On 6 November 2014, the Government announced the appointment of Andy Samuel, currently Managing Director of BG Group’s Exploration and Production in Europe, as Chief Executive of the Oil and Gas Authority (OGA). This announcement was coupled with a Call for Evidence from Government to industry asking industry how best to deliver the next stage of Sir Ian Wood’s recommendations.
Sir Ian’s recommendations The Wood Review, published in February 2014, made four main recommendations for maximising economic recovery from the UKCS:
- Government and Industry should develop and commit to a new strategy for maximising economic recovery from the UKCS (MER UK)
- Stewardship of the UKCS should move to a new, better resourced, arm’s length body, funded by Industry
- The body should be provided with additional powers to implement MER UK
- The new body should work with Industry to develop and implement new sector strategies, such as an exploration and decommissioning cost reduction
Government welcomed and accepted Sir Ian’s report and has taken measures to work towards achieving the main recommendations by forming an Interim Advisory Panel, chaired by Sir Ian Wood, which has a role in advising on Wood Review implementation.
In July, the government published its formal response to the Review, and set out its proposals for implementing the Review’s recommendations. The key proposal is the establishment of the OGA as a successor of the DECC, as quickly as possible.
Appointment of new CEO of the OGA
Andy Samuel, has been appointed as Chief Executive of the OGA, effective 1 January 2015. He will be involved in any decisions vital to the establishment of the OGA prior for that date.
The OGA will be headquartered in Aberdeen, with a significant presence in London. Initially, the OGA will operate as an arm’s length agency of DECC, taking over DECC’s functions in relation to Licensing, Exploration and Development, and will be responsible for maximising the cost effective recovery of oil and gas from the UCKS, in order to maximise the long-term added value to the UK as a whole (MER UK). DECC is now in the early stages of work to prepare a bill for the first session of the new Parliament in 2015, which will complete the establishment of the OGA as steward and regulator of the UK’s oil and gas reserves. Once the bill achieves Royal Assent, the OGA will also be responsible for ensuring compliance with the legislation and carrying out the necessary enforcement activities.
With an overall strategic objective of maximising economic recovery from the UK’s oil and gas resources, the CEO’s immediate priorities will be the establishment of the OGA, and the recruitment of the appropriate human resources required for its successful operation. Central to the effective regulation of the oil and gas industry, is the requirement that the OGA, the government and industry players build a resilient partnership, and work towards the establishment of a tripartite approach moving forward.
Call for evidence
The appointment of the new CEO coincides with a government call for evidence from Industry and others on the next stage of Sir Ian Woods’ recommendations
The call for evidence asks for Industry views on the scope and definition of the MER UK Strategy, and seeks to engage, and give all relevant and interested parties an opportunity to support MER UK by providing views and evidence as to how the Wood Review recommendations should be implemented.
The Call for Evidence asks industry the following:
1. Setting up the OGA: governance and scope
In its final form, the OGA will be established as a GovCo providing the operational freedoms from Government that it needs to be fully effective in meeting its objectives.
The OGA’s broad remit will be to:
- Work proactively with Industry and Government to develop and deliver a coherent tripartite agreed, long-term MER UK Strategy
- Ensure individual licence holders, and Industry more generally, are held to account for their performance and act in accordance with the MER UK Stratgey
- Encourage, facilitate and support collaboration across Industry, ultimately using its powers as necessary, having regard to competition law, to require behaviours which will deliver MER UK
- Provide advice and expertise to Industry and Government
The Call for Evidence asks whether Industry sees any unintended consequences with the OGA’s intended remit.
2. MER UK Strategy
The Wood Review concluded that a new holistic approach is needed to maximise economic recovery in the UKCS. The MER UK Strategy requires tripartite working between the OGA, HM Treasury and Industry to maximise the economic and security opportunities still offered by the UKCS.
The Call for Evidence asks for Industry’s views on the scope and definition of the MER UK Strategy and on Government’s initial proposals for underlying guiding principles which will enable MER UK to be delivered.
