HC Deb 02 November 1983 vol 47 cc882-916

Not amended (in the Standing Committee), considered.

Bill reported, without amendment.

4 pm

The Minister of State, Department of Energy (Mr. Alick Buchanan-Smith)

I beg to move, That the Bill be now read the Third time.

I am not sure whether the hon. Member for Great Grimsby (Mr. Mitchell) would describe the Bill as one of the edited highlights of the parliamentary day. None the less it is an important Bill, which was under consideration in the previous Parliament. It was introduced early in this Parliament and has been considered in Committee. I thank hon. Members on both sides of the House who participated in the Committee, although I regret that the Committee could not accept any of the amendments that were proposed. However, the Bill has achieved the broad objectives that my right hon. Friend the Secretary of State and I described on Second Reading.

The Bill is relatively short and simple. Its straightforward purpose is to exempt from the payment of royalty, while leaving them subject to petroleum revenue tax and corporation tax, fields on the United Kingdom continental shelf outside the southern basin, the development of which was approved on or after 1 April 1982.

As the House knows, royalty is at 12.5 per cent., although licensees of fields allocated in the first to fourth licensing rounds are allowed to offset conveying and treating costs against royalty. Royalty payments are themselves allowable against petroleum revenue tax, which is at 75 per cent., and reduce profits liable to corporation tax, which is at 52 per cent. Thus, the effect of the Bill is that when a company has exhausted its allowances against petroleum revenue tax and corporation tax, its payments on the margin will be at 88 per cent. instead of the present rate of 89.5 per cent. Therefore, the net effect of the change proposed in the Bill is to reduce the marginal rate of payments by the exempted fields not by 12.5 per cent. but by only 1.5 per cent.

On Second Reading and in Committee many issues were raised. I do not want to go over them in detail, but I shall pick out three of the main issues that we debated in Committee. I hope that, with the leave of the House, I shall have the opportunity at the end of the debate to respond to further points that right hon. and hon. Members wish to raise.

One of the main criticisms of the effect of the Bill was that, in terms of revenue, it could give rise to considerable and quantifiable cost to the nation. It is worth reflecting on the background. Last year there was a review of the United Kingdom continental shelf and the fiscal arrangements for it. In that review we considered all the prospects that operators had identified as candidates for development over the next five to 10 years. In the review and our discussions with the interests concerned we looked at the fields' expected profitability and rates of return both under the fiscal regime current at the time and under possible changes in that regime.

This was not contested by anyone when the review was carried out. In our assessment, we were looking into the future. Many fields were profitable before tax but not after tax under the fiscal regime then in force, whether oil prices rose or not. Those post tax returns were made particularly unattractive by the payments of royalty required from early in the fields' producing lives.

Mr. Dick Douglas (Dunfermline, West)

Instead of talking in fairly amorphous terms—perhaps confidentiality decrees that—perhaps the Minister could tell the House the size and the number of fields surveyed. It is extremely important for the House to have an idea of the range of reserves.

Mr. Buchanan-Smith

I am happy to respond to the hon. Gentleman. Without breaching confidentiality, one cannot be precise because one does not know what specific companies' proposals are. I can best answer the hon. Gentleman's question in a slightly oblique way. Some developments that will be covered by the Bill had already been approved before it came to the House. When I took over my responsibilities in June a further 10 developments were under appraisal. Looking ahead over the next two years, there is probably a further figure in the mid-teens. One cannot be precise because it is up to the companies to make the proposals. We have identified the likely proposals over the next two years or so.

The hon. Gentleman will appreciate that one cannot be more precise. However, I hope that I have given him an idea of the scale of development that I foresee over the next couple of years. I can only give estimates because, after we get the proposals, we shall have to discuss them with the companies and operators concerned to see whether they meet various other criteria before they become approved developments in one form or another.

