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.

Overview of the Bill

The Bill was introduced into the House of Lords on 9 July and published on 10 July with a Second Reading of the Bill taking place in the House of Lords on 22 July. The Bill is accompanied by Explanatory Notes prepared by the Department of Energy & Climate Change (DECC).

Although it is too late for the industry to propose sweeping changes to the provisions of the Bill, DECC has indicated that if there is anything controversial in the Bill or any real drafting issues, there is still time to propose minor amendments before the Bill goes to the House of Lords Committee Stage. They have emphasised, however, that such comments must be received by them at the earliest opportunity if they are to be considered, as such, Oil & Gas UK are co-ordinating comments.

The Bill implements two of the key recommendations of the Wood Review published in February 2014, namely:

  • the establishment of a new, independent, better resourced and stronger regulatory body which will take on the existing offshore licensing and stewardship role of DECC and will develop and deliver the principles of the Maximising Economic Recovery for the UK Strategy (MER UK Strategy); and
  • the provision of additional powers to the new regulatory body to provide it with the necessary “teeth” to ensure effective delivery of the MER UK Strategy.

Commentary on the Bill - Current Constraints

It is difficult to provide a comprehensive commentary on the implications of the Energy Bill at this stage because we are missing a crucial piece of the jigsaw. Licence holders and operators have a duty to act in accordance with the principal objective of “maximising economic recovery” and the MER UK Strategy which the Oil & Gas Authority (OGA) is tasked with producing.

The Bill established the OGA as an independent regulator, charged with the asset stewardship and regulation of domestic oil & gas recovery. As such, all regulatory powers for the oil & gas industry, apart from those concerned with the environment, have been transferred from the Secretary of State for Energy and Climate Change to the OGA.

Failure to comply with the MER UK Strategy may result in sanctions imposed under the provisions of the Bill by the OGA. To date we do not have a definition for “maximising economic recovery” nor do we have the MER UK Strategy nor any guidance from the OGA or DECC as to what it might contain. Within the Bill we are also promised guidance from the OGA on various issues which have not yet been drafted.

We are told that the MER UK Strategy is being drafted with the aim of circulating the final draft to the industry for comment in September or October 2015. The industry has been promised full consultation thereafter to include a number of workshops and a call for evidence in Aberdeen and London to discuss the issues with a final draft to lay before Parliament either just before or after Christmas 2015. It is important to participate in this consultation as the Strategy will form the framework against which the industry will be “policed” and judged by the OGA.

One further difficulty with commenting on the current draft Bill is that DECC has also confirmed that further amendments to the Bill are currently being drafted and the “hope” is that these will be allowed before the HL Committee stage. The proposed amendments apparently include detailed provisions for powers relating to decommissioning (clarifying the Regulator’s role, bringing down decommissioning costs and avoiding premature decommissioning of assets) and other minor technical amendments (such as technical steps to be taken to set up the OGA as a government company and establishing a scheme for the transfer of powers from DECC to the OGA). Some amendments are proposed for information sharing to allow the OGA to share sensitive information with other government departments such as HMT, HMRC, DECC and Norwegian authorities where there is a level of joint development.