Oil And Gas Industry Could Lose £8 Billion In EU Regulation

11 April 2012

Alyn Smith MEP, SNP member of the European Parliament's Energy Committee has today (Wednesday) responded to analysis by Fitch Ratings that proposed draft EU offshore safety regulations could cost the sector billions of pounds.

Alyn also warned that the Elgin incident has made his job “considerably harder” but stressed his view that the proposals are very much capable of improvement and that the industry in Scotland must work together constructively to stress our world-leading safety standards, even as clear up operations on the Elgin incident remain underway.

Fitch Ratings yesterday published its analysis of the potential financial and rating impact on offshore producers resulting from the proposed new laws.  It said the leak makes it more likely that the Commission will implement stricter licensing and safety requirements on oil and gas companies. There would be financial consequences for all companies, with significant consquences for companies with low investment grade or non-investment grade ratings.

Alyn said:

"This analysis is credible and timely, and is a wake up call, should one have been needed, of just how serious a job of work we have on our hands. While I support the aims of the legislation - after all, safety concerns must remain paramount - we must ensure the package is workable and at present it is simply not fit for purpose.

“I find little in the analysis to disagree with.  As presently drafted, the EU proposals - and they are just proposals - could dramatically increase the size and scope of companies' environmental liabilities, potentially resulting in companies segregating up to £8bn to obtain operating licenses.  That, in turn, would seriously affect the credit ratings of companies operating in the North Sea and other EU territorial waters.

"However, I must emphasise that we are currently talking about EU proposals, not EU law, and the European Parliament will be going through them line by line.  We have ample opportunities to improve these proposals but, as this report makes clear, in the light of the Elgin incident we must be wary of our tone and credibility.  My job on this has been made considerably harder and I’ll need all the help I can get.

"I have been pleased with the support thus far and by just how keen the Scottish industry is to engage.  With a view to improving the package I have held a series of successful stakeholder meetings, including a recent roundtable discussion co-hosted by Aberdeen Chamber of Commerce with representatives from the oil and gas sector.  I have met with the European Commission, including technical experts, and I will be meeting with Energy Commissioner Oettinger imminently.”

The Fitch Ratings report can be viewed here:

http://www.fitchratings.com/web/en/dynamic/articles/Rising-Credit-Risk-for-EU-Offshore-Oil-and-Gas-Production.jsp

For further information on the Commission's proposals:

http://ec.europa.eu/energy/oil/offshore/standards_en.htm