Oil and gas – guidance

Oil and gas: operatorship

How to gain approval from DECC as an operator for production or exploration on the UK Continental Shelf or as an onshore operator.

On 1st April 2015 certain functions passed from the Department of Energy and Climate Change (DECC) to the Oil and Gas Authority (OGA) a newly created Executive Agency of DECC

Overview

The appointment of an operator pursuant to a Petroleum Act licence requires prior approval by the Secretary of State. In almost all cases, application for Offshore Operator approval should be made through the Oil & Gas Portal’s licensing system (PEARS) which can process an application whether it is part of a Licence Assignment case or by itself. The two exceptions are the appointment of an Exploration Operator whilst awarding a new Production Licence, which is considered as part of the award, and that of a Production Operator at the time that the OGA approves a new Field Development Plan, when operatorship is considered together with the FDP. Onshore Operator approval is still handled via email

Anyone wishing to discuss a particular case, and the criteria that the OGA will apply, should contact:

Selling/reassignment

When Production Operatorship is to be transferred (sold or assigned to a new operator) it is necessary to transfer to the new operator all relevant environmental applications, permits, etc relating to the facilities associated with that asset.

For further information on Environmental aspects relating to Change of Operator or Asset Transfer please contact Environmental Management Team emt@decc.gsi.gov.uk

Offshore Environment Unit operator split

The spreadsheet below has been compiled to show the allocation of operators among the Environmental Management Team, Offshore Environmental Inspectorate, and Offshore Decommissioning. It also offers relevant email contact details.

Operator approval

Under the Model Clauses attached to each licence, operators cannot be appointed except with the prior approval of the Secretary of State.

Operator approval relates only to a company’s competence and does not confer any permission to carry out actual activities such as drilling, seismic surveys, or field developments. It is specific to the licence under which it is given and each case is considered on its own merits. Approval of a company to operate a field does not cover any other operations and should not be taken to mean that further operator approvals will be rubber-stamped.

There are 2 types of operator:

  • exploration operator: organises/supervises the licence group’s exploration activities (which in this context essentially means exploration and appraisal drilling), but would need further approval as a production operator to begin production.
  • production operators: organises/supervises the licence group’s exploration and production activities.

Generally, there will be a Production Operator associated with each producing field, and the operators everywhere else will be approved as Exploration Operators.

The OGA will normally expect the operator to be a member of the licence group. Most of the OGA’s dealings with a licence group will be addressed to the operator, but some (notably the rental invoices) will be addressed to a ‘licence administrator’. The same company often acts as both licence administrator and operator, but this does not have to be the case. The licence administrator is sometimes misleadingly called licence operator, but that’s a misnomer – a licence group needs no approval to nominate its licence administrator and no competence has to be demonstrated.

Form of approval

Approval covers a specific piece of acreage (in the case of production operatorship, a specified field). It relates only to the operator’s competence and confers no permission to drill; for example, a separate well consent is still required for each well.

Health and safety

Since the Offshore Safety Act 1992, health and safety has not been a factor the OGA checks when considering the competence of an operator; it is now wholly the responsibility of the Health and Safety Executive.

Onshore operators

The licence requires the use of “good oilfield practice”. Licensees and operators are encouraged to be a member of the UK Onshore Operators Group, who have worked with the OGA and other regulators to publish shale gas well guidelines which contain what is considered to be good industry practice and reference the relevant legislation, standards and practices.

The onshore sector differs from the offshore in that the OGA has no responsibility for onshore environmental legislation. Responsibility for this lies with the Environment Agency, Natural Resources Wales, Scottish Environment Protection Agency and the local mineral planning authority.

Operator Competence Requirements

In considering any request for operatorship, the OGA will look at the competence of the company – more specifically the following factors: technical experience and capability to supervise, manage and undertake the proposed operation, their risk-assessment and hierarchy of decision-making, plans for public engagement and scope of relevant insurance coverage for operations and well abandonment activity. In some cases, the OGA may request independent verification.

