Oil and gas producers facing resistance in many places should appreciate a government that not only supports what they do but wants them to work faster.
Since March 2016, the UK government has obliged offshore operators, licensees, and infrastructure owners to “take the steps necessary to secure that the maximum value of economically recoverable petroleum is recovered from the strata beneath UK waters.” This month, the office charged with implementing the Maximizing Economic Recovery Strategy for the UK (MER UK) hastened the process.
The next stage
Tom Wheeler, the Oil and Gas Authority’s director of regulation, on June 4 sent licensees and owners of infrastructure on the UK Continental Shelf a letter describing “the next stage in our regulatory approach.” The message, paraphrased: Quit dawdling over disputes and questions about equipment access. “We still see too many issues taking too long to resolve or ending up in deadlock between disputing parties, threatening MER UK,” he wrote.
With what it calls “measured escalation,” the OGA so far has eased into problems among parties working on the UKCS, “gradually increasing the intensity and seriousness of interventions as issues become critical or drag on for too long,” Wheeler explained. Among 56 OGA interventions since the start of 2017, only five as of May had advanced to the highest of four levels of intervention, investigation. Thirty-five were settled before reaching “regulatory escalation” levels, in which the OGA exercises its powers.
With the new approach, the OGA will adopt a policy called “enquiry guidance” that expands its flexibility in the use of powers, including alternative dispute resolution. Among other changes, it will accelerate measured escalation, especially with issues affecting MER strategic priorities.
“The OGA will never intervene for the sake of it,” Wheeler wrote. “Wherever possible, we will continue to use our measured escalation process, clearly setting out our expectations and intentions, and giving those affected a chance to address the issues. When we do intervene, we will be proportionate and guided by evidence.”
Time, of course, will tell. The OGA clearly intends to insert itself into offshore disputes earlier and more frequently than before. This represents a tightening of regulation, always a cause for worry. But the effort serves a program designed with constructive intent.
Comparison with a relatively recent hurry-up initiative by the US government is instructive. During the Obama administration, the Department of the Interior pressured offshore operators to drill on their leases or lose them. The department didn’t want to stimulate drilling. It instead hoped to justify the stingy leasing reflective of that administration’s discomfort with oil and gas expansion.
By contrast, Wheeler says OGA is elevating its oversight in a specific regulatory area to enhance a broader program supportive of offshore work. Responses to the new activism will differ among companies. But a policy conducive to offshore exploration and production remains intact.
Indeed, survivability is integral to MER UK’s design, which aligns development of offshore hydrocarbon resources with UK economic health. Before MER UK, the government treated the UKCS as a source of emergency revenue. A series of tax changes starting in 2004, many implemented without warning, raised effective tax rates and complicated the fiscal regime. Largely as a result, investment in the mature, high-cost UKCS resource was sagging even before the crude oil price crash that began in 2014. MER UK, product of a comprehensive government-industry study concluded only months before the market collapse, sought repair.
UKCS has revived
The UKCS cannot be said to have roared back to life in consequence. But it has revived. Wheeler’s letter pointed out that OGA projects 3.9 billion boe more oil and gas production to 2050 from the UK offshore than was forecast in March 2015.
That’s good for oil and gas producers and their support businesses. It’s good for the UK economy and national treasury. And this linkage of what’s good for the industry with what’s good for the nation is what’s best about MER UK.
