Hill+Knowlton Strategies

The sun shone on Monday during my visit to Aberdeen to meet with representatives of the offshore energy industry in the Granite City, but the general mood of the industry appeared more glum under the gathering rainclouds of increased regulation and the changes to the offshore production levy.

The current consultation by the European Commission into offshore drilling may well be a pre-cursor to additional regulations for an industry still integrating learnings from the fallout of last year’s Gulf of Mexico spill. The key question will be the extent to which any new regulations place additional burdens (and costs) on an industry that has for many years set the bar for world offshore HSE standards.

There was an encouraging appetite for making contributions to the consultation among those that I met with, but evidence too that many were planning to make only collective submissions, which often has the effect of watering them down. What is clear is that DG ENER at the Commission are keen to review offshore drilling regulations and that such a consultation regularly results in regulatory changes. Now is the opportunity to engage in the process to avoid any nasty surprises.

Speaking of which it is clear that the energy industry operating on the UK Continental Shelf is still reeling from the changes to the offshore production levy introduced in April’s Budget. It seems that there are fresh headlines every day as different organisations up the ante and review investment decisions as a result of the changes. Certainly Energy Secretary Chris Huhne’s meeting with the Energy and Climate Change Committee yesterday has done little to settle industry concerns at the apparent intrasigence of the Government on this issue, especially when it comes to gas production and marginal fields. Although according to some the result of the AV referendum could bring about some changes.

This is an issue that we expect to run and run in the coming months, but I hope the storm clouds lift for long enough that we can enjoy some of the beautiful sunshine that is forecast.

This week I attended a seminar regarding the Bribery Act, which featured a panel including Richard Alderman of the Serious Fraud Office, some lawyers and a corporate investigator. The room was filled with other lawyers and quite a few large corporates keen to know what the impact of this gold-plated British version of the  Foreign Corrupt Practice Act might be for their business and their clients. 

There has been a lot of speculation in the media about the impact of this legislation and perhaps some scaremongering, but for organisations in the oil, gas and mining sectors the risks are clear. These are industries that as a matter of routine work in far flung parts of the world that have very different standards of governance and transparency to what they are accustomed to in say the UK. Of course the act will only apply to organisations with interests in the UK, but given that London’s capital markets have been popular for a long time with natural resource companies, we can expect this to impact a significant portion of the industry.

There is an absolute defence available for firms that can demonstrate ‘adequate procedures’ and although what constitutes adequate has not yet been defined by the Ministry of Justice or the Serious Fraud Office, I suspect that many larger firms in the energy and mining sector will already have the ‘”gold standard” of procedures that Mr Alderman referenced frequently during the discussion. 

That said there are other reasons that the impact of the Bribery Act should be of concern to businesses. Perhaps most significantly because we are currently experiencing a boom in merger and acquisition activity. It is important to note that the act will not apply retrospectively, but the glut of deals that we have seen so far since the start of the year are unlikely to end anytime soon and one wonders if the organisations buying assets in the UK fully comprehend the liabilities for their other operations that they are acquiring with the asset as a result of the Act.

The other aspect worth bearing in mind for businesses as a whole, but the natural resource industries especially, is the use of agents and the extent of liability for joint venture operations. Joint ventures are a regular feature of the natural resource landscape and very often firms based in the UK will use them as a means to enter a market where foreign stakes are limited. I’m not sure what the extent of the risk of liability is for these corporate structures, but am going to ask the question at the next seminar I attend on this subject.

Of course it is also worth noting that the SFO has been handed a paltry sum of only £2m for enforcement and the likely cost of a trial, if it comes to it, will put the prosecution rate fairly low, but as any organisation prosecuted under FCPA will tell you, reputations are expensive things to lose and the SFO is not shy of pursuing trophy prosecutions, especially when Mr Alderman moves on and his successor is looking to make a name for him/herself.

This will be an interesting one to watch as the guidance is published and the Act comes into force.

Happy New Year! It’s that time of year when everyone gets out their crystal balls and starts predicting what the big trends will be and what will have the biggest impact on our lives. My prediction (and I hate to admit this) is that electric vehicles will be a big talking point in 2011.

With hikes in fuel duty and VAT already pushing up petrol prices to record highs and bumper increases in buses, tubes and trains fares, people are going to seriously consider other options. Whilst some cities in the UK already offer eco-alternatives such as biking schemes, many commuters and families will be looking at their car and how they can save money by switching to a less gas-guzzling version.

Now I’ve never been a big fan of electric vehicles but I think if the car makers can get it right, I may be swayed and with support from the Government increasing, the day when electric vehicles become mainstream may be getting closer.

On 1^st January, the UK Government’s new scheme came into effect, offering grants – of up to £5,000 – for electric and ultra-low emission cars. Now that amount of money is not to be sniffed at! Will it work? Will 2011 be the year of the electric car?

I remain unconvinced for now until a car manufacture makes a stunning, long-distance electric car. I would prefer to see investment in high-speed rail links, improvements in road conditions and development of a more pleasant and affordable public transport system. Surely if public transport was more reliable, cheaper and efficient, people would use it more and that in turn would reduce the number of people driving and lower emissions. Sounds simple I know, but it could just work.

According to the No Hot Air Blog the Department for Energy and Climate Change has today launched an inquiry into the future of shale gas in the UK.

Full details over at NHA, but in brief the DECC are looking for written submissions before Thursday 13 January 2011, in the following areas:

• What are the prospects for shale gas in the UK, and what are the risks of rapid depletion of shale gas resources?
• What are the implications of large discoveries of shale gas around the world for UK energy and climate change policy?
• What are the risks and hazards associated with drilling for shale gas?
• How does the carbon footprint of shale gas compare to other fossil fuels?

Now if this was April 1st, I would have sworn that the story about the Volkswagen Beetle powered by human waste was an April Fools’ Day joke. However, it’s not April and this is not a joke. As reviewed by The Telegraph’s Harry Wallop, the clever people at GENeco, a Wessex Water subsidiary have converted a good old VW Beetle and made it run on biogas.

How we get and use fuel is an ever increasing hot topic with fuel companies looking at how wind and solar power can power our homes and car manufacturers looking at hybrid and electric engines. It seems we have become a nation obsessed with finding new ways of powering our homes and cars.

Personally, I think what we flush down the toilet is called waste for a reason and shouldn’t end up powering my car to the supermarket or the beach but you have to admit with an ever growing population – projections suggest UK population will exceed 65million by 2018 – it seems there will be an endless supply of ‘suitable materials’ that could be turned into biogas for many years to come.