The much anticipated Energy Bill has now been published by our new Conservative Government and received its first reading in the House of Lords on 9 July 2015 and its second reading on 22 July. The Bill represents a commitment to boosting the UK offshore oil and gas industry by implementing the Wood Review, which in its final report last year made recommendations for MER UK – Maximising Economic Recovery from the UK Continental Shelf. See our previous article for more details.
Oil & Gas UK's Chief Executive and industry expert, Deirdre Michie, anticipates that the Bill will ensure the much needed regeneration of the UK North Sea and increase overall efficiency within the industry.
Oil and Gas Authority (OGA)
Part 1 of the Energy Bill officially establishes the OGA as a government company and independent regulator of domestic oil and gas recovery. The Secretary of State for Energy and Climate Change's existing regulatory powers in relation to offshore oil and gas recovery will transfer to the OGA. The Secretary of State is also able to give additional directions to the OGA in the interests of national security and public interest. However the Secretary of State's environmental regulatory function will not be affected.
The OGA will undertake licensing and regulatory functions for oil and gas exploration and production, carbon capture and storage, gas storage and access to upstream petroleum infrastructure. Additionally part 1 of the Bill provides a non-exhaustive list of matters that the OGA must have regard to: minimising future public expenditure, securing the UK’s supply of energy, collaborating with government and industry, encouraging innovation in technology and working practices, and maintaining a stable and predictable system of regulation.
It is hoped that these new regulatory powers will help increase productivity from beneath UK waters, ultimately helping to grow and attract investment into the industry.
The Bill also provides the OGA with additional powers which include access to company meetings, data acquisition, retention and transfer, dispute resolution and sanctions.
Following reviews conducted in the build up to the publication of the Bill, the industry anticipated that the OGA would be provided with the ability to levy fines. Part 2 now gives the OGA the power to impose financial penalties of up to £1 million to regulate compliance with offshore petroleum licences and to ensure compliance with the duty to act in accordance with the MER UK strategy.
Powers to Charge Fees
Prior to the publication of the Bill legislation did not provide for the charging of all elements of the Oil and Gas Environment and Decommissioning Unit fees.
Part 3 of the Bill has now introduced provisions relating to these regulator service charges. The Bill provides the Department of Energy and Climate Change with the ability to make secondary legislation to retrospectively validate charges which have been raised without authority.
Long Term Success
In his March Budget speech George Osborne committed to large reductions in tax on North Sea oil and gas and the broadening of investment that qualifies for allowances. See this article for the details. It is hoped that these tax changes coupled with the implementation of the Wood Review recommendations through the Energy Bill will provide for a prosperous future for the oil and gas industry which in recent times has faced numerous challenges.
When the Bill had its second reading in the House of Lords on 22 July, peers from all parties were supportive of the measures relating to the OGA and in fact wanted the Bill to go further, to deal with decommissioning of assets and their use for carbon capture and storage, and even to advance renewable technologies (floating wind platforms were mentioned). These are issues that will be discussed in detail at Committee stage, scheduled for 7 September, and it will be interesting to see how they develop.