UKCS Licensee Financial Analysis Support

The Department of Business, Energy and Industrial Strategy (BEIS) have a team which consists of subject experts embedded from the OGA, policy and programme expertise from BEIS and external insolvency and financial advisors. This team has been working with others in Government to understand the financial challenges faced by UK Continental Shelf (UKCS) licence holders in light of the enduring lower oil and gas prices and what impact that may have on their activities and decommissioning obligations.

BEIS have recently implemented measures to assess and identify potential Licensees who may already be, or may be likely to be in the near future, in financial distress. To inform this review of the sector BEIS have requested detailed financial data sets from a number of UKCS License holders.

This procurement will help BEIS to analyse seven of these company financial data sets to understand whether there are any Licensees and assets at risk, understand any potential impact, and ultimately devise a plan to mitigate any government liability.

The role of the appointed analyst will be to support the work programme by providing concise analysis based on data received from the Licensees and a key issues report and analysis to assist BEIS in identifying which companies are potentially in financial distress over the short to medium term and that may require further investigation.

Description:

The Requirement

BEIS have recently implemented measures to assess and identify potential Licensees who may already be, or may be likely to be in the near future, in financial distress. To inform this review of the sector BEIS have requested detailed financial data sets from a number of UKCS License holders. The information requested is summarised below:

1. UK subsidiary information

a) Financial information and arrangements i. Management and audited accounts; ii. Group structure/organogram; iii. Asset performance reports; iv. Details of any financial arrangements and joint venture partnerships. b) Decommissioning Security i. Details of Decommissioning Security Agreements (DSAs); ii. Clauses or agreements in the joint operating agreement (JOA) or other commercial agreements which cover decommissioning liabilities or provisions. 2. Parent company information i. Confirmation of support to the UK subsidiary/subsidiaries. Note: the quality and completeness of response from Licensees is varied.

This procurement will help BEIS to analyse seven of these company financial data sets to understand whether there are any Licensees and assets at risk, understand any potential impact, and ultimately devise a plan to mitigate any government liability.

See further comments regarding the description of this requirement below.

Additional information: Description of this requirement, continued: Outputs

The supplier will deliver a collation and analysis of data provided by Licensees to develop a key issues report and analysis, identifying any Licensees that are potentially in financial distress over the short to medium term and the degree to which the company is supported by its parent organisation. The report should be summarised in a simple, easy to understand format that can be shared with other departments to inform decision making. The output of this will inform BEIS of those companies that may require further financial assessment.

Approach

In producing the outputs the contractor should, based upon their extensive experience of working with oil and gas companies, advise on the best practice approach to the analysis of company financials. This approach should include:

Data • a review of the available data outlining missing data or gaps in the request; • key metrics and values that are individually, or jointly, used to create the key-issues report; • the use of publically available data as and where appropriate.

Analysis • the conclusions supporting the assessment that the Licensee may be financially distressed or likely to be so in the short to medium term; • a consideration of the capacity of the parent company guarantee to cover liabilities of the UK subsidiary; • to the extent a Licensee is identified, the proposed course of action for further assessment.

Working Arrangements

The appointment offer will be confirmed in the w/c 12th August and the work will commence by the w/c 19th September.

The successful contractor will be expected to identify one named point of contract through whom all enquiries can be filtered. A BEIS project manager will be assigned to the project and will be the central point of contact. We envisage the CONTRACTOR working closely with the BEIS team through regular progress meetings and updates.

It is proposed that the work be structured as follows:

• Kick-off meeting to agree and finalise approach to the study – w/c 19 September;

• Progress report and review of initial outputs – 28th September

• Draft red-flag report – 5th October;

• Final red-flag report and summary presentation – 10th October.

We envisage the need for close interaction between the BEIS Project Manager and contractor throughout the process, to ensure that emerging issues are dealt with promptly and that the BEIS fully understand the assumptions and approach taken. In addition to answering the analytical questions, BEIS will need timely access to all the key assumptions used in the analysis and the data and methodologies used to carry out the work.