In June, the UK government implemented the Gas and Petroleum (Consents) Charges Regulations 2013 (the "Regulations"). The Regulations permit the UK government's Department for Energy and Climate Change (DECC) to charge fees for considering and issuing certain operating consents and authorisations required from DECC of UK petroleum exploration and production licensees. The scope of the Regulations also extends to consents applied for and issued in connection with offshore methane and CO2 storage licences, as wells as pipeline works authorisations. The Regulations are available at www.legislation.gov.uk/uksi/2013/1138/contents/made.
The introduction of charges for issuing consents applied for by licensees represents a shift in the funding structure of DECC. Prior to the Regulations becoming effective, DECC's administrative costs were borne by the UK tax payer. Now, through the charges levied under the Regulations, the UK petroleum industry will support a proportion of those costs directly. By doing so, DECC hopes the income generated will facilitate the continuation of its service provision as industry regulator in an efficient and expedient way, despite increasing constraints on public expenditure by the UK Treasury. The introduction of the Regulations is not the first time DECC has instituted charges for the services it provides. Charges already apply for DECC's role in environmental regulation, and the Offshore (Oil and Gas) Installation and Pipeline Abandonment Regulations implemented in 2012 also levy fees for DECC's required approval of abandonment programmes. In this era of austerity it seems increasingly likely that fee-based systems for the issuance of regulatory approvals will become commonplace. Time will tell if the income generated by doing so generates a tangible improvement to the services DECC offers.
Industry's reaction to the introduction of a fee-based approvals system is one of concern that the energy industry, one of few sectors remaining buoyant in the current economic climate, is being used to plug the government's resources deficit. UK petroleum licence fees already generate considerable revenue for government coffers and the industry has expressed a view that additional costs associated with obtaining operating approvals could have a negative impact on E&P activity in the UK.
Under the Regulations, the applicable charges may be fixed or variable in nature depending on which of three categories the consent applied for falls into:
- "Category A Services" are those services which DECC considers to involve the most complex work and where the resources required (and resulting cost to DECC) will vary from case to case. The charges for Category A Services are determined formulaically, as prescribed in the Regulations. The present charge for a Category A Service is £500 x No. of Days Worked x No. of Officers Engaged. The calculations made by DECC are invoiced following completion of the work done on the basis of timesheets maintained by the DECC officers involved in the relevant application decision process.
Category A Services comprise:
- Approval of an onshore or offshore Field Development Plan (referred to in the Regulations as "a development and production programme"), including approval to revisions and addenda;
- Approval of an offshore Gas Storage Development Plan (referred to in the Regulations as "a development plan"), including approval to revisions and addenda;
- Approval of an offshore carbon dioxide Storage Permit (referred to in the Regulations as "a carbon dioxide storage proposal"), including approval revisions and addenda;
- A Pipeline Works Authorisation and variations thereto (including Holder User Operator or Owner); and
- A deposit consent (referred to in the Regulations as "a pipeline deposit proposal").
- "Category B Services" are those which DECC considers to involve less complex issues for decision and comprises applications for common operational consents and licence changes. A full list of the services attracting a charge is set out in the Regulations. Charges for Category B Services are pre-determined fixed charges payable upon submission of the relevant application.
Category B Services comprise:
- Drilling consents and notifications made through DECC's online Wells Operations and Notifications System (WONS). The charges for drilling consents range from £506 for consent to abandon a well to £647 for consent to drill a new well;
- Approval of licence changes ranging from £252 for consent to change a licensee to £900 for consent to change the operator of a petroleum field.
- Production, flaring and venting consents, or an application to vary or revise and existing consent will attract charges ranging from £714 for a flaring or venting consent to £994 for a production consent.
- "Category C Services" are, similar to Category B Services, charged on a fixed fee basis, payable upon submission of an application and comprise approval of petroleum measurement methodology proposals (£920) and approval of extended test wells (£994).