Memorandum submitted by OIL & GAS UK (EN11)

 

BACKGROUND

 

Oil and gas will remain essential to the UK, its people and economy for the foreseeable future. They currently provide about three quarters of primary energy supplies. This proportion is forecast by government to increase to 79% by 2020. Oil and gas not produced from the UK continental shelf (UKCS) will have to be imported at considerable cost to the economy and the Exchequer but, if investment is sustained, the UKCS could still be providing about 25% of the country's gas and 60% of its oil needs in 2020.

 

Oil & Gas UK is the leading representative organisation for the UK offshore oil and gas industry. Its membership includes not only companies licensed by the government to explore for and produce oil and gas in UK waters but also companies working throughout the industry's supply chain.

 

Oil & Gas UK has played an active part in the BERR consultation process since the announcement of the Energy Review in November 2005.

 

Oil & GAS UK RESPONSE TO THE ENERGY BILL

 

While Oil & Gas UK is happy with many of the minor regulatory changes outlined in the Energy Bill we remain of the opinion that much more significant changes to both the current fiscal and regulatory regimes are required in order to promote the level of investment which will be needed to maximise the ultimate recovery of UK oil and gas reserves. We have made known our views in our responses to the recent Treasury and BERR consultations. Oil & Gas UK's specific points of concern on the wording of the Bill are listed below:

 

1. DECOMMISSIONING OF ENERGY INSTALLATIONS - Part 3, Chapter 3

Generally Oil & Gas UK remains concerned that this Bill has not taken the opportunity to make a radical change to the decommissioning regime, which we think is necessary for the future of the North Sea. Following discussions on this, both in PILOT and within the consultation on this Bill, there was agreement from the Minister that he would review within two years how commercial mechanisms that have recently been put in place work within the existing decommissioning regime.

 

Protection of Decommissioning Funds Oil & Gas UK seeks confirmation that the provisions in the Energy Bill to protect (from creditors) any funds set aside for decommissioning encompasses all current industry mechanisms, especially those brought into effect through the new industry standard Decommissioning Cost Provision Deed.

Protecting unconnected beneficial ownership interests With the Secretary of State broadening the scope of companies liable for decommissioning and licences continuing to be divided to reflect different beneficial interests across the licence area, it is important that a company's liability is limited to only those assets and that part of the licence in which it has a beneficial ownership interest.

 

Although this point is agreed by BERR, its implementation to date has been purely through administration guidelines. To maintain a vibrant transfer market and safeguard new investor groups from the liabilities of older assets located on other parts of the licence in which they have no beneficial interest (and vice versa), we believe that it is vital that this principle is included in the primary legislation.

2. STORAGE OF CARBON DIOXIDE - Part 1, Chapters 2 & 3

 

Conflict with existing Petroleum Rights On the issue of carbon capture and storage (CCS) and natural gas storage, Oil & Gas UK is concerned that the new licensing scheme does not properly take into account the interaction with the existing petroleum licensing regime or respect the legal rights already conferred, especially on any transfer of a petroleum licence. We believe there needs to be a clear and unambiguous statement within the Bill on the primacy of vested rights under existing Petroleum Production Licences in the event of any conflict between these and the terms of new CCS or gas storage licences.

 

Oil & Gas UK believes that every effort should be made to ensure that the CCS and gas storage licences and supporting regulations are defined so they are fully compatible with the existing petroleum licensing regime. Two particular areas of concern raised by the drafting, which we believe are not policy intentions, are:

· the wording in sub-clause (2)(b) could catch shippers who use storage facilities, but have no responsibility for the control and management of the facility, and hence require them to be licensed under clause 3

· the requirement to hold a licence under chapter 2, part 1of the Bill for any offshore LNG unloading facility could catch existing LNG loading terminals that extend into UK territorial sea.

 

Oil & Gas UK requests that this intent is made clear in revised drafting or within Parliamentary Notes.

 

 

Commercial Confidentiality In Section 28, sub-section 2(b) the Secretary of State (SoS) can determine what constitutes commercially sensitive information and whether it should be disclosed. In sub-sections 3 & 4, the information automatically ceases to be commercially sensitive after four years, unless the person whose commercial interests are affected protests and the SoS agrees. Oil & Gas UK is concerned about two points:

i) the SoS makes the determination in the first place, seemingly without having to consult the affected person;

ii) Four years is a very short confidentiality period for commercially sensitive information.

 

We believe that in the first instance, the SoS should properly consult affected parties before deciding on disclosure or not. Secondly, four years should be extended to 10 years, unless the affected person agrees otherwise.

 

3. OIL AND GAS PETROLEUM LICENSING - Part 4

 

Generally We are concerned that there has not been a proper consultation with the industry on many of the issues contained in the Bill and, although it may not be evident at this time, there is concern that the new drafting may have unintended consequences in the future, including in the following areas:

 

Third Party Access to Infrastructure We trust that the Bill's clauses on access to infrastructure do not change the nature of the Secretary of State's powers but merely adjust their scope, so that a determination is practicably achievable in line with the requirements of the initial legislation. That said, there are two main areas of concern:

· the meaning of pipelines has been extended from "apparatus and works" to a very wide definition, with no test of reasonableness, which includes "services associated with the operation". It would be preferable if this were limited to "services necessary for the operation".

· upstream gas and oil processing facilities have now been included but without an adequately defined distinction between upstream and downstream that would exclude refineries and the like.

We request that this intent is made clear in the Parliamentary Notes.

 

Changes to Petroleum Licence Regime The industry is concerned that the new powers to partially revoke a licence or reverse a licence transfer may introduce legal uncertainty regarding title and hence, as a minimum, lengthen and further complicate the licence transfer process. Oil and Gas UK believes that the government should invest in repairing the underlying cause for confusion in this area by creating a definitive and reliable public register of licence interests on the UKCS. We continue to regard it as highly regrettable that the government has no such register and with the advent of CCS and other forms of licences on the UKCS we believe that this matter needs urgent attention. In the meantime we request

that as a minimum the Parliamentary Notes indicate that these changes to the Petroleum Production Licensing Regime are not intended to compromise the current "open consent" process for such licences and the policy to promote an active licence transfer market to attract new investors.

 

February 2008