Wood Review

Ed Davey Excerpts

Friday 20th March 2015 Written Statements

[The Secretary of State for Energy and Climate Change (Mr Edward Davey)]

Today we are publishing the Government’s response to the Wood Review Call for Evidence, which sought views on how to best implement the Wood review’s recommendations to empower the Oil and Gas Authority (OGA) to be a strong and influential regulator, equipped with necessary powers to regulate and steward the UK Continental Shelf.

The call for evidence ran from 6 November to 31 December 2014. During the call for evidence process, we held a number of industry workshops in London and Aberdeen to discuss, in detail, the questions posed in the call for evidence. The workshops were well attended by a wide range of industry stakeholders and the evidence gained from them, as well as from the written responses, has now been reviewed. The responses received were broadly supportive of the policy positions set out in the call for evidence and the stakeholder views and the evidence presented have been carefully considered in deciding how to move forward.

Key policy decisions

Governance and scope: The OGA will be a strong, effective regulator, established as an Executive Agency on 1 April 2015, before (subject to the will of Parliament) transitioning to a Government company in summer 2016. To effectively respond to the challenges posed to the UKCS, a significant shift in regulatory culture is needed, and 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 from the UKCS (MER UK): The MER UK strategy was a key recommendation made in the Wood review. Work is ongoing apace between all members of the tripartite—Industry, the OGA and HMG—to define MER UK and develop a fit for purpose strategy, which will help to deliver overall benefits to the UK.

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

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 noncompliance 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 intend 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.

Conclusion

The call for evidence was a crucial opportunity to hear industry’s views and shape our policies. We are now working hard to prepare a Bill which, subject to the will of the Government, will be introduced to Parliament during summer 2015. The Bill will establish the OGA as a Government company, as well as providing it OGA with the above-mentioned powers.

I will be depositing a copy of the Government response in the Libraries of the House.

[HCWS427]