Mr. Ted Rowlands (Merthyr Tydfil and Rhymney)

We asked the Minister about this matter in Committee. Things have been pushed along for a few weeks. Will the Minister give us the broadest idea of the value of the legislation to the two fields that have been legislated for retrospectively? The right hon. Gentleman rested his case on the decrease in payments from 89.5 per cent. to 88 per cent. Even the Secretary of State said on Second Reading that he was willing to give an illustration of a field with 55 million tonnes of reserves. There was a benefit there of 3 per cent., which on a £4.5 billion or £5 billion field would be worth £120 million of relief.

Mr. Buchanan-Smith

My right hon. Friend the Secretary of State was helpful to the hon. Gentleman and the House on that matter. My right hon. Friend was giving a hypothetical example of a field. I am interested that the hon. Gentleman has returned to the matter. I am not surprised, because it was a major point in Committee. I thought that the hon. Member for Dunfermline, West (Mr. Douglas) would refer to it too, but he made a more interesting point, which was more relevant to the developments in the North sea. I dealt with the matter in Committee. The hon. Gentleman and other hon. Members tried to press me on it. There is no way that I can answer his question, even in relation to those two fields. I repeat this for the benefit of the House, as it was said in Committee. It is nothing new. There is a great deal of confidential matter in the annexe B proposals that I have to approve, covering the profile of the fields. The moment that I give estimates one does not need to be clever to work out, with the use of a calculator, the profile that the operators of the fields have given to me, and the basis on which I have approved the proposals. If I did that, I should be breaking the confidentiality of the relationship between my Department and the relevant operators and the companies. I shall therefore not give way to the pressing fashion in which the hon. Gentleman puts his case.

I have already dealt with the effect on the margin and my right hon. Friend the Secretary of State gave examples of what the effect would be on oilfields of various sizes. It is impossible to quantify in national terms the effect of the changes without a remarkable faculty for speculation and foresight, which most of us do not have. We cannot predict precisely what developments would not have proceeded had the fiscal regime not been changed. There is no doubt that the effect of the Bill, by increasing the attractiveness of developing the sort of fields now in prospect, will be to increase both the national supply of oil and the national revenue. As I said on Second Reading and in Committee, we believe that if we had not made the changes the proposals would not have come forward, the oil would not have flowed and revenue would not have been earned anyway. The fields affected are those expected to produce oil by the end of the decade. We believe that our proposal will help to stem the decline in United Kingdom continental shelf production as the reserves in existing fields are depleted. Despite the pressure put on me by the hon. Gentleman, I cannot say anything further about this matter.

Concern was expressed in Committee about the effects of the changes in royalty levels on security of supply. It was suggested that the loss of the option to take royalty in kind might be detrimental to our security of supply. If the Government denied companies the incentive to develop new fields, that would undermine our security of supply far more comprehensively than any notional loss of royalty oil. BNOC still has access to 51 per cent. of production through participation. Royalty merely increases that figure to 57⅛ per cent. To put it at its starkest, we believe that the consequence of the abolition of royalty will be that 51 per cent. of something will be better for BNOC and its responsibility for the security of oil supplies than 57⅛ per cent. of nothing. In other words I believe that the changes are so much on the margin as to have a minimal effect on security of supply.

BNOC's participation role, important though it is, is not the principal factor in security of supply. The best measure that any Government can take to maintain security of supply is to ensure that the volume of crude oil production is substantial, because that is a vital factor in underpinning a competitive and commercial market downstream. The Government intend to contribute towards that end by ensuring that maximum economic development of the United Kingdom continental shelf takes place. The Bill seeks to do that and in no way undermines future security of supply.

The share that the United Kingdom industry should have in future developments of the United Kingdom continental shelf is a matter that concerns all hon. Members. Bearing in mind my responsibilities, I am as concerned as anyone, if not more concerned, about this matter. Successive Governments have regarded the future development of the shelf as a top priority. We must also recognise that all oilfields are not alike as we are dealing with a physical resource in a natural environment. Different fields require different hardware for their development. The North sea industry has developed and become more mature and we have gained knowledge of new technology. I pay tribute to what the United Kingdom offshore industry has achieved and the way in which it has applied itself to the goods and services that it supplies.

