Petroleum (Production) Act 1934 and Safety Considerations
1.The organisations related to the Oil and Gas sector of UK are required to follow various governmental legislations for the purpose of their business operations in the nation. The ‘Petroleum (Production) Act 1934’ is one of the most important regulations which the different organisations are required to abide by for the effective drilling of petroleum in the various sites (Legislation.gov.uk 2019). More importantly, it is seen that this act also offers an overview of the safety parameters, equipment, ethical considerations and others that the organisations are required to follow for the purpose of drilling (Oilandgasuk.co.uk 2016). Furthermore, the organisations also required to follow the precepts of the Health and Safety Executive (HSE) of the national government to ensure the safety of the workers and also the different property of the concerned organisation (Hse.gov.uk 2019). Besides this, the government clearly identifies six different areas of improvements in the form of safety of the environmental management system, improving the learning culture and process effectively, integration of the regulatory frameworks, clear organisational structure to formulate the control and command process, business liability and ability of the organisation and finally open up high scopes and opportunities for the R&D development (Bradshaw and Waite 2017). Moreover, the organisations also need to have adequate risk management programs and also needs to abide by the Governance, Risk and Compliance (GRC) elements of the nation (Bowdler 2017). These in short are some of the most important regulatory assessment aspects along with others that the regulator will look for before authorising or giving permission to the organisations.
Elshandidy et al. (2018) are of the viewpoint that the primary purpose of these regulations is to ensure a safe and secure environment both from the ecological and business perspective that will help the industry to expand its business steadfastly. Furthermore, these regulations and their effective use also helps the organisations to avert disasters which could have been avoided and also to offer a safe working environment to the workers. For the conduct of this assessment, the regulator conducted interviews with the different managers, workers and other stakeholders of the organisation. The regulator also conducted inspections in the workplace and the drilling sites of this organisation to ensure that the above mentioned regulations and others are being followed in an effective manner by the concerned organisation.
2.As per the Cadbury report of 1992, Corporate governance is a set of rules and guidelines that the firm is entitled to follow in order to retain its business effectively and successfully expand its sustainability measures (Bowdler 2017). According to Bell, Filatotchev and Aguilera (2014), the notion of corporate governance is blended with the practice of balancing the interests of the stakeholders. The stakeholders are identified in terms of the management, shareholders, customers, suppliers, financiers, government and community as well. In fact, Krechovskáand and Procházková (2014) advocated that the principles of corporate governance are also associated with the objectives of the organisation so that the business companies can grow on the basis of the corporate governance principles.
Corporate Governance for Oil and Gas Organizations
It is important for the organisations to deliver such a measure so that the environmental condition will be balanced. The oil sector has a far-reaching impact on the environment and escalating trend of politics further perturbs the situation. Therefore, Boatright (2017) ascribed that good governance plays a pivotal part in order to establish a balance both politically and environmentally within the industry. In addition to this, good governance also facilitates transparency initiatives within the organisational framework so that big business houses in the oil sectors of UK can check on sustainability. Corporate governance is also focusing on the community engagement a development process that will bring more progress in the entire set up.
For the UK oil sector, it is important to focus on some essential factors responsible for carrying out an effective and transparent mechanism within the entire business practice. For instance, clarity over the goals and objectives of the Oil companies in the UK is considered to be an important aspect to solidify the practice of good corporate governance. In association with this, Amba (2014) opined that putting more emphasis on sustainable development is highly effectively significant for the organisations in the UK oil sector for its future benefits. The Cadbury report helps to enact the ‘UK Corporate governance Code’ in 2010. The oil sector is always questioned the environmental issues; therefore procuring good governance will bolster the brand image of the oil companies existed in UK. Furthermore, accountability in decision making is also considered effective enough to set up a plan for further business activities. Through those factors, the oil sector in the UK can achieve effective corporate governance.
3.As far as the Oil sector in the United Kingdom is concerned, it can be stated that the UK oil industry has the largest production capacity across Western Europe and the second largest after Norway. The government report showed that in the year 2017, the UK oil sector produced 999,000 barrels a day (oilandgasuk.co.uk 2017). However, there is a sharp declination in the production in comparison to the year 2016 with a percentage of 1.3. Currently, there are six refineries actively working in the UK with a production volume of 60 million tonnes in 2017 (deloitte.com 2018). However, a large volume of the workforce is associated with the gas sector. The Oil sector itself provides more than £2.5 billion per year (oilandgasuk.co.uk 2016). As a result of that, the Oil sector is a highly profitable sector for the UK economy.
