UK ENERGY Secretary Ed Davey has announced the “most amazing, significant changes” to the oil industry since its foundation – empowering the new regulator to fine wayward oil firms up to £1 million and revoke their licences.
The Oil & Gas Authority (OGA) was formed last year to encourage collaboration among the oil industry to boost production and safeguard jobs, and yesterday it was given “the teeth that it needs to deliver on its mission”, the Lib Dems said.
The government also outlined the new investment allowance, which will be introduced in the Finance Bill 2015 to drive new investment, simplify the existing system of offshore field allowance and provide greater certainty for investors.
This follows the government’s announcement at the Budget that it would cut the supplementary charge from 30 per cent to 20 per cent and reduce petroleum revenue tax from 50 per cent to 35 per cent.
During a visit to Aberdeen Harbour with Chief Secretary to the Treasury Danny Alexander yesterday, Mr Davey said the sanctions are not intended to be “draconian” but to help people to work together.
He added: “The regulatory changes that we have made are, frankly, the first, most amazing, significant changes to the regulatory regime since the oil and gas industry was founded in the North Sea all those decades ago, and the tax changes that Danny has overseen have been dramatic.”
The regulator will be empowered to attend meetings, request information and engage in dispute resolution backed by sanctions “if people aren’t playing along with the process”, he said.
“If you are going to ensure that you help resolve disputes and you can change something, then you do have to have some regime that can produce sanctions,” he said.
“It’s not that we want to use those sanctions but they are there in the background to make sure that people are focused on how they can get a quick collaborative outcome.
“The fines are in the background. They could be used but the aim of the exercise is to get people round the table working for the joint benefit of everybody.”
Speaking during the Aberdeen visit Mr Alexander said: “The new legal powers for the regulator, the Oil & Gas Authority, are there to make sure that that body has the teeth that it needs to deliver on its mission, which follows on from the Wood Review, to help lower cost in this basin and to help the industry work together more effectively.
“I think that mixture of tax action, the regulator, as well as what the industry itself is doing, means that the North Sea has a very good future indeed.
“I hope the tax changes and the regulatory changes will mean that the industry looks to the future with confidence, and sees that when oil price starts to recover that there is a really strong appetite for investment – that this place is open for business.
He added: “I hope that that will lead to some companies saying that ‘we don’t need to disinvest, we don’t need to cut back to the extent that we previously intended to’.
“But, of course. government can’t control the oil price, and the industry is trying to make changes in response to that.”
In a statement, exchequer secretary to the treasury Priti Patel said: “Industry asked us to prioritise the investment allowance and we have delivered, fast-tracking its design and implementation at Budget.
“Existing field allowances incentivised £14 billion of investment and this is a wider-ranging, more powerful tool to encourage further activity in this vital sector.”