OGA consults on proposals to introduce new fees and recalculate industry levy

The Energy Act 2016 provides for regulations to be made to enable the Oil and Gas Authority (“OGA”) to charge fees for its work. The intention of Parliament was that, ultimately, OGA will be a regulator funded by the industry it serves. To date it has been funded by a mixture of Government funding and a levy introduced to the industry in October 2015. As a step along the path to becoming fully funded by industry, OGA proposes (i) to introduce new fees for its services and (ii) to alter the way in which the levy on industry is calculated. It is intended that the proposals will be enshrined in new regulations coming into force by April next year. A consultation seeking industry comment on the measures is currently live and can be accessed here.

Fees and charges

OGA (and DECC before it) currently charges for consents issued under petroleum licences, offshore methane gas storage licences, carbon dioxide storage licences, and pipeline works authorisations. The precise figure charged is determined by The Oil and Gas Authority (Fees) Regulations 2016, which would be updated for the 2017/2018 financial year in order to reflect ‘resource costs’. Whilst the consultation provides that those resource costs are to be set out in regulations, it gives no indication of how these are to be measured.

In addition to those services currently subject to a charge the following activities would, under the proposals, also attract a fee, including:

• Determination or re-determination of a field boundary;
• Onshore metering inspections;
• Offshore metering inspections;
• Inspector attendance at meter flow calibrations;
• Licence extensions and amendments; and
• Operator approvals under the Offshore Safety Directive.

These services will be subject either to a “fixed”, “time-sheeted”, or “bespoke” fee. Fixed fees include, for example, £800 for licence extensions and amendments. It appears to be intended that these will be linked to RPI. Time-sheeted fees are to be calculated based on time spent carrying out a service and the daily and half hourly rate of those OGA staff directly involved. The consultation suggests an indicative daily charge per officer of £500. The bespoke fee is to apply only where operator approval is being processed under the Offshore Safety Directive. This fee would not be a pro rata calculation, but would instead reflect actual charges to OGA by the relevant authority (such as the Health and Safety Executive or BEIS) as well OGA’s administrative and IT costs. All three of these fee types would include an element to take account of, for instance, overheads such as rent.

Levy

The second proposal within the consultation involves an amendment to how the industry levy is calculated. Introduced in October 2015, the levy is charged at different levels to different types of licensee. Currently, ‘pre-production’ licensees are apportioned 11% of the annual levy, with ‘in-production’ licensees bearing the remaining 89%. OGA does not propose to vary that overall allocation. The changes would instead affect only those holding a pre-production license. ‘Micro-businesses’ (being those enterprises with fewer than 10 employees and whose annual turnover and/or annual balance sheet total does not exceed €2 million) which pay a reduced rental on pre-production licences are to qualify for an equivalent percentage reduction of the levy. This is in response to criticism that the levy formed a barrier that deterred new market entrants from investing in the UKCS. The new methodology would, however, consequently require the standard pre-production levy rate for other licence holders to be raised.

Comment

The consultation includes confirmation that OGA will not seek to profit from the fees: only to recover its own costs incurred through the carrying out of its functions. Equally, OGA considers that the levy proposals, properly applied, ought not to impose any new costs on industry as a whole: “the overall amount recovered from the levy would remain the same as a result of a reallocation of charges levied on licensees and any additional charges introduced will be deducted from the overall amount payable by industry through the levy”.

Nonetheless, the proposed changes will increase the financial burden on individual parties in certain circumstances. However, in keeping with MER policy overall, the message appears to be that parties ought to accept that arrangement as a price worth paying for the benefits to the sector as a whole.

OGA is seeking comments on its proposals to charge for the additional activities, the altered methodology for determining the fee that would attach to those, and the change to the industry levy. The consultation closes on 5 December 2016.