§ The Secretary of State for Energy (Mr. Eric Varley)
With permission, Mr. Speaker, I should like to make a Statement.
Just before Christmas the Burmah Oil Company approached the Government and the Bank of England about its difficulties in meeting in full the technical requirements of certain loan agreements, due to a fall in income and the contraction of the market value of its assets. Burmah is a major British company with widespread international interests and an important involvement in the North Sea. 449 We want to avoid any delay in developing the major fields of Ninian and Thistle.
Following consultation between the Treasury, my Department and the bank, it was therefore agreed that the bank would provide temporary financial support to enable the company to renegotiate its loan commitments and rationalise its activities, secured by the transfer of Burmah's unpledged holdings of the stock of BP and Shell to the bank. The bank offered its guarantee in support of certain substantial dollar borrowings for 12 months in the full expectation that it would be able to withdraw at the end of this period and leave the company to stand on its own.
The bank proposed to rely for its protection primarily on security taken from the group, which the bank judged to be adequate. The Government considered it right to guarantee the bank against any possibility of loss. I shall be seeking the approval of Parliament as necessary.
In return, Burmah confirmed its firm intention to proceed fully and as quickly as possible with the development of the Ninian and Thistle fields. It also undertook, in consideration for the support to be provided by the bank and the Government, to transfer to the Government, when required, 51 per cent. of its interest in commercial oilfields on the Continental Shelf. The precise terms of the participation will be negotiated between my Department and the company.
Discussions are continuing with the many interested parties. Some modification of the arrangements which I have described may well be needed. The bank will continue to act in close consultation with the Government; I shall keep the House informed.
§ Mr. Patrick Jenkin
While the whole House will have greeted with dismay the circumstances which forced this famous Scottish-based company to seek help from the authorities, we on this side of the House felt some sense of relief that it fell into the hands of the bank and not into the hands of the Secretary of State for Industry.
While, clearly, we must wait for Sir Ronald Leach's report of the details, will the right hon. Gentleman confirm that the immediate cause was the fall in the Stock Market values of Burmah's holdings in 450 BP and Shell, as a result of which the company found itself in technical breach—[HON. MEMBERS: "No."]—I am quoting the Secretary of State's own words—found itself in technical breach of its loan obligations? Is it the Government's view that no question of insolvency arises here—in other words, that there is no question of the Government finding themselves in a Beagle situation?
Secondly, the Burmah company has deposited its holding of over 20 per cent. of the equity of BP with the bank as security. Will the right hon. Gentleman assure the House that these shares remain Burmah's property and that there is no question of the Government taking the shares into public ownership?
Thirdly, it is clear that Burmah has been forced to cede 51 per cent. of its North Sea interest under duress. Can the Minister give a categorical assurance that the terms offered to Burmah will be no less favourable than those which will be offered to other companies? Will he explain what those terms are? Can he clarify the very opaque and obscure statement made by his right hon. Friend the Chancellor of the Duchy of Lancaster before the weekend? Is it not clear that on the taxation and participation front, because the Government have been meddling in matters that they do not understand, their North Sea oil policy is rapidly slithering into total shambles?
§ Mr. Varley
The Government did not seek the difficulties which Burmah is experiencing and we take no satisfaction from the situation. It has nothing to do with the Government's North Sea oil policies. The problems of Burmah were due to the fall in the value of assets, and one of the main difficulties which the company had was the tanker, operations. The question of the BP shareholding is still a matter for consideration, and I do not rule out the possibility of the Government acquiring it from the bank, but further thought must be given to that.
§ Mr. Hamling
Is my right hon. Friend aware that one of the chief contributions to the situation was mismanagement by Burmah, particularly in the Signal operation and not so much the tanker operations? Is my right hon. Friend aware also that the remarks made by the right hon. Member for Wanstead and Woodford 451 (Mr. Jenkin) are no contribution to solving the problems of Burmah and that they are merely an exercise in petty party politics?
§ Mr. Varley
I very much agree with my hon. Friend that that contribution from the right hon. Gentleman does not help the Burmah situation at all. There have been management problems. It is widely recognised that there will be management changes. The managing director has already resigned, and the director of the tanker operations has also gone. I am absolutely certain that further management changes will be announced, and, I hope, announced shortly.
§ Mr. Pardoe
Is the right hon. Gentleman aware that the difficulties which this company has met have come about largely as a result of following the advice of many politicians 10 years ago to do the sort of things in management which were done, and that it showed enterprise not wisely but too well?
