On Friday the UK government published its Energy Bill 2015 (the Bill) which aims to implement the recommendations of the Wood Review into the performance of the UK’s offshore oil and gas sector and the future regulation of the offshore industry.

Central to the Bill is the establishment of an arm’s length independent regulatory body, the Oil and Gas Authority (OGA), providing it with both regulatory powers and functions. The OGA was established as an executive agency in April but the Bill will be the next step in giving it operational independence from Government by converting it into a government company and in giving it the powers it needs to meet the ambitions of the Wood Review.  The Department of Energy and Climate Change (DECC) states the aim is to ensure that OGA has the powers it needs to become a robust, independent and effective regulator, and to enable it to deliver on a strategy to maximise the economic recovery of oil and gas from beneath UK waters (MER UK). They believe this Bill will help to drive greater collaboration and productivity in the UK’s oil and gas industry, helping it grow, attract investment, create jobs and to remain competitive in the future. 

Oil and Gas UK welcomed the Bill. Its chief executive, Deirdre Michie, said in a statement: “While it will take time to digest and comment on the full detail of the Energy Bill, we welcome its publication”.  “The OGA is a critical catalyst for the work being done to sustain offshore oil and gas activity and the Bill aims to provide the new regulator with the tools and capabilities it will need to do the job effectively and efficiently so we support its swift passage through Parliament.”

The Bill follows closely the earlier consultations on this issue and its key provisions are as follows:

  1. It establishes the OGA as an independent regulator in the form of a government company charged with the asset stewardship and regulation of domestic oil and gas recovery. It will not be regarded as acting on behalf of the Crown and its staff will not be civil servants. The Secretary of State may give directions to the OGA as to the exercise by it of any of its functions if he considers this necessary in the interests of national security, or the public interest but only in exceptional circumstances.  
  2. The OGA will take over the Secretary of State for Energy and Climate Change’s existing regulatory powers on oil and gas, including licensing of oil and gas exploration and production under the Petroleum Act 1998. It will also exercise licensing functions relating to carbon capture and storage and gas storage and unloading under the Energy Act 2009. Additionally it will be responsible for DECC’s functions under the Energy Act 2011, to promote access to upstream infrastructure and for the production of the MER UK Strategy (as required by the Infrastructure Act 2015).  The Secretary of State’s regulatory functions in relation to the environment will not be transferred. The OGA will be given some new powers – these include the power to attend relevant meetings, to resolve disputes, to obtain information and to impose sanctions and are discussed further below.  
  3. The OGA will have the power to attend meetings with operators, without a right to vote, relating to activities under an offshore petroleum licence and to issues which are relevant to the fulfilment of MER UK.  Legally privileged discussions are excluded from this right of attendance. The licensees are obliged to inform the OGA 14 days in advance (or shorter, if that is not practicable) that a meeting will be taking place together with the meeting’s agenda. If the OGA does not send a representative they must be given a summary of the meeting and any decisions reached.  
  4. The OGA will be empowered to consider and provide recommendations to resolve disputes which are relevant to the fulfilment of MER UK or to activities under an offshore petroleum licence (other than disputes which are already being considered under the Energy Act 2011 regime for access to infrastructure). It has wide powers to decide which disputes to hear in order to enable it to apply its limited resources effectively, powers to establish a timetable and a process for the dispute, and powers to publish its recommendations. Its recommendation must enable the dispute to be resolved in a way which best contributes to MER UK whilst having regard to the need to achieve an economically viable position for the parties to the dispute.  There are rights of appeal to the First-tier Tribunal (part of the UK court system) from various aspects of this process.  
  5. The OGA will be entitled to have access to petroleum related information and petroleum related samples. The OGA will be able to disclose information with consent, if required by statute, or under regulations - the latter are still to be drafted as the Government wanted more time to consult on an appropriate publication regime. The Bill creates the new concept of an “information and samples plan” which licensees must agree with the OGA and which provides for the maintenance of information and samples following the transfer, surrender, revocation or expiry of a licence interest, and an information and samples co-ordinator to manage the flow of information to the OGA.  
  6. The OGA will have powers to impose civil sanctions to regulate compliance with offshore petroleum licences and with MER UK, including enforcement notices and fines of up to £1 million per breach. The OGA will have the power to order partial revocation of licences in respect of one or more of the licence holders and will also have the power to remove an operator where the operator has failed to comply with a petroleum-related requirement.  The OGA must give a warning notice before imposing any of these sanctions, allowing the affected parties to make representations. Sanctions may also be the subject of appeals to the First-tier Tribunal.  
  7. The OGA will be able to charge fees to recoup the costs associated with providing functions under the provisions of the Bill.  It will enable more comprehensive charging of the offshore oil and gas industry for permits and licences for environmental and decommissioning activities. The intention of this is to allow government to continue to recover the costs of its environmental and decommissioning activity in line with the ‘polluter pays’ principle of environmental law and to address a perceived gap in current legislation.

The Bill also removes the need for the Secretary of State’s consent for large (more than 50MW) onshore wind farms under the Electricity Act 1989, with planning procedures to go through local authorities and provides for closure of the Renewables Obligation to new onshore wind in Great Britain. This aspect will be the subject of a separate Law-Now.

The Energy Bill is currently awaiting its second reading at the House of Lords scheduled for 22 July 2015.  At this second reading there will be a general debate on all aspects of the Bill but it is anticipated that its content is unlikely to undergo any dramatic changes.  The Bill is not expected to become law before the second quarter of 2016, around the same time that DECC is required to publish the strategy for MER UK which will underpin so many of these new powers – although the OGA has signalled its intent to finalise the strategy during this calendar year.

For a copy of the Energy Bill published on Friday please click here