In this series of updates, we examine the Energy Bill (the Bill) ahead of the scheduled House of Lords Committee Stage, which will involve a line by line examination of the Bill, to take place on 7 September 2015.

The Infrastructure Act 2015 – Principal Objective

Prior to embarking on a summary of the Bill, as a reminder it will be helpful to set out certain key definitions in the Bill which are made by reference to the Petroleum Act 1998 as amended by Part 6, section 41 of the Infrastructure Act 2015.

Part 6, section 41 of the 2015 Act (commenced on 12 April 2015) provides the framework for the establishment of the Maximising Economic Recovery for the UK Strategy (MER UK Strategy) by inserting after section 9 of the Petroleum Act 1998 new clauses 9A to 9I. New section 9A(1) defines the “principal objective” as “maximising economic recovery of UK petroleum, in particular through:

  1. Development, construction, deployment and use of equipment  used in the petroleum industry (including upstream petroleum infrastructure), and
  2. Collaboration among the following persons –
    1. Holders of petroleum licences.   
    2. Operators under petroleum licenses
    3. Owners of upstream petroleum infrastructure.
    4. Persons planning and carrying out the commissioning of upstream petroleum infrastructure.”

The Oil & Gas Authority (OGA) is required to produce one or more strategies to enable the principal objective to be met. These strategies may relate to matters other than those listed in 9A(1)(a) and (b) above.

New section 9C is a crucial provision. It implements the Wood recommendation that licence holders must act in accordance with the MER UK Strategy when planning and carrying out activities and the Act extends that obligation to operators and owners of upstream petroleum infrastructures. The OGA must consider the extent to which these persons have fulfilled compliance with MER UK obligations and produce a report to reflect the results of that consideration (new section 9D). “Owner” and “Upstream Petroleum Infrastructure” are defined in new section 9(H).

The OGA is obliged to produce the first strategy before 12 April 2016.

Key Provisions of the Energy Bill

With those definitions in mind, we now turn to the key provisions of the Bill. The Explanatory Notes on the Bill confirm that it aims to ensure that OGA has the powers it needs to become a robust, independent and effective Regulator and enables it to deliver on a strategy to maximise the economic recovery of oil and gas beneath UK waters.

Part 1: The Oil and Gas Authority and its Core Functions

The OGA had already been established as an Executive Agency of the Department of Energy & Climate Change (DECC) on 1 April 2015 with the intention of transitioning to a government company in the summer of 2016. During the transitional phase the intention is that OGA will operate as closely to its final GovCo form as possible having the operational independence required to function as an EA. This arrangement, and the ongoing relationship between DECC and OGA, is reflected in the Framework Document published by DECC and OGA in April 2015.

Part 1 of the Bill provides for the OGA to assume the status of a government-owned company in charge of asset stewardship and regulation of the United Kingdom Continental Shelf (UKCS) oil and gas recovery and for the transfer of DECC’s existing regulatory responsibilities, including licensing, to OGA  by amending the relevant legislation. DECC retains its regulatory functions in relation to the environment and onshore oil and gas recovery.

Part 1 also sets out a non-exhaustive list of high level matters to which OGA must have regard when exercising its functions, such as the need to have a secure supply of energy, minimise public expenditure and the need to encourage innovation in technology. Reflecting the independence of the OGA, the Secretary of State is given only limited powers to make directions to the OGA in the interests of national security and the public interest and in “exceptional” circumstances. It can require the OGA to provide it with information or samples for the purpose of carrying out its functions under the Bill or for monitoring OGA’s performance. Such information and samples are referred to as “protected material” and may only be disclosed by the Secretary of State if required to do so under any Act or with the consent of the OGA. In the Explanatory Notes the OGA consent is a prerequisite to disclosure but that does not appear to be mirrored in the wording of the Bill.

In the next update, we will discuss Part 2 of the Bill containing the additional powers to be made available to the OGA to enable it to fulfil its functions effectively in accordance with MER UK Strategy. To view the next update click here.