OGA given power to fine N. Sea energy firms up to £5m to ensure industry collaboration

collaborationUK Energy Minister Ed Davey has published details of the new powers which the Aberdeen-based Oil and Gas Authority (OGA) will have to implement the Wood Review – including the power to impose fines of up to £5 million to enforce collaboration to maximise N. Sea production.

Davey said that to effectively respond to the challenges facing the North Sea offshore energy industry, a significant shift in regulatory culture is needed.

“The OGA will be a confident and credible regulator, creating long-lasting cultural change within the industry for the ultimate benefit of the UK – Delivering Maximising Economic Recovery,” he said.

“The MER strategy was a key recommendation made in the Wood Review. Work is ongoing apace between all members of the tripartite – Industry, the OGA and the Department for Energy (DECC) – to develop a fit-for-purpose strategy.

“The OGA will be provided with necessary tools to be a strong and effective regulator and to enable delivery of its objectives.”

The Minister’s statement explains:

Meetings access: We will ensure the OGA has the right to attend industry meetings as an observer. This should apply to all parties covered by the MER UK Strategy and should include meetings between operators within a joint venture, and meetings between licensees, where matters relating to licence obligations or matters relating to MER UK are being discussed.

Sharing data and information: We want to ensure the OGA has sufficient powers to gather relevant information. We are therefore proposing to take a power in primary legislation, allowing the powers to be developed as the priorities of the OGA become clearer, and ensuring time for further discussion with industry to ensure disproportionate burdens are not placed on them. Provisions will also be made to allow for sanctions to be imposed for breaches of any data or information obligations.

Dispute resolution: There is a recognised need for the OGA to have a non-binding role in the resolution of disputes. However, dispute resolution should be seen as a last resort and only used after the parties have made sufficient attempts to reach a resolution, working informally with the OGA. It is important that the OGA has the operational freedom to define the process by which it will consider and resolve disputes. However, the Government will set the scope of the scheme to ensure that the dispute resolution process assists in the delivery of MER UK.

Any dispute that relates to licence terms or that impacts, or has the potential to impact, on MER UK may be resolved by the OGA and any party to the dispute or the OGA will be capable of initiating the process. The OGA will have information gathering powers and the ability to set timeframes for the provision of information, with the aim of speeding up the dispute resolution process. The OGA will also have the power to impose sanctions where parties do not comply with the dispute resolution process.

Reviewing existing powers: A review of the existing powers is under way to ensure they remain fit for purpose and will sufficiently support the OGA, once transferred, in its role of regulating and stewarding the UKCS.

Sanctions Regime: We will introduce a more gradated set of sanctions, which will include improvement notices and financial penalties. Sanctions will be applicable to all parties within scope of the MER UK strategy and will be applicable for breaches of MER UK as well as non-compliance with licence conditions and key powers exercised by the OGA. We are committed to ensuring sanctions are proportionate so will place a statutory limit of £1 million on individual financial penalties imposed. If, however, this amount does not prove to be a suitable deterrent in the future, the Government intends to reserve the right to increase this limit to £5 million subject to consultation and Parliamentary approval.

Cost Recovery: The OGA’s costs will be met by a combination of the extant fees and charges regime, and a new levy on industry. We agree with industry that it is important that the levy is simple, transparent and cost-reflective.

A detailed consultation on final proposals for administering the levy will be published later this month. In line with the early focus of the OGA, we have determined that initially the activities and costs, which fall under the levy will only relate to offshore petroleum licence holders. We intend that the OGA will begin collecting the levy in October 2015.

The OGA will continue to recover the costs associated with permits and consents via the extant fees and charges regime. However, to comply with the Managing Public Money principles, the scope of the charging regime will be reviewed in due course.

Danny Alexander, MP, Chief Secretary to the Treasury, said: “The oil and gas industry is a hugely important employer and investor in Scotland and across the UK, which is why we announced a package to encourage £4 billion of additional investment at Budget, and why we’re announcing that the new Oil and Gas Authority will have the powers it needs to maximise the ongoing strength of the industry.

This demonstrates the government’s long term commitment to supporting the North Sea oil and gas industry, and ensuring that both the industry and the nation continue to benefit from the billions of barrels of North Sea oil that still remain to be extracted.”

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