NORTH SEA OIL AND GAS

HC Deb 16 June 1972 vol 838 cc2097-106

4.19 p.m.

Mr. William Hamilton (Fife, West)

I wish that the television cameras had been in the Chamber to televise the pantomime that we have had during the last 20 minutes. It is absurd that we should be now discussing one of the most technological and scientific revolutions in this country and be delayed by the idiocy that we have endured in the last 20 minutes or so.

It is through sheer good luck on my part that we are having this short but extremely important debate. The Adjournment debate today was to have been taken by a Conservative Member, but he had a prior engagement. He explained to me that he would not be taking the debate, and I nipped along to Mr. Speaker's Office and collared it. It could not have been more time ous in view of the scathing attack on the Government made a few days ago by Sir William McEwan Younger, chairman of the Tory Unionist Party in Scotland—the same party as that lot on the Government side of the House—and in view of the debate which took place in the House of Lords on 7th June on the same issue.

Moreover, last month we received the annual report of the Scottish Development Department for 1971, Command 4945. Only three paragraphs of that report were devoted to North Sea oil and gas, less space than the item of military aid to the civil community. That is the priority which the Development Department for Scotland puts on this matter.

Passing from that, I refer to what Sir William McEwan Younger said. He expressed the fears and criticisms of many of us who represent Scottish interests in the House, namely, the fact that the Government seem to be entirely complacent about the exploitation of this vital natural indigenous resource, the extent of which is as yet unquantifiable but which is almost certainly vastly greater than we have been led to believe up until now. Sir William Younger made three specific charges against the Government: first, that they had seriously underestimated the real potential of the asset; second, that as a consequence British industry, particularly Scottish industry, had been caught on the hop, unable to take advantage of the manufacturing of the required equipment and the provision of the necessary services; third, that in granting exploration licences no condition was laid down that the oil development should use domestic industrial facilities.

Mr. T. G. D. Galbraith (Glasgow, Hillhead)

Will the hon. Gentleman say where he is getting that information from? Will he quote the source?

Mr. Hamilton

Sir William instinctively shrank from using the word "nationalisation". I do not mind what it is called—public ownership, massive Government intervention, or whatever else—so long as the principle is accepted that these resources must be exploited by the nation for the national good.

Mr. GaIbraith

On a point of order, Mr. Deputy Speaker. When an hon. Member gives a quotation, as the hon. Gentleman is apparently doing, and when I ask him whether he would say from where he got that quotation, is it not a point of order that he should state where he got it from?

Mr. Deputy Speaker

The hon. Gentleman will know that that is not a point of order for the Chair.

Mr. Hamilton

The hon. Gentleman knows that it is not a point of order. He is wasting the time of the House.

Mr. Galbraith

No more than the hon. Gentleman half the time.

Mr. Hamilton

This oil is a United Kingdom asset. I shall not put a Scottish Nationalist case. We as public representatives of Scottish interests recognise that this is an important asset for the whole of the United Kingdom. We must ensure that the interests of Scotland, England and Wales, and not the interests of the shareholders of the private oil companies, are paramount. Many of the oil companies that now have access to this "gold" under the North Sea are largely foreign owned and controlled. These companies, as Sir William said, have almost certainly engaged in what might appear to some of us to be a deliberate conspiracy to under-estimate the value of the assets to which they have been given such cheap access.

Exploitation of this offshore resource is a relatively new development. It is governed by the Continental Shelf Act, 1964, which followed the Geneva Convention on the Continental Shelf which was signed in 1958.

I will not waste the time of the House by going through the provisions of that Act and the three sets of regulations which followed it. Suffice it to say that the licences are granted for an initial period of six years, and in that time the licensee may determine the licence or surrender part of an area. He has an option to continue the licence for not more than half of the original area for a further 40 years, and he may determine the licence or surrender a further part of it during the 40 years.

