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UK Petroleum Licence Judicial Review: Landmark judgment of 14 August 2017 stands

  • United Kingdom
  • Energy and infrastructure

18-04-2018

On 3 April 2018, the Court of Appeal refused permission to appeal against the High Court’s decision bringing an end to a judicial review of the lawful authority of the Secretary of State for Business, Energy and Industrial Strategy (the “Secretary”) to vary the terms of an existing UK Petroleum Licence (“Licence”) granted pursuant to the Petroleum Act 1998 (the “1998 Act”). The Court of Appeal decision reinforces support for the established practices regarding the administration of UK Petroleum Licences.

Background 

On 15 December 2016, the UK High Court granted permission to proceed for a judicial review on this matter. On 14 August 2017, a full judgment was handed down by the Hon. Mr Justice Holgate in the Queen’s Bench Division of the High Court. Under review was the practice of the Secretary to agree with Licensees' changes to the terms of their individual Licences. One such change is to extend the initial term of a Licence (but without extending the overall term) to give a Licensee more time to appraise its acreage. This practice has been commonplace in recent years, both onshore and offshore. It was noted that in 2016 alone 178 variations were agreed to onshore and offshore Licences, including 49 variations to the length of the initial term.


The High Court ruling over the substantive issues

The court stated that a Licence granted under the 1998 Act was contractual in nature. In reaching his conclusion, the judge stated that a Licence granted exclusive property rights in relation to the licensed area and was capable of being varied by agreement between the parties after the grant. The judge then went on to consider the argument put forward by the Claimant that the 1998 Act and accompanying regulations set out a complete and comprehensive statutory code that could not be departed from. Counsel for both parties had already accepted that the Secretary has an express power to modify or exclude the application of the published model clauses on the grant of any particular Licence. The difference between counsel for the Claimant and the Secretary was whether the absence of an express right within the statutory regime to vary Licences after grant prevented the Secretary from agreeing any variation to the Licence which is not specifically contemplated in the Licence terms. The judgment was clear in its conclusion that there is nothing in the 1998 Act to indicate that a Licence may not be varied subsequently by agreement. However, the ability to vary the Licence is not without limits. It was expressly stated that where, in the legislation, there is an express prohibition on a particular variation then there would be no power to make such variation by agreement with the Licensee.


Significance of the Court of Appeal’s decision

As per Lord Justice Sales, the High Court’s earlier judgment was “careful and thorough” and “it discloses no arguable error of law”. The refusal of permission to appeal put to rest the possibility of re-opening of large numbers of previous variations to Licence terms in both the onshore and offshore space in the UK, and will hopefully be a comfort to those within the industry who prior to the decision were in the process of amending, or were considering an approach to the Oil and Gas Authority for an amendment of, their Licence terms.

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