Thornton, R (On the Application Of) v Oil and Gas Authority

A regulator’s statutory duty to have regard to the need to minimise public expenditure does not necessarily impose a duty to secure that private operators meet decommissioning liabilities. The duty is satisfied where the regulator identifies the risk of public expenditure, reports it appropriately, and takes it into account in the relevant decision. Where published guidance requires consideration of the financial capability of both parties to a transaction, that requirement must be addressed according to the circumstances of the case. A decision-maker is entitled to determine the manner and intensity of inquiry into relevant factors unless no reasonable decision-maker could regard the inquiry as sufficient.

The claimant sought judicial review of the Oil and Gas Authority’s decision to provide a letter of comfort concerning a change of control involving Third Energy’s licence-holding business. The transaction released existing security relevant to decommissioning liabilities and involved a newly incorporated purchaser. The claimant alleged that the Authority had misinterpreted Model Clauses 40 and 41, failed to assess the financial capability of both parties, failed to undertake all required aspects of its financial capability assessment, and failed to have regard to the risk that decommissioning costs might fall on the public purse.

The hearing was a rolled-up hearing addressing both permission and the substantive claim.

1. Permission and outcome. Permission to bring the judicial review was refused because none of the proposed grounds was made out.
2. Model Clauses 40 and 41. Model Clause 40 regulates acts by the licensee dealing with rights under the licence, petroleum, or proceeds of petroleum. A change of control does not, merely by the acquisition of the licensee or its parent, involve the licensee doing anything. The licensee is the subject of the acquisition rather than the actor. Change of control is addressed by the revocation power in Model Clause 41(3). The two clauses are related, since breach of Model Clause 40 may engage Model Clause 41(2)(b), but Model Clause 40 does not require consent to every change of control. The statutory policy in section 8 of the Energy Act 2016 could not expand clear wording.
3. Financial capability guidance. The published guidance required consideration of the financial capability of both parties to the transaction. It was not confined to a company disposing of some, but not all, of its licences. The Authority nevertheless considered the relevant comparison, including the position before and after the sale and the risk that continued funding might cease.
4. Intensity of inquiry. For a newly incorporated applicant, the guidance did not invariably require verification of directors’ résumés or further investigation. The appropriate manner and intensity of inquiry was for the decision-maker, subject to the standard identified in R (Khatun and Others) v Newham LBC [2004] EWCA Civ 55; [2005] QB 37. The challenge did not approach the threshold for intervention.
5. Public expenditure and decommissioning. Section 8 required the Authority to have regard to the need to minimise public expenditure relating to activities within its functions. The Authority expressly identified the foreseeable risk that decommissioning costs might not be met, reported that risk to the Department, and considered it in deciding whether to issue the letter of comfort. That was sufficient. The Authority was not shown to have a separate duty to secure completion of onshore decommissioning or payment of private decommissioning liabilities. An imperfect statement that the statutory duty was not directly engaged did not invalidate the decision when read in context.

not stated in the judgment.