UNITED KINGDOM EXTRACTIVE INDUSTRIES TRANSPARENCY INITIATIVE (UK EITI) UK EITI REPORT FOR 2014 April 2016 This Report has been prepared by UK EITI Multi Stakeholder Group (MSG) charged with the implementation of the Extractive Industries Transparency Initiative in the United Kingdom in collaboration with the Independent Administrator (IA). This Report has been prepared within the context of EITI reporting and is published for information purposes. The figures included within the report have not been subject to specific audit procedures and accordingly neither the MSG nor the IA take responsibility for any loss which may be incurred by any other party, should they rely on figures included within this report if such figures were later discovered not to be accurate. UK EITI report for 2014 Table of Contents 1. EXECUTIVE SUMMARY ........................................................................................ 5 2. APPROACH AND METHODOLOGY ..................................................................... 9 2.1. Payment Flows ............................................................................................... 9 2.2. Government Agencies .................................................................................. 11 2.3. Materiality Threshold .................................................................................... 11 2.4. Completeness of Data .................................................................................. 11 2.5. Material Deviation ......................................................................................... 12 2.6. Methodology ................................................................................................. 12 3. INFORMATION ON THE UK EXTRACTIVE INDUSTRIES .................................. 16 3.1 The Extractive Industries in the UK .............................................................. 16 3.2 Oil and Gas ................................................................................................... 22 3.3 Mining and Quarrying ................................................................................... 35 3.4 Beneficial Ownership .................................................................................... 47 3.5 The UK’s Budget and Audit Processes ......................................................... 48 4. RECONCILIATION RESULTS ............................................................................. 49 4.1. Payment Reconciliation between Extractive Companies and Government Agencies ............................................................................................................... 49 4.2. Unreconciled Differences ............................................................................. 50 5. INDEPENDENT ADMINISTRATOR’S RECOMMENDATIONS TO THE MSG .... 51 ANNEXES ................................................................................................................. 54 Annex 1: Detail of mining & quarrying receipts ..................................................... 55 Annex 2: Detail of RFCT & SC by company .......................................................... 56 Annex 3: Detail of PRT by company ..................................................................... 57 Annex 4: Detail of petroleum licence fees by company and licence number ......... 59 Annex 5: Beneficial ownership reporting form ....................................................... 69 Annex 6: Reporting templates ............................................................................... 70 Annex 7: Persons contacted or involved in the 2014 UK EITI reconciliation ......... 79 | Page 2 UK EITI report for 2014 LIST OF ABBREVIATIONS BGS British Geological Survey billion one thousand million or 109 BIS Department for Business, Innovation & Skills BMAPA British Marine Aggregate Producers Association BO Beneficial ownership BODF BO declaration form boe barrel of oil equivalent as applied to trading, the standard quality of oil in Europe and elsewhere comprising a blend of four Brent North Sea crudes from the Brent, Ekofisk, Forties and Oseberg fields brownfield an oil or gas field already in production CA Coal Authority CFA Cross Field Allowance CNS Central North Sea CT Corporation Tax DCLG Department for Communities and Local Government DECC Department of Energy & Climate Change DETI [Northern Ireland] Department for Enterprise, Trade and Investment DOE Department of the Environment DRD Decommissioning Relief Deed E&P Exploration and Production EITI Extractive Industries Transparency Initiative FYAs First Year Allowances GB Great Britain GDP Gross Domestic Product GIS Geographic Information System GPA Group Payment Arrangement GVA Gross Value Added HM Her Majesty’s HMRC Her Majesty’s Revenue and Customs IA Independent Administrator LAs Local Authorities LPA Local Planning Authority M&Q Other Mining & Quarrying MEA Mineral Extraction Allowance MMO Marine Management Organisation MPA Mineral Planning Authority MPL Mineral Prospecting Licence MSG UK EITI Multistakeholder Group MTOE Million Tonnes of Oil Equivalent NAO National Audit Office NIEA Northern Ireland Environment Agency NPPF National Planning Policy Framework | Page 3 UK EITI report for 2014 LIST OF ABBREVIATIONS NRW Natural Resources Wales NYM North York Moors OBR Office for Budget Responsibility OGA Oil & Gas Authority (as inheritor body of oil and gas functions from DECC) ONS Office for National Statistics PEDL Petroleum Exploration and Development Licence PEP Politically Exposed Person PMA Plant and Machinery Allowances PRT Petroleum Revenue Tax PSC Persons exercising Significant Control RDA Research and Development Allowance RFCT Ring Fence Corporation Tax RFES Ring Fence Expenditure Supplement SC Supplementary Charge SEPA Scottish Environment Protection Agency SPD Supplementary Petroleum Duty TCE The Crown Estate ToR Terms of Reference UCG Underground Coal Gasification UK United Kingdom UKCS UK Continental Shelf | Page 4 UK EITI report for 2014 1. EXECUTIVE SUMMARY The Extractive Industries Transparency Initiative (EITI) is a global standard of transparency that, for implementing countries, requests oil, gas and mining companies to disclose what they pay to the government; and the government to disclose what it collects from these companies. The initiative aims to encourage governments to be more transparent in publicising the benefits they receive from their country’s natural resources. The EITI Global Board published the ‘EITI Standard’ in May 2013. An updated version of the standard was published in February 2016. The EITI Standard sets minimum requirements that implementing countries must meet, with the fundamental aspect of revenue transparency at its core. At the national level, EITI is governed by a multi-stakeholder group (MSG) composed of representatives from the government, the extractive industries and civil society. This oversight body sets the direction for EITI implementation by formulating country objectives, engaging stakeholders and publishing an annual EITI report. The MSG is also responsible for selecting an Independent Administrator (IA) that is responsible for reconciling data on company payments to government receipts. This first UK EITI report contains detailed information relating to £3,233 million of revenues received by UK Government Agencies from extractive companies in 2014 for a range of payments included within the scope of EITI. The report shows a breakdown of this sum between the oil & gas and mining & quarrying sectors, between the different payment types and between the Government Agencies that received those payments. A total of 71 extractive companies participated in compiling the report. The IA has been able to reconcile £2,431 million of those payments to disclosures made by companies. The report shows the breakdown of this sum between companies and is the first time such information has been made available to the public. Information on the unreconciled amounts has also been included in this report. A number of features of the global EITI Standard and how it interacts with the UK legislative framework have presented the MSG and the IA with challenges in meeting the requirements of the EITI requirements. Those features, which are described in more detail within the report, include: Voluntary reporting: The absence of legislation requiring companies to disclose their payments results in UK EITI being a voluntary process for companies. Taxpayer confidentiality: Legislation prevents HMRC from disclosing confidential taxpayer information. HMRC was therefore able to provide information relating to tax payments received only from extractive companies which gave their consent through a waiver of confidentiality. This constraint also had an impact on the MSG’s ability to target the EITI process at companies that made material payments. Oil & Gas Sector Taxes: Companies in the oil & gas sector are subject to a separate fiscal regime on their UK extractive activities. Whilst this separation aids the | Page 5 UK EITI report for 2014 identification of taxes that are within the scope of UK EITI, the payment mechanism established by HMRC enables companies to combine payments that relate to their extractive activities with payments that relate to other activities. This required additional work on the part of HMRC and companies to distinguish the extent to which payments related to the extractive activities. Mining & Quarrying Sector Taxes: There is no separate fiscal regime for UK mining and quarrying activities. For HMRC,