OIL POLICY

HC Deb 26 July 1979 vol 971 cc891-902

3.56 p.m.

The Secretary of State for Energy (Mr. David Howell)

With permission, Mr. Speaker, I will make a statement about the Government's oil policy and the British National Oil Corporation.

The Government have reviewed the full range of the BNOC's activities. They have also had much in mind the serious decline in offshore activity.

After discussions with the chairman and the BNOC board, the Government have concluded that BNOC can best serve the nation's interests in a continuing but much more limited role than at present, and that the pattern of ownership of the Corporation's assets, at present exclusively in State hands, should be changed.

The House will be aware that the BNOC is engaged in two main activities. It is an oil trader on a large scale, mainly by virtue of its right through participation agreements with other oil companies to purchase 51 per cent. of most of the oil produced on the United Kingdom continental shelf, and it is a substantial enterprise in the North Sea, engaged in exploration, development and production.

As far as the trading activity is concerned, the Government have decided that the Corporation's access to oil through the participation options should be retained. Although, in conditions of major shortage, I can take powers under the Energy Act 1976 to control and direct oil movements, in conditions of limited shortage, such as we are now experiencing, BNOC's direct access to "participation" oil, together with royalty oil, strengthens our position. Of course, quantity of oil, and thereby security of supply, also depends on economical pricing, and that is why we have removed the price controls which we inherited.

As to BNOC's offshore assets and interests, the Government believe that those should be more widely owned. This objective can best be achieved through the disposal of assets from State hands or by the introduction of private capital into the operation. I will be making a further announcement in due course on this.

Furthermore, the Government have decided on a number of steps in the area of BNOC's exploration, development and production activities. The Corporation has too many licence obligations and commitments, along with a number of privileges vis-à-vis other oil companies. These features are themselves a source of the instability and lack of confidence that have come to characterise the offshore oil exploration scene—which it is essential for us to change.

The Government have decided, therefore, that BNOC's preferential position in future licensing rounds should be ended and that its present over-extended exploration commitments should be reduced. The Government also intend to end BNOC's special access to Government finance through the national oil account. These changes follow the Chancellor's announcement that BNOC will be liable to petroleum revenue tax in common with other oil companies and my announcement ending the previous policy of giving BNOC a first refusal whenever an interest was assigned between companies on the North Sea. I have also decided that the Corporation's statutory role as adviser of the Government should be removed, and that the Corporation should no longer sit on every committee operating the North Sea fields where it has no equity stake. I shall be strengthening my Department's resources so as to ensure that the Government, in the exercise of their regulatory role, are fully able to protect vital national interests.

Some of the changes that I have outlined will require legislation, which will be introduced later in the Session.

The moves announced today will in themselves encourage companies to explore more widely and to invest more confidently in development. We must encourage more investment both in drilling on already licensed territory and in deeper waters on the United Kingdom continental shelf. Our decision to examine with the industry the problems of the so-called marginal fields should also be of positive help.

In addition, I am today confirming the first batch of awards of licences under the sixth round, and the announcement of further awards will follow shortly. I am also well advanced with the preparation of the seventh round of licensing.

I believe that all this will make a major contribution to restoring a high level of exploration activity on the United Kingdom continental shelf after the recent very serious slow-down.

Dr. Owen

For a party that bedecks itself in the Union Jack at every opportunity, this is a miserable statement. Is the right hon. Gentleman aware that oil policy involves more than the public sector borrowing requirement? It is a vital national strategic resource—something that was recognised in this House half a century ago by a previous Conservative leader, Sir Winston Churchill, speaking on behalf of the Liberal Party in defending the Government's role in British Petroleum.

Is the right hon. Gentleman aware that, far from reassuring the industry and creating more stability, his statement about the disposal of assets and the introduction of private capital raises more questions than it answers? How many assets does he intend to dispose of, of what value, and to whom? Will he assure the House that no foreign person or company will be able to acquire a major holding in the British national resource of the North Sea?

Will the right hon. Gentleman assure us that in raising any public capital he will not make any decision before these issues can be discussed in the House, and that he will not dispose of BP shares before these issues can be discussed?

It is not good enough, on the last day before the recess, to make a general statement in the House about the intention to dispose of or to weaken national control over a major national resource.

Is the Secretary of State aware that offering to strengthen the bureaucracy in his Department at the expense of BNOC's oil men is hardly guaranteed to improve our control over North Sea oil? Does he agree that one of the vital attributes of BNOC is its knowledge and expertise about exploration and development, and that that advice and knowledge should be made available to the Government? We shall oppose any legislation or action based upon his statement.