Is the right hon. Gentleman also aware that the problems derive immediately from the collapse of the Stock Market and the collapse in confidence in the North Sea as collateral for borrowing, which has nothing to do with the Government's policy but has a great deal to do with the escalating costs of getting the oil ashore? What will the Government do to get the oil out of the North Sea and to provide investment? We shall not be able to borrow it. Even the last Conservative Government could not print money on this scale.
§ Mr. Varley
The fact that we could move to assist in these circumstances is assisting the North Sea oil policy. It may well be that the development in the Thistle and Ninian fields might not have gone ahead, but, as a result of the support which the company is now receiving and the back-up guarantee which is being given, it will be possible for work to be pressed ahead in the Ninian and Thistle fields. Far from harming our North Sea oil policy and objectives, the Government are assisting them.
§ Mr. Dalyell
Has my right hon. Friend noticed the tactful reticence of the Scottish National Party on this matter? Does not this situation prove once and for all 452 that winning oil from these inhospitable waters does not provide any kind of dripping roast in the form of extra benefits for Scots?
§ Mr. Varley
I am loath to get involved in an argument about Scottish nationalism, whether it assists in this situation or whether the Scottish National Party is reluctant to comment. I can tell my hon. Friend that it is the Government's intention to press forward as soon as possible with North Sea oil development and that we are being sucessful.
§ Mr. Skeet
Will the Minister explain what he means by saying that the profitability of the Burmah Oil Company will be the same with 49 per cent. participation as though it had 100 per cent. ownership? As the Bank of England has the right to sell 21.7 per cent. investment, in what circumstances will the Labour Government purchase it?
§ Mr. Varley
It is far too early to speculate on the BP shareholding which the bank now holds. It is possible for the Government to acquire the shareholding of BP, but it is not yet decided whether that should be done. I do not rule it out, but we need to see how the situation develops in the weeks and months ahead.
§ Mr. Stoddart
Is my right hon. Friend aware that the Burmah Company, whose head offices are in my constituency, in the course of its public statements has made no statement that Government interference has had anything to do with the present collapse? Indeed, it accepts that it has overstretched its operations, and that is why it needs Government assistance, which is very much welcomed in my constituency.
May I ask two questions? First, does it make sound sense for the company to be required to get rid of its assets in North America? Secondly, has my right hon. Friend had any discussions with the Burmah Oil Company about the protection of the jobs of its employees, particularly those in my constituency?
§ Mr. Varley
I understand that no significant redundancies are planned for the Burmah operations in the United Kingdom. As for the North American assets, both Burmah and the Bank of England are convinced that certain slimming-down 453 operations will have to take place. Some of the North American assets will have to be disposed of, and I think that is wise.
§ Mr. Teddy Taylor
Is the Secretary of State convinced that after this operation sufficient capital will be available to Burmah fully to develop both the Ninian and the Thistle fields? Is he aware that because of the traditional Scottish connection with Burmah many Scottish pension funds, which are already in a shaky situation, have heavy investments in the company? Will he therefore say what he considers to be the outlook for the profitability and the shares of the company?
§ Mr. Varley
The company hopes in due course after the slimming-down operation and after the disposal of some of its North American assets to operate successfully. There is no question about that; the company is confident that it can do that. However, I shall keep the House informed as necessary. I think I have already answered the question of the present hope for the Ninian and Thistle fields. Finance will be made available and the operations there will go ahead as speedily as possible.
§ Mr. Cant
As it is obvious that the position of Burmah is due very largely to gambles that did not come off and to generally bad management, will my right hon. Friend say in respect of one of the least successful of its management operations—the negotiations over the loan with the Chase Manhattan Bank—how much of the British taxpayers' money will actually find its way across the Atlantic to that bank?
§ Mr. Varley
It is much too early to answer in any detail the question my hon. Friend posed. There is the guarantee which the bank has offered on the $650 million loans, and the precise nature of any sterling banking facilities have yet to be agreed.
§ Mr. Gordon Wilson
Will the Minister accept, notwithstanding oil company propaganda to the contrary, that there still is a tremendous profit to be made out of North Sea oil and that it is advantageous to the community that there is a degree of public participation in it? Will he accept support from the Scottish National Party for the Government's action in the sense that the Government are following the 454 policy towards public participation that we blazed several years ago?
§ Mr. Varley
I have only just noticed that, if it is the case. I remember one famous occasion during the "short Parliament", if I may call it that, between February and October last year when we had a major debate on public ownership and participation and the hon. Member and his colleagues followed the Conservatives into the Lobby. I very much agree with the hon. Member this far—that North Sea oil is still an extremely profitable operation, and most of the oil companies recognise that.