By Laura Petrie, Partner at Broadies
On Wednesday 9th June, a very significant milestone passed that many probably missed. After more than 135 years the UK's energy production hit the longest period ever recorded without using coal-fired power. The intention is for the last remaining coal-powered plants (of which there are three) to be either converted to gas or closed by the end of 2025.
It marks a key turning point in energy generation in the UK and also turns the focus on reducing the use of other fossil fuels. Against this milestone, the oil and gas industry also faces the after-effects of a pandemic, new proposed net-zero obligations to be included in the OGA's strategy for the industry and growing public attention on climate change and the activities of energy companies.
Accordingly, 'energy transition' and 'clean tech' are becoming the new internal slogans in boardrooms across the industry. Some companies are making these statements public, such as BP launching its net-zero 2050 campaign and publishing its aims and proposed delivery model to achieve this, while others are working more quietly to adopt amended strategies and develop new technologies.
In making these changes and perhaps altering the primary focus of the business, oil and gas organisations need to have regard to any funder or investor obligations that may exist. In some cases, a significant change in direction or adoption of a new business strategy will require approval or could cut across the terms of any loan arrangements, especially if the change is significant. Moreover, while general public perception of an oil and gas company will be vastly improved by the adoption of clean technology and reduced emissions, if focus is lost on the core business of oil and gas generation, investors may seek to liquidate their investment, especially if they had invested with the intention of building a specific type of portfolio. Equally, where new investment is required to achieve these new aims, the terms of such investment will require to be closely considered to ensure they align with existing and new strategies.
This anticipated shift of focus for operators and licensees will also have consequences for contractors and supply chain companies. From a shift in priorities and points awarded during tender processes to an expectation that more environmentally friendly solutions will be offered, contractors also need to be assessing the goods and services they provide against a net-zero and clean tech background. The Oil and Gas Technology Centre is already focussed on helping businesses develop in these areas and offers new solutions to the market for development, production and decommissioning phases.
It is likely that there will need to be a greater level of engagement and collaboration between the supply chain and operators in order to achieve the intended outcomes. Procurement methods may need to change in order to support such alternative contracting models. This will require bespoke contract drafting or, as a minimum, amendment to existing standard terms and conditions.
These changes across the industry also have significant implications for the workforce. More efficient technology can mean leaner workforces or the need for employees to diversify their skill sets. Improved training policies and regimes, amendments to employment contracts or, at worst, consultations and redundancies, all require careful legal consideration.
In the short-term, those engaged in the oil and gas industry should get involved in the OGA consultation relating to the introduction of net-zero obligations into the strategy.
Contributions from industry will help the OGA shape the guidance relating to the proposed amendments to the strategy and give clarity as to the roles of operators, licensees and the supply chain in achieving net-zero, whether through collaboration, investment or simply further engagement.
In the longer term, we all need to consider the place of oil and gas in the UK energy mix. Energy transition is happening now and early adoption of clean technology and more efficient processes will help keep oil and gas as a key part of that mix.
Read the latest issue of the OGV Energy magazine HERE.