Challenges and Risks in the UK Oil and Gas Sector
Despite of the advantages, UK oil sector is facing serious risks and problems in terms of the production delays, unintentional loss of data, the safety of the workers, environmental issues and the responsibility for the environment and the community. In a different context, during the year 2013 the financial business organisation JP Morgan Chase came to the front page due to huge financial scandal that led to a fine of £137.6 million (Bowdler 2017). Therefore, the regulations are clearly pointed out the issues and entitled to mitigate the issues effectively. In this regard, the Oil and Gas Authority of UK (OGA) and the Department for Energy and Climate Change (DECC) are responsible for dealing with the legal and regulatory compliance (deloitte.com 2018). It is accompanied by the licensing, exploration and production, infrastructure as well as the environmental considerations. In addition to this, the UK government also enacted the Petroleum Act in 1998 with the purpose to encourage the oil companies to initiate a sustainable production with balancing the environmental framework (Legislation.gov.uk 2019). Risk in the process is clearly an important problem that could damage the entire situation effectively. For an instance Bowdler (2017) advocated that global banking crisis pushed UK government to evaluate the existing legal procedure and it was found that there was a huge gap between the international framework and the national establishment. Besides this, there is the Employment Rights Act of 1996 that safeguards the interests of the employees irrespective of industry (Legislation.gov.uk 2019). Furthermore, the Health and Safety Act of 1974 is also an important legal right that compels the organisations to put extra measures for the benefit of employee health and safety (Hse.gov.uk 2019). The UK government intended to protect the environment legally through the enactment of the Environmental Protection Act of 1990 that pushes the industrial business organisations to control commercial and industrial wastes (Legislation.gov.uk 2019). Henceforth, the regulatory framework of the UK is highly effective to establish a better business environment and entitled to safeguard the interests of the stakeholders as well.
4.As opined by Whitton et al. (2017), the term ‘systematic risk’ refers to the uncertainty which is inherent in the entire business market in which a particular business organisation is operational. Systematic risks is also called by the name of ‘market risk’ or ‘un-diversifiable risk’ and the organisations generally face this kind of risk because of the volatility of the market in which it is operational or on the score of the fluctuations in the stock prices of the organisation (Waring 2016). The UK government over the years had evolved an effective regulation system for the oil and gas industry which states the king of risk management procedures and other aspects that the organisations are required to follow. In this regard, mention needs to be made of the “Offshore Installations (Safety Case) Regulations 2005”, “Offshore Installations (Offshore Safety Directive) (Safety Case) Regulations 2015” and others (Bowdler 2017). The “IOSCO’s core objectives” are also important ones in which help the organisations to mitigate the adverse effects of the systematic risks and other kinds of risks faced by the organisations related to the oil and gas industry (Bowdler 2017). In fact, the government is willing to formulate cumulative risk guidelines that all the companies in the oil sector have to follow. Emphasis on the health and safety and the environmental considerations are playing a pivotal role in order to deal with the risk management dominantly (Goldthau 2016). Henceforth, the legal implication in the UK oil sector also incorporates the market, credit, operational and environmental risks so that the legal barriers can be mitigated. In this context, while discussing the significance and threat of risks, Bowdler (2017) pointed out that JP Morgan Chase faced severe threat after the fraudulent activities got exposed. Therefore, it requires a government intervention in order to reduce the risk factors.
