Energy > AG Speaking Energy > Change of control: developments in the United Kingdom
25 Mar '15

Change of control: developments in the United Kingdom

Why is change of control an issue?

In addition to contractual provisions amongst joint venture parties, change-of-control restrictions are often also included in a country’s petroleum laws.

Although these provisions can seem standard and unremarkable when licences are signed, they can cause issues resulting from subsequent corporate activities. In the United Kingdom, these provisions have arisen as existing North Sea investors divest assets through share sales.

On this issue, the government has demonstrated a concern in ensuring the suitability and financial capability of new, and often foreign, licence holders. A recent case has demonstrated the willingness of the Department of Energy and Climate Change (DECC) to use its powers to take action where it determines a new holder of a licence is unsuitable.

Russian billionaire Mikhail Fridman’s LetterOne investment fund has recently acquired a number of North Sea gas fields. Following this purchase, DECC asked LetterOne to provide reasons why DECC should not block the purchase and require a further change of control to a suitable third party. DECC’s concern relates to potential sanctions against Russian companies resulting in closure of the fields.

Reports suggest that LetterOne had requested a letter of comfort from DECC prior to the purchase, but this was not granted. At the time of authorship, LetterOne has provided a detailed response to DECC and is waiting for a response. Recent reports have suggested that Fridman has started to look for buyers for LetterOne’s gas fields in order to avoid a lengthy dispute with the government, despite the previous threats of judicial review if the purchase was blocked.

How does this work in the United Kingdom?

Under the Petroleum Act 1998, the conditions of licences are contained in “model clauses” which are enacted as secondary legislation and incorporated into all U.K. licences. 

According to the model clauses, all assignments of a licence are prohibited, unless the prior consent of DECC is obtained. If consent is not given, then DECC may revoke the licence or reverse the assignment.

However, the situation is different where there has been a change in control of the licence holder, since the model clauses do not require an entity to seek prior approval.  Both direct and indirect changes of control are caught by the definition in the model clauses, with the threshold being control of one-third or more of the share capital or assets of the company. The definition also includes any entitlements to acquire at a future date, and also captures anticipated changes of control.

While consent is not required in advance, DECC retains the subsequent power to object to the change of control and can instruct the licensee to change the control again within three months. If the licensee does not change control within this period, DECC may revoke the licence.

These provisions are a common feature of petroleum licences internationally, and licences often contain a requirement to seek governmental consent or approval for changes in controls of licensees. While not frequently seen in practice, the Association of International Petroleum Negotiators also provides for an optional change-of-control clause in its model joint operating agreement, under which parties can be required to provide satisfactory evidence to the other parties that, following a change in control, the relevant party still has the financial capability to meet its obligations under the joint operating agreement and licence.


It is important to engage with regulators at an early stage when dealing with any changes of control to ensure that the transaction does not encounter later problems. If entities are concerned that DECC may object to the change of control, or they wish to have further comfort that it will not instruct any further changes of control, DECC is willing to consider requests for some assurance and will often issue letters of comfort. DECC states that its policy in issuing letters of comfort requires that a licensee can show that the change of control will not affect its ability to meet existing obligations and liabilities. Letters of comfort are designed to offer reassurance, but they do not restrict DECC from exercising its powers to instruct further changes and revoke the licence.