Scotland business

Funding announced for new oil and gas industry regulator

Oil platform in the North Sea Image copyright Thinkstock
Image caption The energy secretary said the government was determined to "maximise the future potential" of the UK's offshore oil and gas industries

The UK government is to provide £15m in short-term funding to help kick-start a new independent regulator for the North Sea oil and gas industry.

The Oil and Gas Authority (OGA), which will be based in Aberdeen, will receive £3m a year for five years from 2016-17.

The government said it was providing the cash to show commitment to the new regulator and help ensure it was set up as quickly as possible.

But the OGA will be fully funded by the industry in the long term.

The establishment of the new body was announced after Sir Ian Wood carried out a major review of the sector for the government.

His report recommended a new regulator be set up as the existing one was "no longer adequate" to meet the challenges of managing an "increasingly complex" sector.

The Wood report also claimed changes in the way the North Sea oil and gas sector operated could produce at least three to four billion additional barrels of oil over the next 20 years.

'Fast progress'

Energy Secretary Ed Davey said: "The Wood Review is good for our energy security, good for the economy and good for jobs.

"We've made a lot of progress in a short amount of time - in six months we have announced the new body will be located in Aberdeen, we're recruiting for a world-class CEO, and we already have the legislative framework for the new body under way.

"This pace shows how determined we are to maximise the future potential of the UK's offshore oil and gas industries which currently employ 450,000 people in the UK."

Once it is established, the new body will work with the government on a wholesale review of the tax regime for the sector, which will encompass "everything from tax rates to tax allowances", according to Treasury Chief Secretary Danny Alexander.

However, a Scottish government spokesperson had a word of caution.

"As the First Minister clearly stated at the Oil and Gas UK conference in June, the creation of this new arm's length regulator should not be treated as a route for the UK Government to cut its budget on oil and gas regulation," he said.

"We believe that government should continue to make a fair and proportionate contribution to a new and improved stewardship model for the oil and gas industry in the North Sea, taking into account of the policy function remaining within core Government.

"Any other approach would be against overall intention of Sir Ian Wood's recommendations on collaboration, good governance, and a renewed partnership between Government and industry.

"The Scottish government has always stated that the only conceivable location for the regulator is Aberdeen. And, while we recognise the UK government's recent decision to headquarter the Oil and Gas Authority in Aberdeen, we hope that today's announcement that it will 'require a substantial presence in London' is not a weakening of this commitment."

Announcement 'welcome'

Responding to the announcement, the chief executive of industry body Oil & Gas UK, Malcolm Webb, said: "The offshore oil and gas industry welcomes the reaffirmation of government support for the Wood Review.

"We are encouraged by the proposed approach to implementation and look forward to the establishment of the Oil and Gas Authority (OGA), headquartered in Aberdeen.

"We need a fresh, well-resourced arms-length regulator to put the principles of the Wood Review into practice.

"We are delighted to see government commitment to providing a share of the future funding of the OGA, which is an excellent demonstration of the commitment to the tripartite approach called for by Sir Ian (Wood).

"The Secretary of State challenges the industry to match the government's commitment to Sir Ian's recommendations. I can assure him that our industry is committed."

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