OPOL creates a basis for funding environmental clean-up costs and compensation

In the UK, there is no financial cap on the liability of oil and gas companies for the consequences of an incident for which they are legally liable. As a member of OPOL, and without prejudice to any legal liability, each operator agrees to accept contractual liability for pollution damage arising from the escape or discharge of oil from its offshore facilities. They also commit to the reimbursement of third parties (including public authorities) for clean-up and remediation costs under the terms of the OPOL Agreement. These remedial measures are defined as reasonable measures taken by any party from any of whose offshore facilities an escape or discharge of oil occurs, and of which such party is the operator, and by any public authority to prevent, mitigate or eliminate pollution damage or to remove or neutralise oil involved in the escape or discharge, but they exclude well control measures and measures taken to protect, repair or replace the offshore facility involved in the incident.

A member’s contractual liability under the OPOL Agreement in respect of pollution damage and remedial measures is limited to US $250 million per incident and US $500 million in the annual aggregate.

The OPOL Default Contribution arrangement

If a member of OPOL fails to make a payment to a claimant of any sums which would otherwise be due under the OPOL Agreement,  the other members of OPOL agree to contribute pro-rata according to the number of facilities operated by them at the time of the incident. This provides a mechanism for claims up to the OPOL limits to be met even if the polluting operator becomes insolvent and is a condition of OPOL membership. 

Parties to the OPOL Agreement

OPOL obligations are on the operator, or those who intend to become the operator, of offshore facilities for the exploration or production of oil and gas. While there may be multiple parties to an offshore licence or in a pipeline system, only a single operator, as normally defined by the joint operating agreement (JOA) in a multi-participant venture, has obligations under OPOL. The financial responsibility obligation required by the OPOL Agreement cannot be divided or shared with co-venturers and must be evidenced for 100% interest by the operator.

In practice, the UK regulators require that the operator is (or intends to become) a member of OPOL as a condition of granting an offshore exploration or production licence. 

What offshore facilities does the OPOL Agreement cover?

OPOL applies to offshore facilities from which there may be a risk of an escape or discharge of oil causing pollution damage. Facilities include wells, drilling units, platforms, offshore storage/loading systems and pipelines, where these are located seaward of the coastal low water line, and include gas wells when being drilled, re-completed or worked upon. They do not include permanently abandoned wells, installations or pipelines, or facilities for the production, treatment or transport of natural gas or natural gas liquids. The OPOL Agreement generally applies to all of a member’s offshore facilities in the Designated States (as defined in the OPOL Agreement) when operated by that member.

Where does the OPOL Agreement apply?

The OPOL Agreement initially applied to offshore facilities within the jurisdiction of the United Kingdom but was subsequently extended to allow it to apply to offshore facilities within the jurisdictions of Denmark, Germany, France, the Republic of Ireland, the Netherlands, Norway, the Isle of Man, the Faroe Islands and Greenland (collectively the Designated States), but excluding any offshore facilities located in the Baltic and Mediterranean Seas.

The location of the pollution damage or the place where remedial measures are taken need not necessarily be in waters within the jurisdiction of a Designated State; the location of the offshore facility from which the escape or discharge of oil took place is the governing factor.

Ongoing commitment to the OPOL Agreement

Operators undertake to establish and maintain financial responsibility to meet their obligations under OPOL for an amount of not less than US $250 million for any one incident and US $500 million in the annual aggregate.

Each year, members must submit evidence of financial responsibility to OPOL in the prescribed format covering 100% interest in the facilities operated by them including the interests of any co-venturers. The evidence of financial responsibility required to be submitted is prescribed by the OPOL Rules, which members of OPOL are required to comply with pursuant to the OPOL Agreement.