3. New regulatory powers for the OGA: meeting access
he Wood Review recommended that the OGA should have the right to attend Operational and Technical management Committee meetings as an observer, in order for it to fully understand the challenges faced by industry. Government agrees with this recommendation and has committed to consider what powers the OGA needs to ensure it could attend Industry meetings. The Call for Evidence ask whether Industry agrees with Government’s current intention to “provide the OGA with a general power to attend all meetings, where issues are discussed that may impact on MER UK. The OGA will be able to require Industry to inform it in advance of key meetings, including Operational Committee meetings and Technical Committee meetings, and to provide it with agendas and papers. It will then be for the OGA to prioritise which meetings it attends. Failure by the company to advise OGA of forthcoming meetings and to provide the paperwork, and unreasonable withholding access for the OGA to attend meetings may result in the OGA using sanctions against the company.”
4. New regulatory powers for the OGA: sharing data and information
The Wood Review recommended that, in order to give full effect to its recommendations, the OGA should have the power to access appropriate and sufficient date from license holders. The Call for Evidence ask Industry:
- What data is needed to further MER UK and after what length of time is it most appropriate to share?
- How can reporting be timetabled so as to minimise burden on licence holders whilst maintaining a supply of relevant and up-to-date data?
- What considerations should be taken into account when developing the Wood Review recommendation for the OGA to capture speculative seismic date from licence holders? Should difference considerations apply to 2D, 3D and 4D data?
5. New regulatory powers for the OGA: dispute resolution
The Wood Review found that a significant number of disputes on commercial and technical issues including, but not limited, access to processing and transport infrastructure and new field cluster developments, had the potential to impact on MER UK. As a solution, it was recommended that the OGA should work with Industry to develop protocols and processes for dispute resolution including the use of expert assessors where appropriate, noting that legislation already exists to allow the SoS to impose terms in third party access dispute. It was further recommended that the OGA should be provided with a power to resolve such disputes by making a non-binding recommendation to the parties, who could be subject to sanctions for a breach of MER UK, or other licence clauses, if they failed to accept the opinion.
Government committed to provide the OGA with the power to resolve disputes and disagreements in good time on matters relevant to licences and MER UK. The Call for Evidence asks Industry:
- To what degree should Government set the parameters of the OGA’s dispute resolution process?
- Does Industry agree with the parameters proposed?
6. New regulatory powers for the OGA: reviewing existing powers
The DECC plans to carry out a review of the existing powers available to LED and which will transfer to the OGA to ensure the current powers are effective and capable of use under the scheme envisaged for the OGA.
The Call for Evidence asks whether Industry has any views on the effectiveness of the existing powers and what could be done to make them more effective.
7. Sanctions regime
An integral part of the MER UK Strategy is that it should be supported by a sanctions regime that is flexible enough to impose sanctions proportionate to breaches with sufficient powers to ensure compliance. The Wood Review identified the current sanctions regime as not providing a wide enough range of sanctions that are proportionate to all levels of breach, consisting only of official notifications and revocation of licenses.
Government agreed with the Wood Reports analysis of the current sanctions system and is therefore proposing a more gradated regime. It is envisaged by Government that the OGA will have a similar suite of sanctions as those under the remit of other regulatory bodies such as Ofgem, Ofwat or the FCA.
The Call for Evidence ask Industry:
- Whether the steps outlined are sufficient to ensure adherence to MER UK Strategy?
- For its views and evidence on whether financial penalties would be an appropriate and useful enforcement tool for the OGA?
8. Cost recovery
The Wood Review noted that many regulatory bodies are fully funded by their respective industries and that this funding model seems appropriate for the OGA.
Government agrees with the Wood Review that the challenges of delivering MER UK require the OGA to be significantly better resourced than the current team in DECC and this will require financial flexibility. In the long run, Government considers it appropriate that the OGA should recover its costs from companies regulated by the OGA. In the short term, from 2016-17, for a period of 5 years, Government has agreed to contribute £3m per year towards the costs of running the OGA.
To fully fund the OGA, Government intends to introduce a full cost-recovery mechanism which will include a set of charges for services along with a new levy on licence holders to cover the remaining net costs which the OGA will incur.
The Call for Evidence asks Industry:
- Whether it agrees that using acreage is the most suitable metric on which to base the levy calculations?
- Whether it has any comments or observations on Government’s initial proposals for collecting the levy from industry?
The 28th licensing round
Finally, the appointment of Andy Samuel also coincides with the announcement of 134 licenses covering 252 blocks offered in the 28th offshore licensing round. With a further group of applications being decided following environmental assessments, it is expected that this will be one of the biggest licensing rounds since licensing began in 1964. Click here to respond to the call for evidence.