OGA responds to fees and levy consultation

United Kingdom

On 10 March OGA published its response to the consultation on proposals to introduce new OGA fees and to amend the methodology to calculate the industry levy. ‘Part I’ of the consultation sought industry comment on plans to increase the number of activities subject to direct fees and the basis upon which these might be calculated. In ‘Part II’, OGA sought views on a new methodology to calculate the industry levy for pre-production licences which would align the levy with the treatment of licence fees. For more on the content of the consultation, see our previous Law Now. Industry comment was sought between 7 November 2016 and 5 December 2016, and OGA has now set out its intended next steps.

Part I: Industry views and OGA response

OGA reports that, of the fourteen organisations responding to Part I, eleven were generally in favour of the introduction of new direct fees. Of the three that opposed introducing such charges, only one provided a justification: that this may add to the administrative burden of OGA, which may in turn be passed on to the operators.

However, whilst most respondents supported the introduction of this approach, there was no consensus as to how direct fees ought to be calculated. OGA’s consultation proposed three potential charging structures: “fixed”, “time-sheeted”, and “bespoke” fees, but none of these attracted significant overall support. Industry concerns typically related to a lack of certainty and a desire for an upper cost limit so as to allow for proper cost budgeting.

Taking account of the broad nature of these responses, OGA has dropped the proposal to use the “time-sheeted” methodology in some instances and opted instead to charge a fixed fee for all activities that will be charged on a direct fee basis, except in the case of operator approvals under the Offshore Safety Directive. OGA has proposed to BEIS that operator approvals be charged on a bespoke basis, calculated according to the actual cost of processing such approvals by BEIS and HSE. Indicative charges for these activities for 2017/2018 range from £1000 to nearly £3000; the full list of charges can be found on page 12 of OGA’s consultation response.

Part II: Industry views and OGA response

Of the fifteen organisations that responded to Part II, thirteen supported the revised methodology for calculating the industry levy. One respondent was opposed to the notion of cross-subsidisation, and another did not consider that the proposals would aid MER, on the basis that a reduced levy for “micro-enterprises” would encourage companies without proper financial backing to win acreage they could not properly develop.

In response, OGA emphasised its desire to remove the contradiction between Promote licence holders benefiting from a discount rate on their licence rentals but paying the full amount of the levy. OGA concluded that its experience to date is such that companies holding pre-production licences have been able to develop those licences, so that the revised approach will not increase the risk of under-funded parties looking to enter the industry.

Next steps

OGA has proposed to BEIS that the new direct fees for its activities should be introduced as early as possible in the 2017/2018 financial year, and that the new levy methodology should come into effect on 1 April 2017. Both proposals are subject to approval by government and Parliamentary process.