Information on the implementation of the Wood Review. In June 2013 the Secretary of State for Energy and Climate Change, asked Sir Ian Wood to conduct an independently led review of UKCS oil and gas recovery, specifically looking at how economic recovery could be maximised. The Government accepted and is committed to fully implementing all of the Review’s recommendations.
UK Continental Shelf (UKCS)
In the early days of exploration in the North Sea, large fields were discovered and operated by a handful of major operators. Since then, the number of fields has increased from around 90 (in the 1990s) to over 300 today, discoveries are smaller and new fields are more marginal and inter-dependent.
The increasingly diverse set of companies operating smaller, more interconnected fields in the UKCS has led to an increase in competition for ageing infrastructure and operators are now required to collaborate more than ever before to ensure that their fields remain economical.
These factors, coupled with growing competition from international offshore regions, has led to a 37% fall in production between 2010 and 2013, while average production efficiency fell from 80% in 2004 to 60% in 2012 and the rate of exploration decreased from 157 exploration wells in 1990 to 15 in 2013.
The Wood Review
In June 2013 the Secretary of State for Energy and Climate Change, Edward Davey, asked Sir Ian Wood to conduct an independently led review of UKCS oil and gas recovery, specifically looking at how economic recovery could be maximised.
Sir Ian published his report on the 24th February 2014, which made four key recommendations to maximise economic recovery from the UKCS:
- Government and industry to develop and commit to a new strategy for Maximising Economic Recovery from the UKCS (MER UK).
- A new Regulator should be established and, in conjunction with HM Treasury and Industry should develop an over-arching Strategy for delivering MER UK, adopting a cohesive tripartite approach.
- Create a new arm’s length body charged with effective stewardship and regulation of UKCS hydrocarbon recovery and maximising collaboration across the Industry.
- DECC should create a new independent body, responsible for operational regulation of the UKCS, focused on supervising the licensing process and maximising economic recovery of the UK’s oil and gas reserves in the short, medium and long terms.
- The new body should take additional powers to facilitate implementation of MER UK.
- To underpin delivery of the new MER UK strategy, Government should fully utilise its existing powers and take a series of additional powers and sanctions, for example establishing a clear system of (private) informal and (public) formal warnings which could ultimately lead to the loss of operatorship and then license.
- Develop and implement important Sector Strategies.
- The new body should work with Industry to develop and implement the six sector strategies outlined in the Wood Review (covering exploration, asset stewardship, regional development, infrastructure, technology and decommissioning), along with suggested actions.
Government response and latest developments
In July 2014, the Government published its response to the Wood Review, it accepted all of the Review’s recommendations and provided further detail on its commitment to fully implement them.
As a demonstration of its commitment to implement the Wood Review, DECC has established the Wood Review Implementation Team (WRIT). Headed by Stefanie Murphy, WRIT has already undertaken significant work to implement the recommendations including:
- The final corporate structure of the new regulatory body has been determined. The Oil and Gas Authority (OGA) will be a Government Company (GovCo), headquartered in Aberdeen with a significant presence in London. On the 1st April 2015, the OGA was established as an Executive Agency. The Framework Document which sets out the relationship between the OGA and the Secretary of State for Energy and Climate Change, and the broad framework within which the OGA will operate, has also been published. The OGA will transition to a Government Company by summer 2016, subject to the next Government’s legislative programme and the approval of Parliament. Further information about the OGA can be found on their pages of GOV.UK
An Interim Advisory Panel (IAP) has been set up to advise on the implementation of the Wood Review; chaired by Sir Ian Wood and attended by senior Department for Energy and Climate Change (DECC), HM Treasury (HMT), Competition and Markets Authority and Industry representatives.
We have appointed Andy Samuel as the Chief Executive of the Oil and Gas Authority. He officially began his role in January 2015 and has been crucial to the establishment and leadership of the body. Subsequently, we have recruited the OGA’s first Chair – Sir Patrick Brown, who assumed his position in March 2015. We are now progressing with the appointment of the first Non-Executive Director to the OGA’s board.
In July, the Government published its formal response to the review, setting out the proposed approach to implementing the review’s recommendations. There are two key strands to this: establishing the OGA in law, as the successor to DECC, with the appropriate objectives, duties, powers and functions; and taking practical steps to get the OGA up and running as fast as possible.
The first part of putting the OGA on a legal footing has been initiated by the introduction into the Infrastructure Bill in July of clauses, which give the Secretary of State a duty, in consultation with industry, to publish a strategy for the achievement of MER UK and providing the Secretary of State with a power to raise a levy to provide stable funding for the OGA. The Infrastructure Bill was enacted on 12 February (Infrastructure Act 2015).
