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Oil & Gas Authority sets out its aims

The newly-created Oil & Gas Authority will oversee the operations of UK North Sea producers as the province moves into a period of deeper decline. Petroleum Economist asks how it will achieve this

What are the next steps that the OGA must take, having filled its key executive posts? 

Given the many challenges facing the industry, the OGA’s priority was to move quickly to establish itself as a strong and effective regulator. Its new leadership roles attracted significant interest and it announced the appointment of a high-calibre leadership team in early May. It will continue to develop the organisation in the coming months, increasing its capability but focused on providing value for money. It has set an overall headcount cap of 179 employees in order to avoid ‘mission creep’ and its intention is to build a strong, diverse and experienced team focused on delivery. 

The OGA became an Executive Agency of the Department of Energy and Climate Change on 1 April 2015 and is on track to become a government company by summer 2016, subject to the will of parliament. The OGA framework document describes its day-to-day operational independence from the Department of Energy and Climate Change, the remit of the OGA Board chaired by Sir Patrick Brown and its intention to operate as an independent government company from day one. It also sets out the OGA’s role to regulate, influence and promote the UK oil and gas industry in order to maximise economic recovery.

The Energy Bill, announced in the Queen’s Speech, will provide new regulatory powers for the OGA, including the ability for it to participate in meetings with operators, have access to data, provide dispute resolution and introduce a range of sanctions such as improvement notices and fines up to £1m. Its preference though is not to use these sanctions often but to work closely with industry to encourage collaboration and facilitate action.   

Given the challenging backdrop for the industry, now, more than ever, is the time to create a future of collaboration. It has the opportunity to identify and remove behavioural barriers, set clearer expectations between organisations involved in the North Sea, learn from positive examples and secure leadership commitment to sustainable cultural change. But the OGA does not have all the answers. We all need to lead the change. We all need to help secure the best possible future for our industry. We all need to think and talk about the art of the possible, and turn commitment into action, says a spokesman. 

What lessons have been learnt from Norway and are applicable in the UK? 

The two basins have grown up together and both benefited from the experience of the other. I am certainly impressed with the resources that Norway put into some activities, for example, geological data. The OGA will have a strong focus on making more out of the data it has; and, in time, it hopes the UK’s data regime will be seen as the best in the world and supporting not just exploration but production and even decommissioning. The OGA was also impressed by the Norwegian government’s sponsorship of seismic in frontier areas. Before the creation of the OGA some £20m ($31m) were allocated for shooting new seismic to the west of the Hebrides and in the under-explored mid-north sea high. Contracts have now been awarded and vessels are in the field acquiring new data.

Does Norway’s state participation in licenses help or hinder development? Would it be workable here?

Norway takes a very different approach to state participation from the UK and it is not clear that either is better provided the competencies are maintained and the ideas evolve to match the challenges of the basin. But the UK must continue to attract the variety of innovative investors that it has in the past. The £1.3bn package of measures announced in the March Budget has provided a very welcome boost to the industry and the OGA will help to create progressive regulatory and operating environment that makes the UK continental shelf (UKCS) an attractive destination for investment. 

Will OGA be working with the industry to put their case to Treasury if it sees taxes etc working against the MER principle? Or is it the hope that the Treasury will only make changes in concert with the OGA?

Government will now be focusing on three important areas: exploration, infrastructure access and barriers to new entrants for late life assets. HM Treasury and the OGA will be pooling resources and working together over the coming months to ensure a joined-up and balanced approach that helps deliver value and maximise the economic recovery of the oil and gas resources. Industry input will be sought to ensure that we have full access to information on these issues and that we are directing our efforts towards the most important issues and unresolved questions, the spokesman says.

The success or failure of OGA will depend on factors beyond its control, such as low oil prices that will hasten decommissioning. What, if anything, can be done about this? 

The sharp decline in oil prices in recent months has magnified the challenges that companies in the UKCS have been grappling with for many years. Increasing costs, falling exploration and ageing infrastructure, coupled with commercial and legal complexity. The OGA’s Call to Action published in February 2015 in response to a commission from the Secretary of State for Energy and Climate Change, identified two immediate risks resulting from the fall in oil price.

First, the risk of declining profitability in producing fields leading to the premature decommissioning of critical infrastructure. The ‘domino effect’ caused by removing key assets has the potential to shut down whole areas of the UKCS, stranding valuable resources. To help avoid this, the OGA is working very actively with infrastructure owners and their partners to facilitate discussions and help find solutions in often challenging commercial situations. 

Second, the risk that a lack of confidence could result in the failure to secure critical long-term investment in the basin. The £1.3bn package provided a welcome boost to the industry and was well received by investors. It was a great early example of the tripartite relationship, envisaged in the Wood Review, in action and delivering positive outcomes. Alongside this it is now essential that the industry redoubles its efforts to create a more competitive cost base and increases efficiency.

With significantly fewer new wells planned in 2015, revitalising exploration is another key priority. It is moving ahead with the £20m government-funded seismic project…. “This is the first time that HM Treasury has funded seismic acquisition and the data will be made freely available to the industry. At the same time the OGA is analysing the root causes of exploration failures in recent years – it is vital that we learn from these and make the right interventions” he says.

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