Time does not permit me to go into further details, except to say that there have been four rounds of offshore licensing following the 1964Act. Again I will not go into the figures, although I have them, as to the numbers of companies applying, and so on.

As the Minister knows, the scale of charges has increased from a maximum annual rate of £290 per kilometre in 1964 to £350 in 1972. On top of that, there are royalty rates of 12½ per cent. of wellhead value payable on oil and gas production. The exploration licences cost only £1,000 per year and run for three years.

In May, 1964, the Government decided that the allocation of licences should be at the discretion of the Minister, with two objectives in mind—first, speed of exploration, and, second, adequate representation of the United Kingdom interest. These were admirable sentiments which were, I think, agreed on both sides of the House.

Allocations up to 1971 followed these principles and were guided by five main criteria, which again I will not quote but which were designed to ensure that the United Kingdom interests were protected and that the applications had contributed in the past to the development of resources on the British Continental Shelf and to the British economy in general. All those factors applied to the first round of licensing.

For the second round, which happened in 1965, a further factor was taken into account. The applicant was to give evidence that he had made some contribution to the United Kingdom balance of payments and to any proposals for facilitating participation by public enterprise.

In the third round in 1969 similar criteria were laid down, but with an additional one—that as regards the Irish sea the additional criterion was to be introduced that applications should provide for participation by the Gas Council or the National Coal Board, and the then Government invited the Gas Council to apply for a limited area in which it would act as operator.

In the fourth round, the same criteria applied plus a consideration as to the past performance of an applicant under exploration or production licences.

I have all the facts and figures as to the numbers and conditions that applied and the number of companies that succeeded. I leave them out of my script.

The fourth round occurred under the present Government. It is to this round that I want to refer now in particular. It occurred in April, 1971. The Government then decided to offer specially selected blocks for competitive tender. They invited applications for 421 blocks and for 15 to be granted to the highest bidders. They involved a total of 24,000 square miles on offer; 73companies applied for the 15 blocks. The tenders put in totalled £135 million. Firms were not required to submit a specific work programme, and this is a major criticism that we make against the Government. The 15 blocks went for £37 million, of which one was for £21 million—Shell-Esso—and we can be sure that if Shell-Esso put in a bid of £21 million they were pretty certain that they would get an ample return for their money. There was another one of £6 million by an American concern, including representation by the Gas Council.

I understand that 267 other blocks were allocated to 210 companies. I do not know, and I do not think the House knows, what prices were obtained, but on the basis of £37 million for the 15 blocks and an average price of £2½ million, one would assume that the 267 blocks brought in something like £700 million. I should like some specific information about that.

In 1970 oil was found east of Aberdeen, and the latest departmental estimate that I have been able to get is that by the mid-1970s the United Kingdom sector of the Continental Shelf will be producing 25 million tons a year—500,000 barrels of oil daily—and three times that amount by the early 1980s.

The receipts that the Government have got up to 31st March, 1971, were as follows: licence applications, 49,000; payments for licences, £4.2 million; royalties, £6.4 million. The estimates from the Department for 1971–72 are: licence payments, £4.6 million, plus the £37 million premiums for the successful tenderers for the 15 blocks, and royalty payments £6 million; so the total is rather less than £50 million that the Government have got as a result of awarding these bonanzas to these private oil companies.

I now refer to an article which appeared the The Guardian of 28th December, 1971 accusing the Government of giving thousands of millions of pounds on a plate to the private oil companies. The revenue from the fields already discovered on the British Continental Shelf, it is estimated by experts who know what they are talking about, will be over £5,000 million.

Mr. Galbraith; How much is the investment?

Mr. Hamilton

About £300 million or £400 million. The Minister will be able to tell us because he was in this field. He was associated with Phillips, one of the companies concerned. It is a tiny fraction of the enormous revenues which these companies will get from these fields.