Mr. Douglas

Will the Minister bear in mind what the Minister of State, Department of Trade and Industry said yesterday about the Britoil order for Scott Lithgow? I hope that the Minister will use his good offices to ensure that the order remains with a British yard. Will the Minister give his views about Britoil's need for this piece of hardware, which is a sophisticated rig capable of drilling in 4,500 ft. of water? We are assured that Britoil requires a rig of the specified design and I hope that the order will remain with a British yard.

Mr. Buchanan-Smith

The hon. Gentleman has rasied a matter of genuine concern. I am extremely interested and concerned about what will happen, but I cannot comment on or directly intervene as it is a matter for negotiation between Britoil and the yard. The negotiations must go through the formal stages, as the hon. Gentleman realises and understands. I assure the hon. Gentleman that I am watching the position carefully and I am in close touch not only with my right hon. Friend the Secretary of State for Trade and Industry but also with my right hon. and hon. Friends at the Scottish Office. I emphasise that the matter is one for negotiation between the two companies. The position, design and capability of the rig is a matter for the commercial discretion of the company involved. I assure the hon. Gentleman that I will watch this matter very carefully. I am sure that he understands why I cannot say anything further at present.

Mr. Rowlands

I understand and appreciate the hon. Gentleman's caution. The Government have a 51 per cent. majority shareholding in Britoil. Additionally, they have a golden share, so they have effective control over the company and can exercise that control at any time. I trust that the Government will exercise their influence in the proper manner.

Mr. Buchanan-Smith

The hon. Gentleman's approach is appealing in trying to press me on this and other matters. The purpose of the golden share is not related to the present position and could not and would not be used in such circumstances. Although the Government have a 51 per cent. share in Britoil, such decisions, as my predecessors have made clear, are within the commercial discretion of the company and the directors appointed to run it.

Dr. Norman A. Godman (Greenock and Port Glasgow)

I am sure that the Minister appreciates my constituents' deep concern about the current negotiations. I hope that the right hon. Gentleman will assure us of the importance of Scott Lithgow, not just to the Scottish economy but to the development of the offshore engineering industry. I am sure that the Minister will readily acknowledge that we were latecomers to this maritime activity.

Changes are taking place within the yard, both in attitudes and in the need to hit peak efficiency. As I have said on a number of occasions to Mr. Day and the joint managing directors of Britoil, Mr. Ian Clarke and Mr. Malcolm Ford, this work force has the skills, experience and knowledge to produce a first class product. Along with Cammell Laird, this organisation has an important and continuing role to play in the offshore engineering industry.

Mr. Buchanan-Smith

I acknowledge the hon. Gentleman's correct and proper interest, given that he represents the area in which the yard is located as well as so many of those who work in it. I appreciate his concern.

Let us be clear where we are. First, at present the negotiations are wholly between Britoil, the yard and British Shipbuilders. Proper procedures in the contract must be gone through, and that is where the matter must rest for the moment.

Secondly, there are the consequences that might flow from any decisions that might be taken. I can say no more than what I have already said. The Government are aware of and alive to these issues. I know that the hon. Member for Greenock and Port Glasgow (Dr. Godman) has recently met senior people with responsibility in Britoil, and no doubt he put his views direct to them. Equally, the consequences for British Shipbuilders are strictly matters for my right hon. and hon. Friends in the department of Trade and Industry, and I shall draw their attention to what has been said and to the concern that has been expressed. Obviously, I have an interest in some of the consequences that might flow, and I assure the House that those interests will be part of any considerations that may result. I am sorry that I cannot be more forthcoming. The reason is perfectly understood, and in any case neither I nor my Department have ultimate responsibility

Like my predecessors, I wish to continue with the high participation of British industry in offshore oil development. In that respect, I am encouraged by the way in which British industry has responded to the challenge and opportunities given to it and also by the way in which many of the operators have co-operated to give such an opportunity to British industry. At present we are able to meet 70 per cent. plus of the needs of the United Kingdom continental shelf from within the United Kingdom. I welcome that and wish to see it continue, although I appreciate that it becomes all the more challenging and important as we move into deeper waters and as new tehnologies develop. This is an important market which now earns about £2.3 billion a year. My objective is to continue that success.