The risk regulations formulated by the UK national government for the organisations related to the oil and the gas sector are in synchronicity with the other national regulations that the concerned organisations are required to follow. For example, one of the major objectives of the UK regulatory framework is to create the best possible facilities for the workers in terms of safeguarding their health. In association with this, putting emphasis on the process of quality check and control is also identified as an important measure (Mason and Simmons 2014). Therefore, the UK government takes extra concern to set the standards for production. This measure is also associated with the environmental consideration where the oil producing companies will face severe legal investigation in case of any violation of the legislative regulations (Bouoiyour and Selmi 2018). From this point of view, it can be argued that the oil sector in the UK the regulatory establishment helps to set up a business-friendly environment for the Oil sector to expand its orientation in the near future based on the paradigm of sustainability. Any kind of failure in the process of risk management can jeopardise the entire regulatory situation. For an instance, failing to follow the legislative guidelines for employee health and safety will damage the image of the oil industry of UK. This in turn can affect the other aspects of the business processes used by the organisations in the concerned sector. Thus, it can be said that the lack of ability to cope with the risk regulations, particularly the ones related to the systematic risks is likely to affect all aspects of the organisations in a substantial manner which in turn can significantly reduce the profitability of these organisations.
5.As opined by Crane and Matten (2016), the notion of business ethics had gained a significant amount of prominence within the framework of the contemporary business world and the business organisations are required to take responsibility for their actions. In particular context of the organisations related to the oil and the gas it needs to be said that they are not only required to mitigate the environmental damage that they are causing but at the same time use the natural resources in an ethical and sustainable manner (San Ong et al. 2017). More importantly, it is seen that there is a direct connection between ethics and compliance. From the theoretical perspective, it can be asserted that the role of compliance is to set a rule of law which the business organisations must follow in order to have an effective business orientation and also reduce the damage that it is causing to the environment on the score of its business operations.
The concepts of ethics and morals have emerged as the major regulatory requirements that the organisations in the oil and the gas sector are required to follow for their business operations. This can be explained on the basis of the fact that the organisations related to the oil and the gas sector often take the help of the unethical as well as immoral business practices with the objective of maximising their profitability (Bradshaw and Waite 2017). Ethics can be practiced for not only the betterment of the employees only but it is created with the purpose to make a balance between the corporate culture and the interests of the employees. On the contrary, Bowdler (2017) shows that in Enron’s case due to the lack of perception regarding the significance of ethics, the business operations of the organisation had to be closed down. Moreover, the suppliers and ancillary industries are also expected to get benefit from the practice of the kind of compliance policies which take into consideration the factors of ethics and morals. On the other hand, Bowdler (2017) claimed that the purpose of using ethics and morals as a regulatory framework is to facilitate a mutual understanding between the organisation and the government so that a better business environment can be developed. In this context, ethics is used to make the company understand the importance of compliance and sustainability. Therefore, sustainable decision making can be made on the basis of mutual participation of both the government and the business organisation taking into effective consideration the factors of ethics and morals.
The compliance mechanism solidifies the business culture in the oil companies in the UK so that they can usher the practice of ethics in the business. As per Oilandgasiq.com (2018), the UK companies are facing a serious threat in some sections like spilling oil on the ocean floor and thereby damage the marine ecology substantially. For instance, in the year 1995, the Royal Dutch or Shell was accused of dumping the waste materials in deep water off northwest Britain (Omeje 2017). Henceforth, it became an international issue, and many countries condemned the role of the British government to encourage those companies in violating compliance regulation. This disaster could have been averted had the concerned organisation used the factors of ethics and morals as important regulatory frameworks for the conduct of their business operations (Yusuf et al. 2014). Thus, it can be said that the UK oil and gas companies by using ethics and morals as important regulatory frameworks would be able to gain in a significant manner since it will not only enable them to attain sustainability but at the same time mitigate the damage that their business actions cause to the environment.
6.The impending Brexit deal is likely to affect the business world of the UK in a significant manner since the organisations would no longer access to the kinds of benefits that they used to enjoy because of the EU membership of UK (Oilandgasiq.com 2018). In the particular context of the oil and gas sector it needs to be said that the situation is likely to worsen because of the loss of opportunities that the EU membership of the UK presented to the oil and gas companies like free trade in EU member nations, expansion opportunities, opportunity to conduct trade in the EU member nations and others (Oilandgasiq.com 2018). In this regard, it needs to be said that earlier the oil and the gas companies of UK were required to follow the legislations and regulatory measures of both the UK and the EU. Nevertheless, in the wake of the Brexit, all the EU legislations would be nullified and the companies would only have to follow the legislations of the UK government (nortonrosefulbright.com 2016). Based on the research of Bowdler (2017) it can be stated that global banking crisis pushed UK government to evaluate the existing legal procedure and it is seen that newly formulated national regulations are completely different from international regulations. Therefore, it had become highly problematic for the oil companies to comply with the legal compliances thoroughly because they of the fact that they had been used to the earlier legislations. In this regard, mention needs to be made of the organisation Centrica – British Gas Trading Ltd which is currently facing significant problems because of these changes in regulation. For example, as it was bound to follow the legal proceedings and framework of the EU so the UK’s legal aspects were not familiar to them. For an instance, in case of the standard and quality measures, the European Union incorporated the Petroleum Act of 1998. Therefore, there was no impact or issue regarding the quality of production of the concerned company. However, the problem had escalated on the matter of import and exports where the EU had distinct norms which diverge from the UK norms. It caused a serious threat to the import and export of petroleum and adversely affected the companies. In this context, the UK Parliament took a very important step to deal with the emerging crisis and amended the legislation by incorporating some EU regulation into the sphere of the oil industry establishment in the UK (Legislation.gov.uk 2019).