Future discoveries would bring that figure up to as high as £50,000 million or more. These are the figures which are quoted in that atrticle. There are immense profits for private companies even after deducting the considerable exploration and development costs which the hon. Gentleman has mentioned.

The article went on to say that other Governments—even more capitalist Governments than ours, and one cannot be much more extreme than that—such as the United States and Canadian Governments, are ensuring that they get a much—[Interruption.] Yes, I see the time, but it is not my fault.

In August, 1970, the issue of the magazine World Petroleum estimated that just six of the 94 British blocks in the North Sea were worth £44 million. Yet they were given away to a group which was 50 per cent. United States-controlled for an application fee of £50,000.

I shall leave out a lot of the other material which was contained in that article. I am sure that the Minister has read it. I refer only to the question of royalties, because this also was taken up in the article in The Guardian.

It seems that our rates are below those of most other countries, 12½ per cent. as against 16⅔ per cent, in the United States and Canada. Switching to the United States rates could mean additional revenue of at least £1,000 million. If auctioning of blocks is to be continued, why not royalty auctions rather than cash auctions, or both together? At least, whatever we do, we must ensure that there is a bigger return for the nation than for the private shareholders in these companies.

There is an unanswerable case for an urgent review of the legislation of this matter, with a view to ensuring just that result, and for a serious review in depth by a Select Committee of the House. I suggest that the Public Accounts Committee could and should be doing that, or perhaps a Sub-Committee of the Public Expenditure Committee. Whatever the machinery, we must act now to ensure that we have adequate facts and figures. The House and the country should have all the facts and figures. The companies should be compelled to come clear as to their costs and what they are producing. Above all, we in Scotland must ensure that our economy reaps full benefit from what happens off the Scottish coasts.

The Secretary of State for Scotland has said that some of the oil will need to be refined overseas. There is no need for that. Although it can be argued that a refinery does not afford many jobs, there is a well known spin-off from producing more refining capacity in this country.

I had it in mind to refer at some length to the speech of Lord Balogh in the other place on 7th June, but I have no time. I conclude in this way. We are entering the most important industrial revolution this country has ever known. It is being deliberately played down by the Government and by the private interests concerned because they do not want the nation as a whole to benefit. It seems that they are more interested in the private shareholders of the oil companies than they are in the welfare of the nation. This must not be allowed to happen.

I hope that, when we return to power, we shall take steps, whether by nationalisation, as suggested by Sir William McEwan Younger, the chairman of the Tory Party in Scotland, or by other means, to ensure that these national resources are used for the national good and not for the good of private shareholders.

4.38 p.m.

The Under-Secretary of State for Trade and Industry (Mr. Peter Emery)

I congratulate the hon. Member for Fife, West (Mr. William Hamilton) on his good fortune in having this debate, but I must condemn him, as a good House of Commons man, for speaking at such length on a matter as important as this, on which I should have expected him to want a serious reply, so that the Minister who is here to reply has only about seven and a half minutes in which to do so.

There is no complacency in the Government about the need to be able to explore, to find and then to bring to British shores the great wealth which rests beneath the British Continental Shelf. The criticism has been made that the Government have seriously underestimated the amount. Let us look at the facts. The hon. Gentleman implies that we have known all about it for years and years. When was the first statement of a commercial find announced to the nation? It was in November of last year. In the short time available to me I will run over what has been done both in Scotland—because that is what the debate is about—and in the whole country.

I first pay tribute to Sir William McEwan Younger whose whole life has been devoted to benefiting Scottish industry and Scottish interests, both in Scotland and throughout the world. I have in front of me an article published today in the Daily Record which does not confirm what the hon. Member for Fife, West was trying to make the House believe. I will not go into that because the facts are more important.

Let us consider what investment has been and will have to be put into the development of the Continental Shelf. So far more than £300 million has been spent on the exploration of hydrocarbons and development. That is mainly on gas. It is estimated that another £200 million is committed for future exploration overall of hydrocarbons and another £1,500 million for the development of oil only in the North Sea—a total figure of about £2,000 million.

