OGA and industry to test UK waters

The new year will likely see the partnership evolve — but into what remains to be seen

The coming 12 months look set to be pivotal for the UK North Sea, particularly where the evolving relationship between the Oil & Gas Authority (OGA) and the industry it has been established to regulate is concerned.

Like any new partnership, boundaries between the two parties are still being established. Crucially, however, these have not yet been fully tested or put under stress.

That is likely to happen at some point this year, whenever OGA uses for the first time its new powers to sanction companies that fail to do their best to retrieve the basin’s remaining reserves.

Operators now have a legal obligation to carry out business in a way that complies with a strategy to maximise economic recovery of the UK’s offshore reserves, known as MER UK.

It means working collaboratively and for the collective good, even if sometimes that is at the expense of individual corporate interests.

Those that fail in their MER UK duties, in less serious cases, face private warnings and public enforcement notices. More serious transgressions could result in companies being fined up to £1 million ($1.3 million), or losing their status as operator, or even having licences revoked.

OGA has pledged a cautious approach, saying it will not rush into taking enforcement action.

It has also attempted to reassure operators that achieving MER UK will normally be aligned with licence holders’ interests.

Nevertheless, it is a radical departure from the way business has traditionally been done and, despite a lot of supportive talk from operators, nobody quite knows how they will react once OGA finally does pull rank, which presumably it will do at some point. Will decisions be accepted? Or will legal challenges be mounted, potentially undermining the OGA’s authority?

Andy Samuel, OGA chief executive, said last year that effective use by the authority of its new powers will be crucial in maintaining the organisation’s credibility.

One would expect OGA to choose it first battle wisely, probably a clear-cut case that is unlikely to be appealed.

However, sooner or later, a challenge is bound to come, and with it the possibility that weaknesses in the new system could be exposed.

OGA hopes its efforts to influence operators’ decisions mean enforcement action will, on the whole, be avoided.

For industry’s part, one wonders if it has truly come to grips with the full extent of its now legally-binding obligations to deliver MER UK.

One thorny issue in particular remains regional area plans, aimed at achieving MER UK not just from individual projects but from wider groups of projects where infrastructure is interlinked. Samuel has admitted solutions will not be easy to come by, and it seems industry will have to devote time and energy to come up with answers.

Samuel said last year OGA will probably have to lean on the North Sea industry’s “brain power” for answers.

Industry, he said, does not normally have to think about how its economic decisions impact on neighbouring fields.

That has now changed.

OGA would argue, with some justification, that it has achieved much since being set up, including the launch of the 29th licensing round.

Largely, however, this early phase of its life has been centred on establishing the organisation.

This year will mark a transition to a new phase — execution.

All eyes will be watching OGA to ensure that execution is effective.

But if industry is thinking it is OGA’s job to deliver MER UK, it probably has another think coming.