Licensee criteria

We believe we can ensure economic recovery, whilst supporting the drive to net zero carbon by 2050, by having a diverse mix of companies involved in the UKCS – from super majors to mid-cap businesses to small, niche players.

As production licences confer exclusive rights, all the appropriate technical and financial capacity to contribute to the delivery of economic recovery, whilst supporting the drive to net zero carbon by 2050, is an important criterion for the acceptability of a company to be a licensee. In addition, there are other requirements of licensees such as the establishment of a tax base, finance, residence and organisational structure and for offshore licensees there are safety and environmental capability requirements under the Offshore Petroleum Licensing (Offshore Safety Directive) Regulations 2015.

We believe we can ensure economic recovery, whilst supporting the drive to net zero carbon by 2050, by having a diverse mix of companies involved in the UKCS – from super majors to mid-cap businesses to small, niche players.

As production licences confer exclusive rights, all the appropriate technical and financial capacity to contribute to the delivery of economic recovery, whilst supporting the drive to net zero carbon by 2050, is an important criterion for the acceptability of a company to be a licensee. In addition, there are other requirements of licensees such as the establishment of a tax base, finance, residence and organisational structure and for offshore licensees there are safety and environmental capability requirements under the Offshore Petroleum Licensing (Offshore Safety Directive) Regulations 2015.

Technical capability

All licensees must demonstrate their ability to meet the requirements for operations within the framework of the licence. This includes having the suitable technical and managerial ability in terms of experience and staff numbers including ensuring any operator appointed is capable of satisfactorily carrying out the functions and discharging the duties under relevant statutory provisions.

Corporate governance

The NSTA expects the corporate governance arrangements of all licensees to be commensurate with their portfolio in terms of the hydrocarbon lifecycle, the nature of operations and whether the underlying assets are operated or non-operated. Licensees should satisfy themselves that their governance arrangements reflect best practice and compare favourably with their peers; the NSTA may assess these provisions should circumstances dictate. Further information can be found here. 

Fitness of licensees and persons exercising control

The ‘fitness’ of existing and prospective licensees, Directors and individuals involved in the management of licensees, as well as those who control licensees, is critical to the NSTA’s statutory duties and objectives. The NSTA may therefore consider the fitness of a licensee and/or persons controlling a licensee whenever an application for a licence is made, or where a licensee intends to take on or extend a commitment or obligation, for example on an assignment or change of control. The NSTA may also decide to investigate the issue on its own initiative, for example, following a review of corporate governance).  Details of the NSTA’s general approach to assessing the ‘fitness’ of licensees, Directors of licensees, and individuals involved in the management of licensees; and of those who control licensees can be found here.

Financial viability and financial capacity

Licensees must meet certain financial criteria to demonstrate that they have the financial capability to exploit the exclusive rights granted by the licence. This is a separate criterion from that applied by the Offshore Safety Directive. The following documents set out our financial criteria and the required forms of words for deed of guarantees.

Where a guarantor is a non-UK incorporated, the guarantee must be accompanied by a legal opinion from a reputable law firm authorised to act in the jurisdiction in which the guarantor is incorporated.

The opinions required to be given by such law firm are set out in the document below, and may be adapted as appropriate for the relevant jurisdiction.

Draft copies of a proposed guarantee and accompanying legal opinion should be provided to the NSTA for review at the earliest opportunity.

Tax considerations

The NSTA routinely copies new licensee cases to HM Revenue & Customs (HMRC) for information. The vast majority of transactions take a form that is familiar to both the NSTA and HMRC, and are not expected to raise any new tax issues; so tax is not generally a factor in the NSTA’s decisions. However, the NSTA does discuss tax issues with HMRC and may take them into account in any particular decision.

HMRC is aware of certain types of commercial arrangement that present an inherent tax risk. These include having a partnership on a licence and some cases of the assignment of a beneficial interest in a licence to somebody other than the licensee. The NSTA will exercise a presumption against approving any such arrangements, though any case would be considered on its merits, and the NSTA is prepared to discuss proposals to address potential tax issues.

Residence criteria

Prospective licensees must satisfy the NSTA that they have a place of business in the UK. This means at least one of the following:

• Having a staffed presence in the UK
• Being registered at Companies House as a UK company
• Having a UK branch of a foreign company registered at Companies House

To join a licence and take an interest in a producing field must either:

• To be registered at Companies House as a UK company; or
• To carry on your business through a fixed place of business in the UK.

A ‘fixed place of business’ normally means a staffed presence. For further information see section 148 of the Finance Act 2003 or article 5 of the OECD Guidelines for Multinational Enterprises for more information.