Is the hon. Member for Fife, West suggesting that we should put the taxpayer at risk for this amount of money? If that is the case that is being argued, it would place the Chancellor of the Exchequer in an impossible position. Let us look at the risk that is involved. On the exploration side, 195 wells have been drilled. From the speech of the hon. Gentleman one would think that this was simply a matter of pure profit. Of those 195, 166 dry holes have been drilled. That means that there have been 29 discoveries. Only seven of those 29 are commercial. That shows how unrealistic is the approach of the hon. Gentleman.

I turn to what the Government have done in Scotland and which, as a spin-off from North Sea development, can benefit the industrial structure of Scotland. In Aberdeen, NESDA says that the concentration of exploration, service and supply companies already established in or near the city now number over 70. This involves a labour force of over 1,000. The Aberdeen Harbour Board has received from the Department of the Environment approval for a scheme to make the harbour non-tidal, allowing 24-hour access, at an estimated cost of £1,500,000. The site at Old Torry is to be developed by Shell-Esso as a shore base. The headquarters of BEA Helicopters has been moved to Aberdeen from Gatwick. BP has approval to move its exploration headquarters from England to Scotland.

Dundee is to be the main BP base. The Harbour Trust proposes to provide wharfage and roll-on, roll-off facilities for its service vehicles. Brown and Root is building an oil rig assembly yard on part of the 400 acre site at Nigg Bay. There is a prospect of 600 jobs initially, rising eventually to 900. The firm has secured a £10 million contract to build one of the BP production platforms for the Forties field. The Mid-Continent Supply Company is seeking planning permission to develop a 64-acre site. All this is investment by companies in Scotland.

For Peterhead a Bill has been brought forward by the Government and was published yesterday to provide the necessary facilities—I could give a list but because the hon. Gentleman took so much time I am precluded from doing so. In Buckhaven, Montrose, Forth, the Shetlands and Lyness, jobs and careers are being created to benefit Scotland specifically from the North Sea oil discovery.

Dr. J. Dickson Mabon (Greenock) rose—

Mr. Emery

I am sorry, I have not time to give way.

The hon. Gentleman's main charge, therefore, is that the Government are not doing enough, but I must point out to him that as far back as 1966 the Government—a Labour Government—were trying to stimulate industry to go into Scotland. But I warn that Scottish industry must be able to meet the challenge. I can remember that when five or six rigs were built on Clydeside there was a factor of late delivery, and late delivery upsets the whole of a year's scheduled exploration in the North Sea. If that happens, there will be no more rigs. But it did happen under the previous Administration, and we realise that they were unable to do anything about it.

Therefore, in coming to the end of the time left to me, let me say that the importance that the Department of Trade and Industry see in the close co-operation we have with the Scottish Office is such that I have today accepted an invitation to be present myself at future meetings of the Standing Conference on North Sea Oil in order that it may be seen that the DTI and the Government realise that we are properly concerned that the benefits of full and expanding exploration of the British Continental Shelf shall come in full share to Scotland as well as accruing to the benefit of the whole United Kingdom. The Government as a whole, and not just the Scottish Office and the DTI, want to make certain that this is brought about.

4.45 p.m.

Dr. Dickson Mabon

I am disappointed that the Minister has not answered the very serious charge made by Sir William McEwan Younger, a charge which must be taken seriously and not in just a party sense. That charge is that the Government have not encouraged Scottish industry as a whole, and not just shipbuilding, though I appreciate the Minister's comments on delays. These rigs and other structures must be made in time. Sir William says that industry in Scotland has not been geared by the Government to take proper advantage of the spin-off, as it is called—

The Question having been proposed after Four o'clock and the debate having continued for half an hour, Mr. Deputy Speaker adjourned the House without Question put, pursuant to the Standing Order.

Adjourned at fourteen minutes to Five o'clock