Mr. Howell

I am sorry that the right hon. Gentleman does not see fit to welcome the new impetus to restore our exploration in the North Sea, which is in the interests of the nation and of everybody who lives in it.

The right hon. Gentleman referred to the setting up of BP by the late Sir Winston Churchill. That was a classic example of the type of mixed finance which today's Labour Party is so obsessively against.

Far from continuing uncertainty, my statement will end an uncertain period that stretched back over several years. It will greatly improve the position of the oil companies and the BNOC so that they can get on with their jobs without getting into each other's hair.

I cannot make a statement on the capital structure today. These are matters that are to be decided. I shall do my best to keep the House fully informed.

The right hon. Gentleman asked me about British ownership in the North Sea. The proposals will encourage more British investment in the North Sea. One of the worries about past policies was that not enough British capital was attracted into North Sea projects. The right hon. Gentleman mentioned the stronger Government regulatory role. It is the proper business of government to pursue and formulate effective policies for the North Sea. That is more desirable than relying on a large, overextended State Corporation which, in a more limited role, can play a useful part. The BNOC has been allowed to become overloaded. It has become a drag on North Sea development.

Mr. Patrick McNair-Wilson

Is my right hon. Friend aware that the statement will be widely welcomed? Can he assure the House that after his discussions with the chairman of the Corporation he is satisfied that the future level of North Sea exports will be more in line with the national interest than it was under the previous Administration?

Mr. Howell

The BNOC, together with other oil companies, has made changes in its export dispositions. That arose primarily from this Government's decision to get away from the labyrinth of price controls, which denied the British people a fair and reasonable share of limited world oil supplies. I believe that we shall now see a healthier development. I have discussed these matters with the chairman of the BNOC.

Mr. Grimond

Does the Secretary of State agree that uncertainty will not be removed until the legislation based upon his statement is introduced? Will he undertake to do that as soon as possible?

Will BNOC still be entitled to buy 51 per cent. of all oil produced from the North Sea if it wishes? Why should that encourage further exploration?

Mr. Howell

I am advised by many people in the oil industry and in the BNOC that my proposals will remove uncertainty and enable the BNOC and other oil explorers, developers and producers to get on with the tasks which have been held up. This is reflected in the appalling drop in the number of exploration wells. In the first six months of this year only 13 exploration wells were drilled, compared with 37 in the whole of last year and 67 in the previous year. Those figures are inadequate. I think that the uncertainty will be ended.

The participation arrangements will continue, giving the BNOC the right to buy, at market prices, 51 per cent. of North Sea oil production. That will be at market prices, and therefore the oil companies must continue to accept that the BNOC is a major company. The price determines the incentive to explore, develop and produce.

Dr. J. Dickson Mabon

Is the Secretary of State aware that his statement will be met with criticism by constituents of hon. Members on both sides of the House? Does he agree that it would be wrong to open up the BNOC to foreign penetration and that it should be reserved for British citizens? Will he consider that matter seriously?

Mr. Howell

Of course I shall seriously consider what is in the best interests of the people and the nation. I believe that as a consequence of what I have said today there will be more British investment and involvement in the North Sea.

Mr. Hannam

Does my right hon. Friend accept that his sensible statement will do much to lift the blight imposed by the previous Government upon North Sea exploration? Will he confirm that, far from protecting British interests in the North Sea, the BNOC was exporting two-thirds of its oil during the recent crisis?

Mr. Howell

I am grateful to my hon. Friend. I believe that my proposals will help to lift the blight. I confirm what my hon. Friend says. The fallacy in the minds of some Labour Members is to equate State ownership with national interest, influence and control. They are not the same. The British people have had every reason to learn that from events in the early part of this year and in the past five years.

Dr. Owen

The Secretary of State has made a serious implied allegation. He implies that the BNOC has not acted in the State's interest. Whatever the right hon. Gentleman's doctrinal view of the BNOC, he owes it to that Corporation and the people who work for it to make it profitable at least to say that they have worked in the national interests.

Mr. Howell

I made no such allegation. I said that narrow State ownership is not necessarily—and, indeed, not often—in the interests of the British people. That applies to State industries of many types, including the BNOC. That is no allegation against the work of the BNOC or of its chairman, with whom I have had many constructive discussions. I fully recognise his energy and value. The right hon. Gentleman has got the matter completely wrong.

Mr. Gordon Wilson

Since the Secretary of State has mentioned the benefits of his proposals to Britain, will he please spell out the benefits to Scotland?