There is no fixed amount of information the OGA requires to be satisfied of a proposed operator’s competence. Unconventional gas and oil activity will require more detail than conventional activity. Clearly a new entrant or small company with little onshore experience should expect to come under greater scrutiny and will have to provide more information than an established onshore operator with a good record. . Introduction of new technologies by the operator or their contractors will require more information.

Checklist of information required for Onshore Operators

Below is a checklist outlining the information the OGA requires for Unconventional Gas and Oil activity. Parts may not be relevant for conventional oil and gas or vent gas operations. Contact Toni Harvey with any questions.

Company details

  • UK Registered name, address and company number
  • UK places of business – addresses, contact email and telephone numbers
  • Website address and, during operations, a 24-hr telephone response line for members of the public
  • Identify primary contact for the OGA and accountable Board member (email and telephone numbers)

Previous operating experience

  • Details of previous experience of supervising or carrying out unconventional drilling operations within the past two years including location and description of the company’s responsibilities for those operations
  • Details of unconventional production within the past five years including location and description of the company’s development responsibilities
  • Details of the proposed operator’s relevant crisis management and public engagement experience
  • Track record of sub-contractors proposed for the development and audit plan for subcontractors

Management Structure and Strategy

  • Corporate governance including names of the Board of Directors and Management Team and reporting roles
  • Organisational chart noting role, location and identifying use of contractors
  • Summary of approach to risk-assessment and hierarchy of decision-making for wellsite and production operations
  • Monitoring and crisis management plan
  • Community engagement plan
  • Summary of environmental risk management and potential impacts and assessments that would have to be managed during execution of the proposed work

People

  • Provide CVs of the key personnel involved in decision-making, including their previous experience and the basis on which they are employed (e.g. part-time or contracted)
  • Identify primary individuals responsible in key roles including geotechnical, health and safety, interaction with Local Planning Authorities, public engagement, environmental and drilling expertise describing which skills exist in-house and those that are contracted.

Use of contractors

  • List areas of technical assessment or drilling management activity to be outsourced to contractors, and the name(s)of contractor(s) and contact information. Note that Operators must retain overall responsibility and cannot subcontract their risk management responsibility.
  • Description of operator’s relationship with the contractor (who is responsible for what, and who makes the decisions? Who will monitor and supervise the contractors? In particular, what arrangements are in place to deal with any unexpected incident?)

Hydraulic Fracturing (if planned)

Provide a scoping plan for robust and comprehensive design and monitoring procedures to mitigate against frac-induced seismicity and to monitor fracture growth which integrate all emerging evidence to ensure that fracking is safe, well integrity is monitored and that the local environment is protected. A detailed Hydraulic Fracture Programme to address the risk factors for each well is required as part of the application for well consent. See the UKOOG shale gas well guidelines for detail.

Insurance

In considering any request for operatorship, The OGA will look at the scope of relevant insurance coverage.

Finance

There are no specific financial criteria for operators other than those applied by the OGA to operators in their capacity as licensee. Financial viability and capacity checks are made for any new licensee. The OGA must be confident that any company is likely to continue in sound financial health for the foreseeable future, and the company must demonstrate that it has access to sufficient funds to pay for its share of all the elements of the proposed Work Programme (whether those elements are Firm or “Drill-or-Drop” commitments). Contact Nic Rogers or see Criteria To Become A Licensee. for more information

Offshore operators

An Exploration Operator is the company that carries out the various exploration operations under a production licence on behalf of the licence group. For these purposes ‘exploration’ essentially means the drilling of exploration and/or appraisal wells. It does not include production of hydrocarbons or the drilling of development wells. Usually the operator is one of the companies on the licence. The licence group will select the operator, but the Model Clauses attached to each licence provide that the choice must be approved by the Secretary of State. Additional information on The OGA’s requirements in considering requests for approval as an Exploration Operator are set out below.

