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The Energy Act 2016: Power to the OGA? A recap of the key regulatory changes in 2016

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Summary: One of the key effects of the Energy Act 2016 (the “Act”) was the transition of the Oil and Gas Authority (“OGA”) from an executive government agency to an independent government company under the Act. So, which powers does the OGA have and which remain to be implemented?

Implementing recommendations from Sir Ian Wood’s UKCS Maximising Recovery Review: Final Report (the “Wood Review”), the Act also provides for the OGA to acquire new powers - some of which it has now acquired, whilst others have not yet been brought into force. Below we discuss which powers the OGA has, and which remain to be brought into force.

First though, and by way of background, we give a brief overview of why the OGA has been established as an independent regulator of the oil and gas industry (the “industry”).

The Wood Review and Maximising Economic Recovery

Published in February 2014, the Wood Review sought to outline how the UK government could best facilitate the maximisation of economic recovery from the mature (and high cost-base) UK Continental Shelf (“UKCS”). One of its key recommendations was the creation of a new arm’s length body to regulate UKCS oil and gas recovery, with this body having a remit (and the necessary powers) to deliver the MER UK strategy (the “Strategy”). The ‘principal objective’ of this Strategy is maximising economic recovery of UKCS oil and gas (“MER”). The OGA will exercise its powers within this context.

Commencement?

The elements of the Act currently in force (which relate to the OGA) have been implemented by three sets of commencement regulations:

  • the first set of regulations included provisions to allow the Secretary of State to transfer functions and liabilities to the OGA and to establish the OGA;
  • the second set of regulations transferred certain powers and functions to the OGA; and
  • the third set of regulations provided the OGA with further powers including the power to request “petroleum related information, or a portion of any petroleum-related sample, held by or on behalf of that person”, and the ability for those persons of whom such requests are made to appeal against the request.

Relevant Persons?

The powers that the OGA has to implement the Strategy apply to ‘relevant persons’, as detailed by the Petroleum Act 1998 (as amended). This includes owners of infrastructure, licence holders, operators under those licences, and those undertaking decommissioning activities.

What powers does the OGA currently have?

Below is a table highlighting some of the key powers of the OGA under the Act:

Act Reference Power In force?
Key powers of the OGA under the Act
Section 12 Power of the OGA to charge fees Yes - from 1 October 2016
Section 19 (through to s26 inclusive)

Power of the OGA to consider disputes (including acquiring information regarding the dispute and requiring parties attend meetings)

Yes - from 1 October 2016
Section 34 Power of the OGA to require information and samples Yes - from 19 December 2016 (except s34(1)(b) as this relates to s30-33 on information and samples - which are not yet in force)
Section 42 (through to s60 inclusive) Power of the OGA to give sanction notices (and related provisions) Yes - from 1 October 2016

How will the OGA exercise its powers?

In aiming to achieve the Strategy, the OGA has described itself as having three keys roles:

  • to regulate the industry and promote effective asset stewardship to both optimise recovery rate efficiency and environment management;
  • to influence the industry and promote collaboration within the industry and progress enhanced oil recovery; and
  • to promote investment in the industry (and in doing so increase skilled employment).

The powers discussed here are regulatory, but it is worth bearing in mind that in exercising these powers the OGA will consider the effect that the way they are exercised will have on its ability to influence and promote the Strategy amongst industry stakeholders – the OGA won’t exercise its regulatory powers under the Act in a way that would be detrimental to its ability to influence and promote the Strategy.

The OGA will exercise its powers in a fair and proportionate manner, and whilst (for example) the requirement to provide information is very wide (e.g. “petroleum-related information”), the OGA will be inherently restricted by its objectives, including the need to minimise ‘future public expenditure’ and promote ‘security of supply’ (as detailed in s8 of the Act).  Although many of the powers in the Act are wide, this doesn’t mean that the OGA will or is permitted act in an arbitrary or capricious manner.     

Sanctions?

Sanctions under the Act include:

  • licence revocation;
  • fines up to £1 million; and
  • notices requiring improvement in the practices of the relevant person.

When will remaining powers be implemented?

As noted above, certain sections of the Act are not yet in force. Whilst the government has given no definitive timeline as to when the Act will be fully in force (in relation to the OGA), it appears to be a largely administrative consideration. For example, section 35 on the appointment of information and samples co-ordinators  is not yet in force because the OGA is aware of the administrative burden of this on the industry and the need to give industry stakeholders adequate notice. The remaining sections will come into force (no doubt relatively soon), but should not surprise the industry.

Conclusion

Those (arguably broad) powers that the OGA currently has, including to settle disputes, charges fees and sanction industry stakeholders for non-compliance with regulatory requirements, are likely to be exercised in a fair and proportionate manner to prevent their exercise jeopardising the promotion of the Strategy within the industry. Those powers that the Act provides for which are not yet in force (including around the provision of information and samples) are likely to be brought in relatively soon and the delay in their implementation appears to be a largely administrative consideration.

If you have questions regarding the regulatory changes and how this may affect your business please do not hesitate to get in contact.  

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