- Another major step to fully implement the Wood Review recommendations was made with the introduction of the Energy Bill. The Bill will complete the establishment of the OGA as a fully ‘arms-length’ steward and regulator of the UK’s oil and gas reserves. This involves developing and defining the objectives, duties, powers and functions that the new body will need in line with the Wood review recommendations and ensuring the smooth transfer of functions from DECC.
Call for Evidence
We carried out a public Call for Evidence for eight weeks, which ran from 6 November through to the 31 December 2014, seeking views from all interested parties on how to implement the recommendations of Sir Ian’s report to ensure the OGA is a strong and influential Regulator.
We held an official launch event on the 11 November 2014 which was attended by both the Rt Hon Matthew Hancock MP, the DECC Secretary of State the Rt Hon Edward Davey MP and a number of industry representatives and other interested parties.
DECC held a number of industry workshops, three in Aberdeen and two in London to discuss the questions contained in the Call for Evidence document in greater detail and we very much welcomed the active participation of those who attended. Access the materials presented during the workshops.
Government response to the call for evidence
Following the conclusion of the Call for Evidence, the Government published its official response, setting out the key policy decisions.
With the introduction of the Energy Bill in the House of Lords on 9 July 2015, a major step was made towards meeting the Government’s commitment to implement the recommendations of the 2014 Wood Review.
The Bill contains a number of key provisions which will underpin the principal Wood Review recommendation to introduce a strategic framework against which Government, industry and the regulator can successfully pursue the goal of maximising economic recovery of hydrocarbons from the North Sea basin.
The new regulatory body, the Oil and Gas Authority (OGA), was established as a Government agency on 1 April 2015. The Bill will enable the Authority to assume the status of a Government-owned company and to take over full responsibility for a range of oil and gas functions, including licensing, which currently reside with the Secretary of State.
Further provisions are designed to provide the OGA with new powers which will enable it to be a fully effective steward and regulator of offshore oil and gas recovery. The Bill enshrines collaboration as being central to the OGA’s way of working, while at the same time establishing a suite of new powers in the areas of dispute resolution, information sharing and meeting attendance. It also provides a framework giving the OGA the ability to enforce sanctions where it identifies behaviour contrary to the MER UK strategy or licence conditions more generally.
The Bill as introduced covered the key areas stemming from the Wood Review recommendations. Following Government amendments at Committee and Report stages, further policy areas such as third party access to oil and gas infrastructure, decommissioning and powers allowing for cost recovery and information sharing, have now been inserted into the Bill.
The Energy Bill and the accompanying explanatory notes are available on the Parliament website.
The challenge of delivering the objective of maximising the economic recovery of offshore UK petroleum (“MER UK”) requires the OGA to be significantly better resourced than the current equivalent team in DECC. In line with the established practice across regulation and service delivery, the Government considers it is appropriate for the body to recover its costs from companies who will benefit from the services of the Regulator. Therefore, we have launched a consultation setting out our proposed approach to allocating and collecting the levy from petroleum licence holders. The consultation will be open from 23 March until 20 April 2015 and we welcome views on the proposals and invite comments through the consultation process. Impact Assessment to accompany the consultation.
Government response to the Levy consultation
Following the conclusion of the consultation on the levy methodology earlier this year, the Government has now published its official response. The Response sets out the key issues raised by organisations responding to this consultation and the Government’s response to these points. It also provides the levy rate for licence holders and the next steps in having the levy in place by October 2015. Accompanying Impact Assessment.
MER UK strategy consultation
On 18 November 2015 the government launched a consultation seeking views on a draft strategy for maximising economic recovery of petroleum from the United Kingdom Continental Shelf (“the MER UK strategy”). The consultation closed 8 January 2016.
On 28 January 2016 Government laid a revised MER UK Strategy in the House of Parliament for scrutiny.
The Government Response document published on 5 February 2016, summarises the feedback Government has received in response to the Consultation. It also describes how Government has considered this feedback, including the rationale behind any of the changes that have been made to the Draft MER UK Strategy. When considering revisions to the Draft MER UK Strategy, Government has been mindful of the need to maintain investor confidence while remaining true to the principles and recommendations set out in the Wood Review.
On 18 March 2016, following a 40 day “praying period”, where neither House “prayed” against the Strategy, it was brought into force.
You can contact the Wood Review Implementation team using the following email address email@example.com. Alternatively, you can subscribe to regular updates on Wood Review Implementation here and then selecting ‘Oil and Gas’.