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LEGAL & FINANCE
Oil & gas sector braced for UK Government's new review powers for M&A deals The UK's new National Security & Investment Act will come into force from 4 January 2022. It has significant implications for the oil & gas sector, in which many deals could become subject to a mandatory UK Government approval process before the transaction can complete. This date also marks the commencement of the Government's power to 'call in' for review other deals, including asset deals and deals completed on or after 12 November 2020, that it reasonably suspects may create a national security risk. Under the Act, investments in entities operating in 17 key sectors (including energy) will have to be notified to and approved by the Government where the investor acquires:
• 25%, 50% or 75% of the shares or voting rights (with a fresh obligation for each threshold); or
• the ability to pass or block any class of resolution. A qualifying deal that is completed without approval will be void, with those involved exposed to civil and criminal penalties. There are no de minimis target turnover or deal value thresholds. The Government has published draft regulations defining the entities within scope in those 17 key sectors. For energy, the notification obligation will apply to a target that (among other things):
• is an owner, operator, licensor or developer
of an upstream petroleum facility (terminals, pipelines and infrastructure), where the relevant facility had a throughput of 3m tonnes of
oil equivalent over the preceding 12 calendar months (or, for a new facility, is expected to reach that within its first 12 months) and is (or will be) "situated in whole or in part in the [UK]; or used in connection with the supply of petroleum to persons in the [UK]";
• owns or operates an onshore LNG import and export facility or gas processing facility in Great Britain, where the facility has the capacity to handle more than six million cubic metres of gas per day; • is licensed to transport gas or operate gas interconnectors; or
acquirer; the sensitivity of the target asset or entity; and the level of control to be acquired. The guidance says the Government is most likely to call in deals closely connected with the sectors to which mandatory notification applies. This is particularly relevant to the oil & gas sector given the prevalence of asset deals, which may be most at risk of being called in (and potentially unwound) where the deal would have to be notified if it involved acquisition of a company that owned the asset.
• is involved in the UK supply chain for
petroleum-based road, aviation or heating fuels (including liquefied petroleum gas), where the target handled more than 500,000 tonnes per year, or owns a facility that handled more than 50,000 tonnes per year, in one of the previous three years.
Parties can already informally engage with the Government's new Investment Security Unit (ISU) if their deal might otherwise attract attention once the Act comes into force, with some making deals conditional on the ISU providing sufficient comfort that the deal will not be called in after 4 January.
The Government has also published guidance on the 'call-in' power, which can be used for essentially any deal up to five years after completion – or six months from the Government becoming aware of it. Risk factors will include the identity of the
Anyone contemplating, or in the process of, acquiring companies or assets active in the UK oil & gas sector should seek specialist assistance with this new and complex regime.
Is fossil fuel use a legal or political issue? Climate change litigation continues to dominate the legal headlines, as increasing numbers of claims seeking to hold governments and companies to account for their climate change commitments are pursued. However, as demonstrated by the recent case of Greenpeace Ltd v The Advocate General, not all courts consider the effects of fossil fuel use to be a legal issue. In this case, Greenpeace appealed to the Scottish Court of Session against the decision made by the secretary of state for business, energy and industrial strategy (the SoS) and the Oil and Gas Authority (OGA) to grant BP Exploration Operating Company Ltd and Ithaca Energy (UK) Ltd consent for two new production wells in the Vorlich oil field in the North Sea. The OGA had granted consent under section 3(1) of the Petroleum Act 1998, following a decision by the SoS that consent could be granted under regulation 5(A1) of the Offshore Petroleum Production and Pipelines (Assessment of Environmental Effects) Regulations 1999 (the 1999 regulations).
www.ogv.energy I December 2021
Greenpeace originally sought to have the OGA’s decision reviewed in the High Court in London, alleging that, in deciding to approve the granting of consent, the SoS had failed to take into account the effect of the consumption of the oil on the UK’s carbon budget and its contribution to climate change. However, the High Court refused permission for judicial review, so Greenpeace then lodged an appeal against the consent and a parallel petition for judicial review in Scotland. Permission for judicial review was also refused by the Scottish Court of Session, but the appeal proceeded. The appeal was primarily raised on certain technical grounds that the notice requirements pursuant to the 1999 regulations had not been complied with, such that the public had been deprived of their right to make representations opposing the consent and were consequently prejudiced. But the real heart of Greenpeace’s case was that, when granting consent, the SoS and the OGA had failed to take into account the impact of the consumption of the oil that would be produced from the Vorlich field by end-users.
The Court of Session firmly rejected the appeal on both grounds. It largely accepted the submissions by the SoS and the OGA that the procedural publication formalities of awarding a permit pursuant to the 1999 regulations were ‘substantially met’ and held that Greenpeace’s case was ‘overwhelmingly technical and unconvincing’. Further, it rejected the argument that end-user consumption of oil and gas is a relevant consideration when deciding whether to award a permit for a fossil fuel extraction project.