The head office of the BNOC is in Glasgow. Does the Secretary of State propose to take staff away from Glasgow and to build up the petroleum division in his own Ministry in London? Does he agree that that is a damnable proposition, since the oil belongs to Scotland? Will he therefore transfer the petroleum division of the Department of Energy to Scotland from London?

Mr. Howell

The hon. Member is becoming unnecessarily excited. There will be considerable benefit to his fellow countrymen through exploration, investment, expenditure, equipment and more activity in the North Sea. That will help the hon. Gentleman's country. I am surprised that he has not seen fit to welcome my statement.

I do not think that there will be any substantial or even minor cuts in the staff of the BNOC. The Corporation has large and over-extended commitments. Over one-quarter—or 145—of the licences issued for North Sea exploration are held by the BNOC, out of a total of 457. It is not a question of cutting staff so much as cutting commitments so that the staff can get on with the job, as I know they wish to do.

Mr. Emery

Does my right hon. Friend agree that the rundown of expansion in the North Sea under the previous Government is best illustrated by the fact that when the Labour Government came to office there were 28 exploratory rigs in the North Sea but when the Labour Government lost the election only seven or eight such rigs were operating?

Does my right hon. Friend agree that the confidence that will encourage international oil companies to return and explore in the North Sea will be restored, because they will no longer have the impression that the whole of the North Sea is in the BNOC's pocket?

Mr. Howell

I agree with my hon. Friend. Confidence will be restored, but we cannot undo in 10 weeks the jumble of five years.

Mr. Dalyell

Will the Secretary of State be more specific about the marginal fields? He promised talks. If the BNOC is to be dismantled, how can we have any confidence that fields will be dealt with in a rational sequence?

Mr. Howell

I do not think that the two matters are directly related. The BNOC had a preferred and irrational sequence in the fifth and sixth licensing rounds. In future rounds, as it will not have a preferred position, there will be a more open and rational sequence, which will allow small and large operators a fair share and a full input of enterprise in the North Sea. I hope that this will benefit the hon. Gentleman's constituents.

Mr. Skeet

Will my right hon. Friend consider merging the rather diminished assets of the BNOC with the British Gas Corporation and offer a part of the combined Corporation to the public? Will my right hon. Friend confirm that his proposals mean the abolition of the national oil account and the payment of the royalties and rentals to the Treasury?

Mr. Howell

The first proposition of my hon. Friend is an interesting one, but my answer to it must be "No". No final decision has been taken on the future of the national oil account, but the BNOC will cease to have access to it.

Mr. William Hamilton

Is the Secretary of State aware that many people in the United Kingdom will regard this as an exercise simply in transferring to private shareholders and private speculators additional loot from the public purse? The right hon. Gentleman said that the BNOC will no longer be entitled to sit on the committees. How will the Government secure access to the technological and geological expertise which is in the hands of the private multinational companies? Further, who will be the new chairman when the right hon. Gentleman gets rid of Lord Kearton? Will the right hon. Gentleman give us concrete proof, in the form of a White Paper or otherwise, to show how this new set-up will increase the amount of exploration in the North Sea?

Mr. Howell

I am satisfied that the strengthening of my Department's technical resources, combined with all the advice that I receive from many quarters, including the BNOC, is fully adequate to formulate effective national policies in the national interest in respect of the production, exploration and development of oil in the North Sea. There is no question of getting rid of Lord Kearton. He has indicated to this Government, as he did to the previous one, that he wishes to go some time this year. His appointment runs out at the end of this year. I shall make an announcement about a new chairman in due course.

Mr. Forman

Many of us on the Conservative Benches think that my right hon. Friend has the balance about right in his statement. Is he aware that there are very strong grounds for saying that the policies that he announced in his statement will manage to secure access to oil, control over depletion policy, and adequate monitoring facilities within the Department?

Mr. Howell

I am grateful to my hon. Friend for his comments. I am convinced that these objectives can and will be achieved by the policy that I have outlined today.

Mr. Hooley

The Secretary of State's statement will be widely welcomed by those financial and commercial interests who contributed most heavily to the Tory Party and who are now being repaid for their political bribes. Is it not extraordinary that in an industry that is dominated by multinational companies, which are difficult, if not impossible, for national Governments to control, he should set out to destroy an important instrument of national control, allegedly for the benefit of United Kingdom taxpayers as a whole?

Mr. Howell

I think that the hon. Member for Sheffield, Heeley (Mr. Hooley) has got it upside down. The statement will be widely welcomed by the British people as an important strengthening of our energy resources and of the investment potential in the North Sea to meet the energy strategy and needs of this nation over the next 20 to 25 years.

