Objection Overruled- But what next?

Vanessa Castillo, Senior Solicitor

Objection Overruled – but what next?

The recent judicial review of the OGA Strategy has been dismissed on all grounds but the judgement still leaves the door open for future objections to be raised. What were the key points of the judgement and which areas might oil and gas companies need to focus on to ensure they minimise the risk of being challenged in the future?

The challenge

In May 2021, three campaigners, under the group 'Paid to Pollute', challenged the OGA Strategy through a judicial review on two grounds:

• First, that the inclusion in the strategy of the definition of "economically recoverable" frustrates the purpose of "maximising the economic recovery of UK petroleum". Particularly, the claimants argued that the exclusion of any reference to the tax breaks available to oil & gas companies in the definition of "economic recoverability", in the OGA Strategy demonstrated a failure by the OGA to identify that the OGA itself is not maximising the revenue available from taxing the industry. This failing was then not economically beneficial to the UK as a whole and is, consequently, unlawful.

• Second, that the adoption and application of the OGA Strategy was irrational in light of the UK's net-zero target.

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The decision

On 18 January 2022 the application was dismissed on all grounds.

In respect of the first claim, the Court held that it was unlikely that Parliament intended the Court, and not the expert regulator, to determine the best method of economic assessment. Therefore, the definition of "economically recoverable" in the context of maximising economic recovery was a matter to be determined by the OGA. Additionally, the Court determined there was no error in the approach taken by the OGA given that the pre-tax methodology does maximise economic welfare and is in the interests of the UK as a whole.

On the second claim, the Court affirmed OGA’s position that the claim oversimplified the strategy and the OGA's economic assessment to the point of misunderstanding it, as the assessment to be performed does not necessarily result in maximised extraction: "relevant persons are obliged to maximise the expected net value of economically recoverable petroleum not the volume expected to be produced."

The Court also made several comments on deficiencies of the expert evidence provided by the campaigners. The Court considered that the evidence did not comply with the requirements of the Civil Procedure Rules and the statements failed to draw clear distinctions between facts and opinion.

What does this mean to the OGA and the oil & gas industry?

It is likely that campaigners will continue to utilise the courts to scrutinise the role of the government and the regulatory entities in the restriction of emissions by oil & gas companies, as well as potentially taking direct action against oil and gas companies.

While the Court dismissed the argument of the irrationality of the OGA Strategy in light of the UK's net-zero target. The consultation document issued by BEIS in December 2021, which looked at designing a climate compatibility checkpoint for future oil and gas licensing in the UKCS, reaffirms that OGA is seriously addressing concerns that continuing licensing may be incompatible with the UK's climate objectives, but that there needs to be an initiative to find solutions to this issue.

What should oil and gas companies do next?

Oil and gas companies need to ensure they are fully compliant with licence terms and environmental obligations. Vigilance in the application of their own policies and procedures in relation in relation to these terms is also more essential than ever before.

With the recent announcement that the UK is to recommence licensing, oil and gas companies should be ready for the even greater environmental scrutiny that will likely now be inherent in the next licensing round.