Emerging trends in UK North Sea decommissioning disputes

A key area of contention remains the scope and application of a section 29 notice issued under the Petroleum Act 1998 (the 1998 Act). A section 29 notice creates joint and several liability to carry out the approved decommissioning programme. This means that any party served with a section 29 notice may be liable for the full decommissioning costs. Parties may challenge the issuing of a section 29 notice or the scope of the notice (Apache UK Investment Limited v Esso Exploration and Production UK Limited [2021] EWHC 1283 (Comm)) and we expect to see more of these types of disputes as projects mature and ownership structures change. There is a short 42-day time limit for bringing a challenge to the acts of the Secretary of State (SoS) (including the giving of a section 29 notice), pursuant to section 42 of the 1998 Act.

Decommissioning risk is now a key feature of M&A transactions involving UK North Sea assets. Increasingly, sellers are not able to secure a complete release from decommissioning liabilities under sale and purchase agreements (SPAs). Contractual indemnities and residual liability provisions often leave sellers with ongoing exposure to decommissioning costs, even after they have transferred their working interests. The drafting can become particularly complex where fields or assets have been further developed, extended or re‑purposed following completion. This in turn creates scope for disputes over the extent of the indemnities, how “decommissioning” should be interpreted in a contractual context, and which party is responsible for the cost of decommissioning new or modified infrastructure installed post‑transfer.

A challenge under section 42 of the 1998 Act can also be made in respect of the approval, rejection or revision of a decommissioning programme.  Section 42 clearly defines the acts that can be challenged under this process.  If a party wished to challenge an act that was not included within the list, then it may do so under the general judicial review process.  There is a recent example of judicial review proceedings where a party sought, unsuccessfully, to challenge the advice given by the North Sea Transition Authority (NSTA) to an operator and to the Offshore Petroleum Regulator for Environment and Decommissioning (OPRED) in relation to a decommissioning programme (R (Nobel Oil E&P North Sea Limited) v Oil and Gas Authority and others [2025] EWHC 2139 (Admin)).

There are likely to be disputes between parties arising under a decommissioning security agreement (DSA).  Such disputes may arise in relation to: (i) the calculation of the amount of security to be paid, including the calculation of the Net Cost and Net Value under the DSA; (ii) the interpretation of the DSA; and (iii) the failure of one or more parties to make payment of agreed amounts under the DSA.  There has previously been litigation between parties relating to the calculation of the security and the economic conditions that should be included in this assessment (Apache North Sea Limited v Esso Exploration and Production UK Limited; Shell U.K. Limited; BP Exploration Operating Company Limited [2023] EWHC 1345 (Comm)).  The court has held that operators must apply the reasonable and prudent operator standard when making such assessments.  Given the complexity of DSAs and the scale of North Sea decommissioning liabilities, this area is likely to remain a significant source of potential disputes.

In parallel with the statutory regime, joint operating agreements (JOAs) will typically contain decommissioning provisions that seek to allocate obligations between co-venturers. However, remedies under JOAs can be limited or commercially unattractive where a party fails to meet its decommissioning obligations. For example, forfeiture of licence interests may be a blunt and undesirable remedy, and once a field has ceased production the operator cannot simply attach production and sell it to meet any shortfall. This increases the importance of robust decommissioning security arrangements outside the JOA and careful consideration of the security posted by each party.

OSPAR Decision 98/3 permits a derogation regime whereby certain installations are allowed to remain in place, rather than be removed as part of the decommissioning process.  

The guidance from OPRED provides that residual liability remains with the owners in perpetuity, and there is a requirement for operators to outline plans to manage the ongoing monitoring and legacy of the infrastructure remaining in situ.  However, there is potential for disputes if the owners have not made sufficient provision for this ongoing liability, or if the owner has ceased to exist due to a restructuring or insolvency. This could be particularly relevant if there were future environmental claims relating to remaining structures that will deteriorate over time. 

The NSTA’s recent forecasts show a significant increase in decommissioning spend, which drives a corresponding rise in disputes.  As decommissioning projects become more frequent and costly, parties are increasingly scrutinising their liabilities and the conduct of the other parties involved.  The trend is towards risk mitigation.  Where that fails, there is a possibility of formal dispute proceedings including litigation or arbitration.

At the same time, there is a greater focus on avoiding disputes before they arise, particularly through early contractor involvement, portfolio-wide planning and longer-term strategic partnerships.

In the case of contractual documents relating to decommissioning in the UK North Sea, it is likely that most of these contracts will provide for the courts of England and Wales to have jurisdiction over disputes.  The OEUK standard form DSA contains a jurisdiction provision to this effect (save where certain disputes are referred to expert determination). 

Challenges made pursuant to section 42 of the 1998 Act are likely to be made to the High Court (in relation to England and Wales); or the Court of Session (in relation to Scotland).  It is thought that the location of the infrastructure to be decommissioned might determine the allocation of jurisdiction between the courts of England and Wales and of Scotland.  Other factors could include the location where the operator is organising the decommissioning, and the location of the office where the SoS's officials made the relevant decision. 

In some contractual disputes, the parties may select arbitration, and we would expect the arbitration clause to specify a London (England and Wales) seat, unless there was a special reason for another jurisdiction to be selected.  Factors such as confidentiality, procedural flexibility, and ease of cross-border enforcement continue to make arbitration an attractive option, particularly where projects involve multiple jurisdictions or parties prefer to avoid local courts.