The UK offshore industry’s new regulator is to be given powers to fine oil and gas producers up to £1 million, and potentially £5 million, and to revoke licenses, under certain circumstances, it has been announced.
Under a string of new powers the UK Government is to give to the new Oil and Gas Authority (OGA), which was set up in a bid to revitalize the ailing North Sea sector, the body will also be able to attend company meetings and have access to data which will enable it to spot and resolve issues at an early stage.
Image: OGA CEO Andy Samuel.
The measures were announced this morning by chief secretary to the treasury Danny Alexander and secretary of state for climate change Ed Davey at the offices of oilfield logistics firm ASCO in Aberdeen.
The measures, aimed at giving “teeth” to the new regulator, which was set up following a recommendation by the 2014 Wood Review, come just days after a package of tax cuts was announced in the annual Budget.
Chancellor George Osborne unveiled a new basin-wide investment allowance, further details of which have also been outlined today (20 March), as well as investment in £20 million seismic surveys and cuts in the petroleum revenue tax and supplementary charge – both of which are taxes on oil and gas producers in addition to corporation tax. Read more here.
The new investment allowance will be introduced in Finance Bill 2015, and applicable to investment incurred from 1 April 2015.
The new powers for the OGA, headed by former BG executive Andy Samuel and due to formally become an executive agency on 1 April, follow a call for evidence following the Wood Review – a review of the industry commissioned in 2013 amid concerns about the future health of the North Sea. Read more here.
To make it a strong and effective regulator, the government has recommended that it has the power to:
In his recent Call to Action report, Samuel highlighted what he called “the very real challenges” facing the North Sea oil and gas industry. Read more here.
“It is important that the OGA has appropriate regulatory powers to support its work as a trusted facilitator,” Samuel said. “I’m pleased that industry has been involved in the process to inform the legislation which is being drafted and that our work to create an effective, independent regulator is on track.
“Equally important is the commitment of all parties to maximize economic recovery through collaborative commercial behaviors in the North Sea, to safely improve efficiency, deliver a competitive cost base and create an operating environment that attracts investment now and in the future.”
The UK Government says its Budget measures are expected to lead to over £4 billion of additional investment over the next five years and at least 120 MMboe of additional reserves, increasing production by 15% (the equivalent of 0.1% of GDP) by 2019-20. It will provide certainty for investors and create the right conditions for the basin to flourish and deliver maximum economic benefits for the UK.
Osborne’s Budget measures were broadly welcomed by the industry, with some saying they did not go far enough. Oil & Gas UK estimated that, in the near-term alone, the new measures could incentivize an additional £4 billion of capital investment, enabling the development of 500 MMboe, which at today’s prices are worth £20 billion.
Colin Welsh, CEO at Simmonds & Company International, said: "Today's measures are akin to a patient requiring a massive shot of adrenaline but instead being handed an oxygen mask. What we see is a definite move in the right direction but the combined measures do not amount to a game changer for the UKCS."
Mhairidh Evans, UK Upstream Senior Research Analyst for Wood Mackenzie, said: "While the announcement is beneficial for onstream fields and already-discovered resources, there will be disappointment that more hasn't been done to revive exploration. The effect of the Investment Allowance is unlikely to extend to opening new plays, and £20 million will be used up quickly on surveys in frontier areas. Further work will still be required to address the long-term challenges of the UK's high-cost operating environment and dry project pipeline."
Jon Fitzpatrick, Senior Managing Director and Head of Oil & Gas EMEA at Macquarie Capital and President of the Scottish Oil Club, was sanguine about the new measures. He said, while welcome, they "will likely only benefit the handful of tax-paying North Sea producers and will not address the much larger, structural issues facing the North Sea oil and gas industry."
Read more:
Warm-ish welcome for North Sea tax measures
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