Mr. Hill

Is my right hon. Friend not concerned that the House is becoming quite myopic over North Sea oil, as though that were the only source of oil in the United Kingdom? Is he aware that we in the South are anxious that a further release of licences should be made as soon as possible, and that every assistance should be given to private enterprise in the English Channel so that it can make progress? Is my right hon. Friend aware that southern Members will be pleased to share their oil with Scottish Members?

Mr. Howell

I take note of my hon. Friend's comments. Of course, providence and geology have placed certain limitations on his aspirations, but at least one of the licences that I am announcing in the sixth round batch today is in the South-Western Approaches, and others are in the southern basin. This is therefore not entirely a northern affair.

Mr. Arthur Lewis

In view of the Tory Party's declared policy before, during and since the election that it is in favour of improving industrial relations, to what extent has the right hon. Gentleman had discussions with the trade unions about these matters? Will he give an assurance that if those discussions are taking place they will continue through the following processes that are in train?

Mr. Howell

I have discussed this matter with the chairman and the board of the BNOC, but I thought it right that the House of Commons should be the first to hear our proposals and plans. Of course, it is now my intention to discuss them most closely with the staff, and I shall do so.

Mr. Sproat

Is my right hon. Friend aware that this major surgery on the powers and rights of the BNOC—powers and right that always owed more to political dogma than to commercial common sense—will be universally welcomed by those who work in and with the oil industry? What did the chairman of BNOC say about the proposals that my right hon. Friend has put forward today?

Mr. Howell

My conversations with the chairman are confidential. However, I believe that my announcement will be welcomed by all those who are in enterprise and activity of a very advanced and, sometimes, very strained and difficult kind in difficult conditions in the North Sea, as well as by many of those working in the BNOC.

Mr. Stoddart

Is the right hon. Gentleman aware that his statement is nothing short of scandalous? It is scandalous that he should be flogging off great national assets and undermining the British interest by selling those assets off to foreign oil companies. By what mechanism does he intend to ensure that unprofitable fields are developed by private operators in the absence of control in respect of the BNOC?

Mr. Howell

The hon. Member for Swindon (Mr. Stoddart) is confusing narrow State ownership with the British national interest. They are two very different things. I do not think that in its previous form the BNOC was concerned, or even wished, to rush into unprofitable fields. The first priority is to establish where there are commercially recoverable reserves, and then we must recover them. More of that will happen as a result of my statement today.

Mr. Eggar

Is my hon. Friend aware of the dangerously large number of licences held by the BNOC, which has undoubtedly held up the development of North Sea fields, particularly because the limited number of extremely dedicated employees who have the necessary expertise within the BNOC have been unable to give to each operating committee the amount of time that would be correct and justifiable?

Mr. Howell

I strongly agree with my hon. Friend's analysis of the present position.

Several Hon. Members rose—

Mr. Speaker

Order. I propose to call two hon. Members before we move on to the next statement.

Dr. M. S. Miller

Will the Secretary of State satisfy me on one point? He seems to be stressing that the major surgery that he is about to embark upon—I remind him that sometimes patients die after they have had major surgery—will somehow encourage more exploration in the North Sea. Is he therefore saying that the best way of finding more oil in the North Sea is to keep drilling holes in the seabed instead of taking scientific geological surveys and examining the situation and then boring the holes in the reasonable way in which the BNOC has done so in the past?

Mr. Howell

The geology of the North Sea is very difficult. It is not always possible by geological surface assessments to locate pockets of oil under the cap of the continental shelf. The search for oil therefore requires extensive drilling over wide ranges of North Sea acreage. I think that my statement today will encourage that. It will also encourage further drilling on territory that is already licensed.

Mr. Ioan Evans

Under this Government the price of a gallon of petrol has risen from 80p to £1.20. Does that not mean that there will be tremendous profit in the exploitation of North Sea resources? Should we not therefore be increasing public participation, especially since four public industries have recently reported profits totalling £1 billion? Could not that money be invested in the North Sea to ensure that the British people get the maximum return? Does the right hon. Gentleman recall, in history, the South Sea Bubble? Is this not the North Sea Bubble?

Mr. Howell

I think that both sides of the House recognise that we have a sensible and fair tax system for North Sea oil production. I think that that is recognised also by foreigners who come here. The profits that remain after taxation provide the impetus that goes into investment in North Sea energy resources, which will secure those resources for ourselves, our children and our children's children.