pipeline") so as to expand the scope of the definition of a pipe-line to include services (for example the provision of fuel or power needed to operate third party equipment on or from the host facility) as well as the apparatus and works associated with a pipe-line.

378. Subsection (4) amends section 28 (interpretation of Part 3) in two ways, expanding the definitions of:

"Gas processing operation" so as to bring it into line with the changes in the Pipe-lines Act 1962 and the Gas Act 1995 described above, i.e. to include separating, purifying, blending, odorising or compressing gas to convert it into a form in which a purchaser is willing to accept delivery from a seller, or to enable the gas to be delivered to another place either inside or outside Great Britain. The expanded definition also covers the loading of gas for the purpose of enabling the processed gas to be transported to another place whether inside or outside Great Britain, either at a facility carrying out gas processing operations (as described above) or where the gas has been piped from such a facility.

"Terminal" to include oil processing facilities (oil processing facilities are defined at subsection (4)(b)).

The effect of the expanded definitions is to increase the scope of the Secretary of State's powers over third party access to controlled petroleum pipelines under section 17F of the Petroleum Act 1998.

Prepared: 14 January 2008