Business Practices, Social Responsibility and Contribution to Public Finances

Social responsibility is a vital part of Oil & Gas UK’s Sustainability Strategy, and the industry as a whole is working together to develop Codes of Practice which influence behaviours that promote social responsibility and business efficiency. These Codes are outlined in the following sections.

Many Oil & Gas UK member companies operating on the UK Continental Shelf subscribe to non-financial corporate reporting. The following link can be used to access all Oil & Gas UK member websites where corporate and social responsibility reporting can be found.
http://www.oilandgasuk.co.uk/ukooa/members.cfm

The UK economy also benefits hugely from the UK oil and gas industry, with over £230 billion paid in taxes by the industry since the 1960’s. This contribution to the economy and public finances in general is a clear example of how important this industry is within the UK.

Improving Business Practices and Behaviours – Introduction and Background

One challenge the Industry faces is how to continually improve business practices and behaviours in order to promote and enhance aspects of social responsibility and business efficiency. During this decade PILOT has orchestrated the introduction of three voluntary codes of practice; all of which remain highly relevant to today’s business. These three best practice guidelines have been instrumental in revitalising areas of the business and focus specifically upon supply chain, commercial practices and infrastructure access issues.

Improving Business Practices and Behaviours – Key Statistics and Commentary

Supply Chain Code of Practice

The PILOT vision for 2010 aims to help strengthen the position of the UKCS in a global market place as a key centre of oil and gas exploration, development and production. The Supply Chain Code of Practice supports this goal as it works to improve the efficiency of the UKCS supply chain by improving performance, eliminating unnecessary costs, adding value and enhancing competitiveness.

The Supply Chain Code of Practice was initially launched in 2002 to promote behavioural change in contractual relationships. In 2005 a revised code was re-launched; this new and improved version has to date attracted 115 companies right across the industry from major purchasers to small suppliers. Signatories work towards full compliance to the code, which addresses issues such as; transparent planning in contract activity; streamlining pre-qualification, tendering and negotiation processes; increasing feedback dialogue and shortening payment cycles.
As part of compliance with the code companies are encouraged to take part in the highly successful annual Share Fair industry event. The most recent event (Share Fair 8) attracted 500+ delegates and successfully allowed major purchasers to communicate future plans and internal contacts to the supply chain.

Commercial Code of Practice

The Commercial Code of Practice was launched in 2002 with the goal of promoting positive commercial behaviours and to expedite transactions between licence holders in line with the principle of co-operative value generation. The Code helps establish an agreed framework designed to minimise (the often considerable) resources spent on negotiations, by providing short, clear guidance about the way that negotiations should be conducted, that will, if applied, give confidence on both sides that transactions will be carried out in an effective manner. At inception 92 % of UKCS licensees signed up to the code. As part of compliance signatories nominate a Champion to promote the code, regular network/awareness events are also held. In the last few years there has been a renewed drive by government and industry to ensure the principles of the code are adhered to. The most recent (2006) annual survey showed that amongst the current 63 UKCS licensees the code remained part of the fabric of negotiation in several deals, with appointed Commercial Code of Practice champions playing a role in many transactions. The 2006 survey gave adherence to the Code an overall figure of 81 % and showed signs that the code continues to have a positive impact on UKCS commercial behaviours.

Infrastructure Code of Practice

Access to the existing offshore infrastructure (e.g. offshore platforms and pipelines) is a key element of achieving the PILOT goal of maximising UKCS reserves recovery. In particular the development of small fields can be made economically viable by owners allowing access to their existing infrastructure, with said owners gaining additional revenue from the new users. The Infrastructure Code of Practice was launched in 2004 to encourage business behaviours conducive to improve use of existing infrastructure and encouraging new developments. The non-statutory code sets out principles and procedures to guide those negotiating third-party access to oil and gas infrastructure on the UKCS. A feature of the code includes the Automatic Referral Notice (ARN) system; whereby if a deal between the infrastructure provider and a potential user is not concluded in a timely manner (within 6 months) the Secretary of State is automatically notified and may step into negotiations between the two parties. In addition the code stipulates that technical data and the key terms and conditions of agreements made between parties should be available on the web. The 2006 review report into the code’s effectiveness showed that the code was starting to influence processes and behaviours for the better. To date 50+ companies are signatories to the code.

Improving Business Practices and Behaviours – Supplementary Statistics and Commentary

For more information, see the Supplementary Statistics Section.

Contribution to UK Public Finances – Introduction and Background

The UK oil and gas industry has contributed significantly to the UK economy since 1968, most notably as a result of direct UKCS taxes, as well as indirectly via taxes collected from activities induced by the industry’s expenditure on investment and operations. The oil and gas industry also contributes to the UK economy through the global export of goods and services, which has had a very positive impact on the UK’s balance of trade, as well as the high level of employment the industry generates throughout the offshore industry itself and its supply chain.

Contribution to UK Public Finances – Key Statistics and Commentary

Since 1968 the UK economy has benefited from over £ 230 billion (2006 prices) of direct UKCS taxes. Over the tax period 2007-08 the tax revenues collected totalled £7.8 billion.

UKCS Taxes 1991-2008

For Further information on the UK oil and gas industry’s contribution to UK public fiancés and balance of trade, see the Economics Section of this report.