It is six months since the Oil and Gas Authority (OGA) published its ‘Call to Action’ identifying what it considered to be the key risks facing the UK oil and gas industry following the sharp decline in global oil prices, the required action from industry, government and the OGA, and early priorities for the new regulator. ‘Call to Action – Six Months On’ published on 7 September 2015 provides an update on its progress. Some highlights of those updates are as follows:
Update on the OGA’s Incorporation and Development
- The OGA now has its full leadership team in place and intends to increase overall headcount to around 179 employees.
- The OGA has been granted operational independence and it has been established as an Executive Agency. The Chief Executive now has direct accountability to the Secretary of State for Energy and Climate Change for exploration and production decisions and approvals. The Energy Bill will formally establish the OGA as an independent regulator and the OGA expects to become a government company by summer 2016.
- The OGA intends to introduce an industry levy by the end of September 2015 to cover its costs. On 8 September, subsequent to publication of Call to Action – Six Months On, the Oil and Gas Authority (Levy) Regulations 2015 were signed on behalf of DECC and laid before Parliament. These Regulations provide that from 1 October 2015 all UKCS petroleum licensees will be liable to pay a levy to the OGA. The levy for the period up to 31 March 2016 will be £2,759.30 in respect of both exploration licenses and offshore licences, with a higher levy of £30,422.92 applying in respect of offshore production licences which are in production or where an approved production programme/consent is in place.
- The Energy Bill, once it becomes law, will formally establish the OGA as an independent regulator and transfer the majority of the Secretary of State’s UK oil and gas regulatory powers to the OGA. The Bill is currently in the Committee Stage of the House of Lords and was most recently debated on 14 September 2015. The OGA expects the Bill to receive Royal Assent near the end of Q1 2016.
Update on the OGA’s Activities
- The OGA will publish its five-year Corporate Plan later this year. The plan will describe the OGA’s priorities and how the regulator will work with industry and government to realise MER UK. It will include targets and performance indicators so that others can understand the OGA’s approach and monitor its progress.
- By the end of 2015, the OGA will publish a comprehensive enhanced stewardship strategy with clearly defined expectations, and a broader definition of ‘asset’ to encourage enhanced stewardship not only of producing assets but across the lifecycle.
- In 2016 the OGA will introduce ‘company scorecards’ of leading and lagging performance indicators such as production, investment, well-work, production efficiency and capital project delivery. The scorecards will allow the OGA to internally track and regularly review performance.
- The OGA is developing a decommissioning strategy focused on reducing costs, increasing efficiency, facilitating cooperation and technology development.
- The OGA is developing a technology strategy and five-year road map to support a 30-40% efficiency improvement, to encourage collaboration, innovation, consistent evaluation and early-stage technology planning across the value chain.
Update on Exploration and Production
- The UK Government has provided £20 million of funding for broadband 2D seismic surveys from the Rockall Trough and Mid-North Sea High area. Operations began in mid-July with three vessels in the field acquiring data over an area of 220,000 km2. The data will be made freely available to the industry in early 2016.
- In 2016, the 29th Offshore Licensing Round will primarily target under-explored frontier blocks – OGA’s intent is that this will help to reduce the impact on operators’ near-term Capex and leverage the high-quality geotechnical data from the Rockall Trough and the Mid-North Sea High area gathered through the ongoing seismic campaign.
- In 2017, the 30th Offshore Licensing Round, focusing on mature parts of the basin, is intended to enable open acreage, fallow licenses, ‘discovered undeveloped’, and other 2016 relinquishments to be evaluated and consolidated into hub opportunities.
However, Call to Action – Six Months On contains no new information on the MER UK Strategy. The OGA notes that a public consultation on a draft of the MER UK Strategy will be launched in autumn 2015, before the final document is laid before Parliament and comes into force by April 2016. The Strategy is likely to have significant implications for the whole industry and stakeholders are looking to the OGA for a detailed statement of that Strategy in order to fully understand the new framework within which they are being asked to conduct their businesses.
Call to Action – Six Months On ends by reiterating the OGA’s actions for industry, namely to:
- Work collaboratively and openly with the OGA and relevant operators to protect critical infrastructure.
- Fully support the activities of PILOT MER UK, the Fiscal Forum, the Technology Leadership Board and the Oil and Gas Industry Council in support of MER UK.
- Do everything possible to retain apprenticeship, trainee and graduate schemes despite the current challenges.
- Continue to deliver significant improvements in asset stewardship, working with the OGA to regularly review progress against structured plans.
- Significantly modify commercial behaviours to align with MER UK.
- Establish a single forum to drive innovation and efficiency in decommissioning.
- Reinvigorate and intensify efforts to improve efficiency with a target of 30% to 40%, working with the OGA to allow effective monitoring of progress.
Whilst the report focuses on progress made, it admits that the OGA still has a lot of work to do. Influencing commercial behaviour and promoting greater collaboration across the industry will take much time and effort. Companies are likely to wait until the MER UK Strategy is published before making strategic and operational changes. Nevertheless, the industry must evolve and the OGA looks set to be a key player in that process.
Call to Action – Six Months On can be found here.