The release of Sir Ian Wood’s report in February marked a seminal moment in the history of the UK Continental Shelf (UKCS).
However, notwithstanding our strong support of the Wood Report as a correct and welcome prescription to help maximise economic recovery from the UKCS, Oil & Gas UK cannot agree that the cost of the new Regulator should be borne solely by industry.
This is not a question of the size of the bill. Production taxes paid by this industry each year run into many billions of pounds and the total cost of the new regulator will be a very tiny fraction of that. Furthermore, on top of the production taxes, oil companies already pay, in total, about £70million each year to the Department of Energy in licence rentals for their offshore permits. We would be extremely surprised if it the annual cost of the regulator was anywhere near as much as that.
So the oil companies are already paying more than enough, just in annual licence fees, to cover several times the full cost of the new regulator. However, this is really not just a question of the amount of money involved. Good governance, transparency and fairness all demand that at least a part of the cost of running the regulator should continue to be borne by the Department of Energy. So we must disagree with government when it seeks to absolve itself from all exposure to cost here.
Collaboration works best when there is a sense of shared responsibility. The government taking an opportunistic cost cut at the expense of the industry would be a poor start to the new tripartite approach which is called for by the Wood Report. The Department of Energy should at least continue to pay the relatively small amount (probably less than £4million) that it currently pays. The industry will then pick up the much larger additional amount but, more importantly, both sides will have an interest in the cost.
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