Collaboration forms one of the core policy themes of MER UK: its importance was emphasised in the Wood Review and section 9A of the Petroleum Act 1998 (as amended) defines the “principal objective” as being the objective of maximising the economic recovery of UK petroleum, partly through “collaboration among [relevant] persons”. Since its inception, OGA has consistently emphasised the importance of collaboration as a key element of the new industry landscape. Following on from its “Competition and Collaboration” paper published in November last year, OGA has urged industry to “increase the pace at which licensees develop a culture of collaboration internally, and externally with existing joint venture (“JV”) partnerships and beyond” (its recent press release can be found here).
With a view to providing some practical assistance to companies in understanding how OGA intends to implement and assess progress on collaboration, OGA has published the SE-09 Collaboration Implementation Guide and associated Collaborative Behaviour Quantification Tool.
SE-09 Collaboration Implementation Guide
The SE-09 Collaboration Implementation Guide describes how licensees can seek to demonstrate fulfilment of OGA’s ninth Asset Stewardship Expectation. The Guide sets out indicative factors on which delivery of the Expectation ought to be assessed. The indicators fall under two broad headings: “Building a Culture of Collaboration” and “Utilising Collaborative Processes”.
To address the first category, OGA expects companies to be able to demonstrate the fostering of a culture of collaboration within their organisations and within their JVs. This may include providing evidence of senior leadership commitment to a culture of collaboration; organisational engagement, such as general training and awareness and specific training for Commercial Code of Practice Champions; and the regular assessment and review of opportunities to learn from and share with other parties.
The second branch is more prescriptive: OGA expects that, at least every two years, a JV will conduct and document an assessment of collaborative behaviour using a recognised ‘collaborative behaviour assessment tool’, such as OGA’s Collaborative Behaviour Quantification Tool (considered further below). The assessment should include an action plan for improving the poorest collaborative working areas, reflection on any assessment outcomes, and be completed under the auspices of the JV OpCom.
In addition, the Guidance re-iterates that licensees are expected to act in accordance with the voluntary codes of practice and charters to which they have signed up, including the Commercial Code of Practice (“CCoP”) and the Code of Practice on Access to Upstream Oil & Gas Infrastructure (“ICoP”). OGA may request evidence and examples of compliance with the relevant codes.
Collaborative Behaviour Quantification Tool
A key method of evidencing collaborative conduct will be through the use of a behavioural analysis tool – the Implementation Guide lists a number which OGA considers are suitable for this purpose.
One such tool, OGA’s own Collaborative Behaviour Quantification Tool (“CBQT”), was released on 20 April. It consists of a Guidance Note on how one might assess collaborative behaviours, along with Appendices on their scoring and examples of how this scoring output may look. Piloted with Chevron in Q4 2016, it is now expected that the collaborative behaviour assessment will be undertaken by operators and OGA every two years – beginning this year.
The Guidance Note describes the review process. A managing director (or equivalent) is expected to be accountable throughout, assisted by a team comprised of senior staff familiar with key aspects of the party’s UK business. In tandem, OGA will assemble its own team – “one that is familiar with the activities of the operator and/or has functional responsibility for the activities”. The operator and OGA appraisal teams will together agree a schedule for delivery of the assessment.
During the behavioural review itself, the focus is to be on evidence of the existence of collaborative behaviour, and not on evidence of processes that would otherwise support that behaviour. Operators are required to be familiar with eight critical behaviour areas outlined in the CBQT, listed as: reasonableness; alignment; learning behaviours; strategic behaviours; appropriate attitude to change; demonstrating respect; being accommodating; and being open. They are to score themselves against these traits, providing at least two examples to support each of the scores. Whilst the operator completes a self-assessment, OGA will undertake a similar exercise based on its experience of the operator. Both parties will score the behavioural areas from 1 to 5, with the baseline score of 3 indicating the presence of some of the desired behaviours, but inconsistency in their application. A half-day meeting will then be held to discuss the scores, consider the reasoning behind them, and identify discrepancies or different experiences. Scores may be adjusted as a result. OGA may request an operator to submit an improvement plan within six months of this review.
Collaboration through the likes of JV partnerships and areas of mutual interest has always been a part of business in the UK oil & gas industry but the more formal and codified nature of obligations arising from the MER UK Strategy is relatively new. In releasing the CBQT and SE-09 Collaboration Implementation Guide, OGA hopes to ensure real behavioural change. Its immediate focus appears to be on behaviours within JVs, although the Implementation Guide confirms that in future OGA may look to extend that to interactions between JVs and other organisations. In the meantime, JVs will be expected to implement detailed improvement plans that include allocation of budgets to activities designed to deliver the necessary improvements.
The SE-09 Guide describes the factors OGA will consider in assessing whether licensees are engaging in collaboration and therefore adhering to the Central Obligation of the MER UK Strategy. Although the Collaboration Expectation is not legally binding in itself, a failure to meet this Expectation may be considered a failure to comply with the MER UK Strategy, which in turn brings the risk of OGA-imposed sanctions. Of course, that assessment must always take account of the safeguards contained in the MER UK Strategy. Of particular relevance to the aim of more extensive collaboration is the check and balance of competition law. OGA is keen that competition considerations “should not be used as an excuse not to comply with the obligations set out in the MER UK Strategy, unless they are well-founded” (see its Competition & Collaboration guidance here) – but each licencee will need to consider each case carefully to ensure that it correctly balances its competition law and collaboration requirements.
Alongside its collaboration campaign, OGA has been working with the Oil & Gas UK Commercial Behaviours Work Group (now known as the “Commercial Managers’ Forum”). Specific initiatives being led by this group include the updated 2016 Commercial Code of Practice. The group is now looking to refresh the Infrastructure Code of Practice this year.
For more information on the OGA’s views on competition and collaboration, see our Law Now
For more on the Asset Stewardship Strategy and its counterpart Expectations, see our Law Now
For more on the updated 2016 Commercial Code of Practice see our Law Now