In UK oil and gas law, we’re used to seeing a change of government department responsible for the regulation of oil and gas – from the DTI, to DBERR, to DECC to (D)BEIS. Now, however, the new regulator, OGA will shortly be transferred many of the old functions of those government departments.
The Energy Act 2016 (Commencement No.2 and Transitional Provisions) Regulations 2016 (the “Regulations”) were made on 7 September 2016. The Regulations will bring into force the majority of oil & gas related sections of the Energy Act 2016 (the “Act”) on 1 October 2016. Since the Act received Royal Assent on 12 May 2016, only certain sections have been brought into force, being provisions relating to the levy on licence holders funding the operations of the Oil & Gas Authority (the “OGA”) and provisions relating to onshore wind power.
On 1 October 2016, Parts 1 to 3 of the Act, with a few exceptions, will become law (to the extent not already in force) meaning that:
- there will be a formal transfer of certain functions of the Secretary of State to the OGA as set out in Schedule 1 of the Act;
- the provisions relating to Disputes, Meetings and Sanctions as set out in Part 2 of the Act will be brought into force; and
- the provisions relating to Infrastructure and Decommissioning set out in Part 3 of the Act (and Schedule 3) will be brought into force.
Following enactment of these provisions, the provisions which remain to be brought into force at a later date relate to the OGA’s power to request information and samples (sections 30-36, Part 2 of the Act). It is not clear why the enactment of these provisions has been delayed.
In order to avoid confusion, it is useful to consider the powers exercisable by OGA and other government departments relating to the oil and gas industry, going forward:
1. What will be done by OGA going forward?
The OGA’s powers, transferred from DECC as of 1st October are broadly as follows:
Licensing and regulatory powers under Petroleum Act 1998
- Awarding licences;
- Power to charge fees for services provided to the industry, e.g. for considering licence applications;
- Power to modify or exclude the Model Clauses in any particular case (but the OGA may not legislate to issue a new set of Model Clauses);
- Granting consents to licence assignments.
Decommissioning functions under Petroleum Act 1998
- The OGA must be consulted before submitting the abandonment programme to the SoS. The OGA will advise on alternatives to decommissioning (s.72 and Sch.2 of the 2016 Act amending s.29 of the 1998 Act)
Certain taxation powers under the Tax/Finance legislation
- Certain powers relating to determination of oil fields and cluster areas for the purposes of assessing tax liability.
In addition, the OGA will, broadly speaking, have the following powers as a result of the “MER UK” implementation from 1st October:
- Dispute resolution
The Energy Act gives the OGA the power to consider and make recommendations to resolve what are known as “qualifying disputes” (section 19 of the Energy Act).
These are disputes which involve issues that are relevant in fulfilling the MER UK strategy (i.e. that of Maximising Economic Recovery) or that relate to activities carried out under an offshore licence and are not the subject of a section 82 application (i.e. an application under section 82 application of the Energy Act 2011 concerning the right to access petroleum infrastructure).
The OGA can either accept a dispute, adjourn it for further negotiation or reject it (section 21 of the Energy Act).
The OGA can make recommendations for resolving disputes which best contributes to fulfilling the MER UK Strategy and as part of this process, the OGA may acquire information and require individuals to attend meetings.
The OGA will also have the power to impose sanctions when parties do not comply with a “Petroleum Related Requirement” (section 42 of the Energy Act). “Petroleum Related Requirement” means (a) a duty to act in accordance with the MER UK Strategy (b) a term or condition of an offshore licence or (c) a requirement imposed on a person under the Energy Act.
The following sanctions are available to the OGA:
- Enforcement Notice: the notice may include directions in respect of measures to be taken regarding compliance with the Petroleum Related Requirement.
- Financial penalty: the OGA can impose a financial penalty of a maximum of £5million in respect of a failure to comply with a Petroleum Related Requirement (currently capped at £1 million).
- Revocation: the OGA can revoke a Petroleum Licence upon the expiry of a 28 day period from a Revocation Notice
- Operator Removal: the OGA can remove an Operator upon the expiry of a 28 day period from a Removal Notice
2. What will be done by the Department for Business Energy and Industrial Strategy (BEIS) going forward?
BEIS remains in charge of policy, although it will not be able to interfere with OGA’s operations. Broadly speaking, BEIS’ powers going forward will be powers in relation to decommissioning (including service of decommissioning related notices and review of programmes), criminal proceedings in respect of petroleum operations, onshore fracturing (in England and Wales only) and the power to inspect pipelines. BEIS will remain the principal environmental regulator for the offshore oil and gas industry. This means that the changes do not materially affect the operation of the Offshore Safety Directive Regulator (OSDR), responsible for overseeing industry compliance with the EU Directive on the safety of offshore oil and gas operations. The OSDR was a partnership between HSE’s Energy Division and DECC’s Offshore Oil and Gas Environment and Decommissioning Team; this partnership will now consist of HSE / BEIS, with the OSDR governance arrangements for the two bodies still to be amended.
3. What will be handled by the relevant Scottish Authority going forward?
The Scottish Ministers will have control over the licensing of onshore oil and gas extraction underlying Scotland (sections 47 to 49 of the Scotland Act 2016).
At present, there have been no commencement provisions passed in Parliament in respect of sections 47 to 49 of the Scotland Act 2016.
The powers of the HSE and HMT remain as at present.