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UK government outlines support package for oil and gas industry

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Hydrocarbon Engineering,

The UK government has outlined a major package of support for the oil and gas industry following Wednesday’s Budget announcement. The new Oil and Gas Authority (OGA) will be given a range of powers to ensure it has the ability to help maximise the economic recovery of the UK’s oil and gas industry.

Under the proposals published today, the OGA’s powers would include the ability to issue fines of up to £1 million, to revoke licences where necessary, as well as having the right to attend meetings and have access to data to enable it to spot and resolve issues at an early stage.

The government has also outlined the design of the basin wide new oil and gas Investment Allowance and published the summary of responses to its consultation. A fast tracked consultation on the Investment Allowance ran from January to February and the measure will be introduced in Finance Bill 2015, applicable to investment incurred from 1 April 2015. This measure will drive new investment, simplify the existing system of offshore field allowance significantly and provide greater certainty for investors.

This follows the government’s announcement at Budget that it would cut the Supplementary Charge from 30% to 20% and reduce Petroleum Revenue Tax from 50% to 35%, as well as introduce a new Investment Allowance to drive new investment and invest £20 million in a programme of seismic surveys to boost offshore exploration.

“The UK’s 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 today we’re announcing that the new Oil and Gas Authority will have the powers it needs to maximise the ongoing strength of the industry,” said Danny Alexander, Chief Secretary to the Treasury. “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.”

Wood Review

To support its role as a trusted facilitator, catalyst for change and collaboration within the industry and regulator, the Government Response to the Call for Evidence recommends that the OGA has the powers to:

  • Attend meetings and have access to data and information required to spot and resolve issues quickly and hold companies to account where required.
  • Implement sanctions in situations where companies do not comply with the terms of their licences or with maximising economic recovery. Sanctions could include improvement notices, and fines of up to £1 million, with an option to make regulations to increase the limit to £5 million if necessary, or ultimately to revoke licenses.
  • Provide dispute resolution, where required, in a way which prioritises those disputes that present significant strategic risks to the successful recovery of oil and gas from the North Sea.

The government has been working closely with the North Sea industry over the last year to establish the new regulator. Andy Samuel took up his position as its Chief Executive in January, and Sir Patrick Brown was appointed as Chairman earlier this month.

“In my recent Call to Action report, I highlighted the very real challenges facing our oil and gas industry, and the need for continued collaboration across industry, government and the OGA,” said Andy Samuel, Chief Executive of the OGA. “It is important that the OGA has appropriate regulatory powers to support its work as a trusted facilitator. 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 maximise economic recovery through collaborative commercial behaviours 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 OGA was one of the recommendations of the Wood Review and it will become an Executive Agency on 1 April. Subject to the will of the new government, a bill to establish legislation setting out its role and powers will be introduced in the first session of the new parliament.

Adapted from press release by Rosalie Starling

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