These are expected to have a significant amount of impact on the GRC framework which is being used by the organisation as well. For example, in the earlier times it was seen that the organisation primarily followed the GRC given by the EU because of the fact that the GRC framework of the UK was greatly coterminous with it (Warner and Sullivan 2017). However, with the impending separation of the UK from the EU the organisation would have to get acclimatised with the GRC framework of the UK government. The UK government for the time being had given the permission to the organisation to follow its own GRC which actually is a modified version of the one given by the EU however in the longer run it would have to followed the one of the UK government in an ardent manner. In course of the discussion, there are some measures that the British government might take in order to resolve the issue effectively that the Centrica – British Gas Trading Ltd can utilise for addressing the problem. The first point can be identified in terms of flexibility and efficiency in the process of decision making. The legal body of the UK Parliament must take enough measure to deal with the rising tension. Kuzemko (2014) argued that a pro-active measure should be taken on behalf of the UK government that could restore the legal measures effectively. The over-controlled policy of the UK government should also be redeemed to such an extent where the companies could take their own responsibilities for the time being. It would provide the government ample time to plan and enact the new regulatory and implemented in proper time.
7.The personal actions as well as the manner in which the different employees complete their job roles had a profound impact not only on the profitability of the organisations but at the same time on the image of the concerned organisation as well (Whitton et al. 2017). More importantly, the individual actions as well as the responsibility taken by the workers or the employees greatly affect the implementation as well as the effective usage of the different kinds of compliance regulations that the organisations are required to follow (Bennear 2015). In the particular context of the oil and the gas industry it needs to be said that the GRC officers play a pivotal role. The role played by the GRC officers is important because of the fact that they not only ensure that the fact that the organisations are following the effective governance, risks and compliance regulations stated by the nation government for the concerned sector but also help in the mitigation of the different issues related to these in an effective manner (Bowdler 2017). This becomes especially important from the perspective of the UK oil and gas industry because of the fact that in the international forum, the UK oil companies have lost their image on the score of their lack of compliance with the governmental legislations (Fragouli 2016). For instance, the dumping of wastage in the deep water of northwest Britain by the Royal Dutch and Shell in the UK is generally considered to be one of the important ones in this regard. It is precisely here that the role played by the GRC officers within the framework of the UK oil and gas companies becomes especially important.
As per the research of Omeje (2017) due to the establishment of the government policies and regulation which in synchronicity with the changing environmental needs and also business requirements, the organisations are required to act in accordance with the policies. In the organisation, Centrica – British Gas Trading Ltd, one of the most important roles of the GRC officers is to take personal responsibility for the actions of the companies and also to ensure that the companies comply with these regulations and policies. The role of the Governance, Risk and Compliance officers have a great impact on the image of the organisation (Bowdler 2017). The research of Yusuf et al. (2017) mentioned that the GRC officers help the organisations to take into effective consideration the notion of ethics into the regulatory frameworks that they follow. More importantly, it is seen that the effective usage of these regulatory frameworks not only enables the organisations to conduct business operations in a safe and ethical manner but also helps them to attain sustainability as well. Thus, it can be said that the personal responsibility as well as the individual actions undertaken by the GRC officers have a profound impact not only on the reputation of the companies but at the same time the manner in which these companies comply with the governmental regulations for the conduct of their business operations.
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