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Petroleum (Transfer of Functions) Regulations 2016

My Lords, these regulations transfer certain functions relating to the licensing and

taxation of oil and gas from the Secretary of State for Energy and Climate Change to the Oil and Gas Authority. With the recent debates on the Energy Bill—now the Energy Act 2016—no doubt still fresh in our minds, I am sure that most noble Lords will be familiar with the background to the establishment of the Oil and Gas Authority and Sir Ian Wood’s review of maximising the economic recovery of petroleum from the United Kingdom continental shelf. However, for the sake of clarity I will outline briefly where we have got to.

The benefit our oil and gas industry has brought to the United Kingdom is not in doubt, with around 43 billion barrels of oil extracted, over £330 billion of taxes paid and many thousands of jobs supported. However, as one of the most mature regions in this global industry, it is now facing new challenges, with remaining reserves increasingly dispersed and more difficult and expensive to exploit. Notwithstanding this and the additional pressures resulting from low prices, there is still great value to be extracted from the North Sea and the continental shelf. The Wood review recommended that delivering on this required a new approach, and the focused attention of a new independent regulator and asset steward.

In response to this, the Government legislated to establish the principle of maximising economic recovery —MER UK—and has set out a strategy to deliver this. Industry and the Oil and Gas Authority are now required to act in accordance with this strategy when going about their business. The authority has also been established as an executive agency of the Department of Energy and Climate Change, and has made great progress. The successful passage of the Energy Bill—now Act—enables it to be set up as a government company and empowered with a broader range of tools to meet the challenge of MER UK, as envisaged by the Wood review.

A central part of the establishment of the Oil and Gas Authority is the transfer to it of essential functions currently exercised by the Secretary of State. Noble Lords may recall that Schedule 1 to the Energy Act provides for the transfer of the majority of these functions, including some relating to offshore oil and gas infrastructure, as well as the licensing of carbon dioxide and gas storage. However, it was decided that certain core functions in relation to petroleum licensing and taxation would not be transferred in that Act, due to the interdependencies with the new devolution settlements for Scotland and Wales, as outlined in the Scotland Act and the Wales Bill currently passing through another place.

Specifically, both those settlements include provision to devolve these functions in the onshore area. This all requires amending the same part of the Petroleum Act 1998. Due to the complexities caused by the sequencing of these pieces of legislation, it was decided that we would transfer these specific functions via regulation under the Energy Act to allow greater flexibility. The regulations before the Committee seek to give effect to this. The rationale for transferring these functions to the Oil and Gas Authority remains the same as for those transferred in the Energy Act; namely, the effective establishment and operation of the Oil and Gas Authority as a regulator and asset steward of the United Kingdom

continental shelf. The only difference in this case is the legislative vehicle by which these functions are formally transferred.

It is worth noting that, as with the functions transferred in the Energy Act, these functions are all currently being exercised by the Oil and Gas Authority in its capacity as an executive agency of the Department of Energy and Climate Change. However, once the authority is established as a government company, it will be legally distinct from the department and, in order to continue to carry out its functions, they will need to be formally transferred to it.

In conclusion, these regulations make relatively minor amendments to legislation governing petroleum licensing and taxation, to enable the Oil and Gas Authority to continue the important work it is doing to regulate the oil and gas sector, and to ensure a smooth transfer of functions to Scottish and Welsh Ministers in due course. I beg to move.