Oil & Gas UK disagrees with government over who pays for new “super agency” regulator

Queen Elizabeth II and the Duke of Edinburgh arrive to the House of Lords ahead of the Queen's Speech
Queen Elizabeth II and the Duke of Edinburgh arrive to the House of Lords ahead of the Queen's Speech

UK Government ministers have told oil and gas industry chiefs that they expect them to foot the entire bill for a new “super agency” to regulate the North Sea.

The plan was announced in the final Queen’s Speech of this parliament, despite opposition within the sector.

The implementation of Sir Ian Wood’s landmark report on the future of the offshore industry is contained in the legislative programme for the coalition’s final 11 months before the election.

Changes proposed by the review aim to deliver at least 3-4 billion barrels of oil equivalent more over the next two decades than under current conditions, worth £200billion extra to the economy.

The bill will put the principle of “maximising economic recovery of petroleum in the UK” into statue for the first time.

On funding the new regulator, the programme states: “The government will also introduce a levy, making power so that the costs of funding a larger, better resourced regulator can be paid for by industry rather than by the taxpayer as is currently the case.”

It adds: “Clauses will be introduced later in the session to set up a new super agency for the North Sea, with a duty to support the government and industry in maximising economic recovery from this important resource.”

However industry body Oil & Gas UK said the full cost should not be borne by the industry.

Chief executive Malcolm Webb said: “We must disagree with the government seeking to absolve itself from all financial involvement or responsibility for the new regulator. This is not a question of the size of the bill. Production taxes paid by this industry each year run into many billions of pounds and the total cost of the new Regulator will be a very tiny fraction of that. It is rather a question of good governance, transparency and fairness that at least a part of the cost of the regulator should continue to be borne by the Department of Energy.

“We look forward to hearing further progress soon on the formation of the regulator.”

Scottish Secretary Alistair Carmichael, the Liberal Democrat MP for Orkney and Shetland, told Energy Voice: “This was the proposal that came from the industry itself through the Wood review.

“What you will get is a bill that implements the Wood review in full.

“The fact that we have received that report in its final form in February and it is now in a Queen’s speech in June, and will be an early piece of legislation, is a demonstration of the government’s commitment to the offshore oil and gas industry.”

The new Energy Bill will also include measures to boost the controversial extraction of shale gas, including underground access to private land, even if there is opposition from the landowner.

Chancellor George Osborne has previously indicated he would like to see sections of the new North Sea regulator operating by October.

UK Energy Minister Michael Fallon has said Aberdeen is the front-runner to host the new agency, but warned that it could be based in Newcastle if Scotland votes for independence in September.

It will take over the licensing and related functions currently performed by the Department of Energy and Climate, but have considerably more power and resources.

It will be able to ensure that all licence holders act in a way that is consistent with maximising North Sea oil recovery, including increased collaboration between companies – particularly around access to infrastructure – and improved data sharing.

Companies who fail to act in a manner designed to maximise output from the UKCS could ultimately lose their production licences.