To drill development wells or develop/produce a field, a company needs to be approved as a Production Operator. Additional information on the Department’s requirements for Production Operatorship can be found in Appendix 8 of the Field Development Guidance Notes (below) and on the Process for Oil and Gas Field Development Plans Page.

Requirements for exploration operators

In considering any request for exploration operatorship, The OGA will look at the management governance structure, systems and technical competence of the company to plan and perform offshore operations, and its capacity to ensure environmental protection. More specifically we will look for the following factors:

  • capability to plan, supervise, manage and undertake the proposed exploration operationsm including interfaces with contractors
  • arrangements for pollution liability
  • details of the management of environmental responsibilities (including the company’s environmental policy and environmental management system (EMS)
  • details of past record of compliance with environmental legislation
  • insurance coverage

There is no fixed amount of information the OGA requires to be satisfied of a proposed operator’s competence. Clearly a very small company with little experience should expect to come under greater scrutiny and have to provide more information than an established operator with a good record. Where the company has limited experience of planning, organising or supervising activity, we will require a detailed understanding of the operator-contractor relationship and the in-house management responsibilities and control of the contracted support.

Checklist of information required for Offshore Operators

Below is a checklist outlining the information the OGA will require. We are happy to answer requests for guidance, particularly in the case of a company new to operations in the UK. Contact the OGA’s Head of Exploration, Jen Brzozowska, on 0300 068 6030 or at jen.brzozowska@oga.gsi.gov.uk with technical questions, or the Environmental Management Team on 01224 254145 or at emt@decc.gsi.gov.uk with environmental questions.

Company details

  • registered name, address and company number
  • main UK place of business
  • contact details: telephone number, fax, email address and 24-hour emergency contact number

Previous operating experience

  • details of previous experience of supervising or carrying out drilling operations within the past two years: location and description of the proposed operator’s responsibilities for the operations
  • in-house governance and management structure, geotechnical and drilling management expertise:
  • lists of (a) the skills that exist in-house and (b) the skills to be contracted
  • list of the key personnel involved in decision-making, including their previous experience and the basis on which they are employed
  • description and chart showing the management structure (including interfaces with contractors), hierarchy of decision-making responsibilities, and key contact point in an emergency

Environment

  • details of proposed pollution liability arrangements (this could be evidence the proposed operator of a licence has registered, or intends to register, its operatorship with the Offshore Pollution Liability Association Ltd (OPOL).
  • details of the company’s environmental policy, including any environmental policy and environmental management statements
  • a description of the company’s management structure (directors/managers/personnel), identifying specific responsibilities for environmental issues up to and including board level (an organisation chart is the best way to summarise the responsibilities)
  • details of the company’s environmental management system, i.e. in-house, ISO 14001 or EMAS, which must take account of DECC requirements in relation to securing compliance with OSPAR Recommendation 2003/5. Where an EMS has not yet been independently verified in accordance with DECC EMS guidance, the applicant must commit to complying with requirements before any offshore operations take place
  • details of the proposed operator’s environmental experience working in (a) similar environments to the UKCS and (b) other relevant operations
  • a brief ‘high-level’ or summary environmental assessment to demonstrate the company is aware of sensitivities in the area within, and immediately adjacent to, the acreage of interest, and of the potential impacts that would have to be managed during execution of the proposed work

Use of contractors

  • name(s) of contractor(s)
  • list of the areas of drilling management activity to be outsourced to contractors
  • description of operator’s relationship with the contractor (who is responsible for what, and who makes the decisions? Who will monitor and supervise the contractors? In particular, what arrangements are in place to deal with an emergency?)
  • details of contractor’s experience of planning and/or drilling wells, especially where relevant to the operations currently proposed (e.g. High Pressure High Temperature or deep water)

 Proposed operator’s presence during drilling operations

  • written confirmation that at least one qualified representative from the proposed operator will be present, usually in the UK, for the duration of drilling operations

Insurance

  • list of the contingencies covered by insurance