My Lords, the UK oil and gas industry is of national importance: it makes a substantial contribution to the economy and supports around 450,000 jobs. Oil and gas will continue to play a vital part in the energy mix as we transition to a low-carbon economy and will still meet around 70% of our energy demand in 2030. Therefore, it is vital that we maximise our indigenous supply, to put downward pressure on prices, support jobs and maintain secure supplies.
The Government commissioned Sir Ian Wood in June 2013 to review the regulatory regime for the UKCS because, although investment levels are rising and near-term prospects are strong, there are new challenges for exploration and production, and the environment is very different from when production peaked approximately 15 years ago. Production and exploration levels have fallen, and production efficiency has declined.
Sir Ian’s final report was published in February 2014 and included four recommendations for the Government. His independent report estimates that full and rapid implementation of his recommendations will deliver the equivalent of at least 3 billion to 4 billion barrels of oil more than would otherwise be recovered over the next 20 years, bringing over £200 billion additional value to the UK economy.
The Government have accepted Sir Ian Wood’s recommendations and last week published a formal response setting out their plans for implementation. The government amendments before the Committee are the first vital step in implementing those recommendations and will send a clear signal of the changes required to industry practice and the role of the regulator to deliver the benefits he sets out in his review.
Amendment 95ZA seeks to put the overriding principle contained in Sir Ian Wood’s report into statute, which is maximising the economic recovery of offshore UK petroleum. This is to be achieved, in particular, through the development, construction and deployment of equipment used in the petroleum industry and through collaboration among holders of petroleum licences, operators under petroleum licences, owners of upstream petroleum infrastructure and those planning and carrying out the commissioning of upstream petroleum infrastructure.
The Government and industry should work together to maximise the economic recovery of offshore petroleum from the UK. Because of the continually changing nature of regulation, the developing needs of exploration and production in the North Sea, and changes in technology and approaches, we think that the concept of MER UK is something that itself is likely to change over time. We therefore do not think that setting out the meaning of “maximising economic recovery” in primary legislation is desirable, as greater flexibility is required.
We take the view that this is better achieved through a strategy which can adapt to new challenges and the evolving needs of oil and gas regulation in the North Sea. The clause therefore requires the Secretary of State to produce a strategy for enabling the principal objective to be met and places a duty on the Secretary of State to collaborate with industry and carry out his activities in accordance with the strategy. The clause also places duties on petroleum licence holders, operators, infrastructure owners and associates of those persons to comply with that strategy. There is also a duty on those planning and carrying out the commissioning of that infrastructure. The Secretary of State is under a duty to lay before Parliament a report at the end
of each reporting period on the extent to which relevant persons have acted in accordance with the strategy.
The second main provision, set out in Amendments 94B and 95ZB, provides the Secretary of State with the power to raise a levy from industry to help fund the costs of regulating this sector. This is consistent with the user pays principle and the Government’s belief that those who benefit from a service should ultimately pay for it. The power is circumscribed in a number of respects. The total amount of the licensing levy payable cannot exceed the costs of the Secretary of State carrying out his relevant functions. The levy cannot be used to recover costs in respect of areas in which a charge is payable under the Gas and Petroleum (Consents) Charges Regulations 2013 as those regulations stand when this provision comes into force. To ensure the costs are proportionate, the clauses also allow for different amounts to be charged in respect of different licences.
Finally, the levy is subject to a three-year sunset clause, which will mean that the levy arrangements are reviewed over that timeframe to ensure the system put in place is fair, effective and efficient in terms of its administrative burden. As set out in the government response to the Wood review, published last week, the Government have committed to contribute £3 million per year to the running costs of the OGA from 2016-17 for five years. This is to demonstrate the Government’s commitment to the tripartite approach to delivering MER UK and a recognition of the importance to government that the OGA is well funded from the outset. The levy will, of course, be net of this funding received from government.
For the avoidance of doubt, noble Lords should note that in due course the Government intend to set up the regulator as an arm’s-length body in the form of a government company. However, in the interim, the body will be established as an executive agency. Therefore, for the present, the legislation refers to the Secretary of State.
The other government amendments in this grouping, Amendments 95ZC, 96ZB, 97A and 98AA, are technical in nature and I do not propose to spend too long on them. Suffice to say that these clauses deal with consequential provision, the parliamentary procedure in relation to regulations, territorial extent and commencement. Amendment 95ZC amends the scope of the power in Clause 28 so that it applies also to the clauses dealing with maximising the economic recovery of UK petroleum, the levy on holders of certain energy licences and the relevant schedule. Amendment 96ZB amends Clause 29 so that if we amend the reference to the Gas and Petroleum (Consents) Charges Regulations 2013 as set out in the primary legislation, we would have to use the affirmative procedure. Amendment 97A is required because the Wood review amendments are to have GB extent. It also contains an amendment in relation to the extent of the Extractive Industries Transparency Initiative. Amendment 98AA relates to commencement in respect of the Wood review provisions and the Extractive Industries Transparency Initiative.
The Government have worked at a furious pace to bring forward the measures for this Bill. However, in doing so, we have not yet been able to publish the regulatory impact assessment which normally, although unfortunately not always, would accompany the introduction of the relevant provisions. It is our firm intention to publish our assessment of the indicative range of potential costs and benefits of these powers prior to Report.
I hope it will comfort noble Lords that the industry is supportive of Sir Ian’s recommendations and has called on the Government to implement them timeously. The policy intent is to reduce regulatory burden, empower a stronger, more capable regulator that can mobilise and catalyse, and enhance the efficiency and co-ordination of activity in the UK continental shelf. The clauses we have put forward in the Bill are a key part of what is required to implement the recommendations. I beg to move.