At this stage that is all I want to say. I have not gone into some of the deeper issues behind the Bill. There is no difference between us on what the Government are trying to achieve, although there are considerable differences about the extent of the method used, on which there have been constructive debates previously.

I have simply tried to dwell on three of the most important issues. I accept that there are many others. I have repeated some of the arguments so that hon. Members who did not serve on the Committee can be aware of them. I shall be happy to respond to any other points that are raised, and I shall listen carefully to what hon. Members say.

4.25 pm
Mr. Ted Rowlands (Merthyr Tydfil and Rhymney)

I am grateful to the Minister for the way in which he moved the Third Reading and the spirit in which he approached it. We have no quarrel with him about the way in which he dealt with the Bill in Committee, except for the fact that he did not accept one of a set of reasonable Opposition amendments. Indeed, the Bill is so perfect that the Government have not even amended it themselves. One suspects that they have been trying to avoid it, but wonders whether one or two amendments might subsequently be inserted, particularly in clause 2.

I take this opportunity to restate our fundamental objections to both the principle and practice of abolishing royalty oil for all new North sea oilfields. This is a wide and sweeping Bill of a kind and character that has not been fully appreciated. Its aim and purpose is to remove all forms of royalty oil in kind or cash in respect of every North sea field outside the southern basin from here on, irrespective of its size, profitability, production profile and character. The Government aim to abolish that completely. Therefore, the Bill is not a small and modest measure. At stake is a profound and basic principle.

The principle of royalty as well as the practical consequences of the Government's actions was the cause of our objection on Second Reading and our constructive but unsuccessful attempts to modify the Bill in Committee. That is why we shall again object to it this evening.

The Minister, more halfheartedly than I expected, attempted to put the Bill in the overall context of North sea oil development. Before he replies, I hope to extract from him what the score will be and what the context is.

The right hon. Gentleman is extremely amiable and appears to have spoken to certain energy correspondents —one has noticed the odd thumb print on the odd press release or background briefing to The Sunday Times business news supplement. The right hon. Gentleman's predecessor used the phrase "boom time", but now the "second wave" of North sea oil development will wash over us. That is the line that has been peddled and pushed out to correspondents of various newspapers. Let us try to identify how far this second wave is likely to hit the beaches or reach the rig yards. There is no one so zealous as the sinner who repenteth.

We have seen the Minister's tax changes and now his absolute devotion to the stimulation of North sea oil development. One would not have thought that these proposals came at the eleventh hour. From the remarks that the Minister has just made one would not have supposed that this Bill followed a period during which the Government nearly brought North sea oil development to a standstill. It ill becomes Ministers to lecture us about the need to provide a stable fiscal regime in the North sea. It was the Labour Government who from 1974 to 1979 provided a fiscal regime for large scale development in the North sea and the present Government have been the gratuitious beneficiary. Therefore, the Minister should not lecture us about creating stability.

One would not have thought that this was the Government who managed to change oil taxation 12 times in four years. Some of the changes which were hastily introduced were capricious and arbitrary and left the industry in total bewilderment. They did not fit the image now being created of a constructive Government who have always wanted to develop the North sea. The inference is that these proposals are a continuation of subtle and sophisticated planning. On the contrary, for four years the Government have squeezed as much revenue as possible from the North sea. The way they did it led almost to a standstill in development. I hope that we shall have no more lectures and no more suggestions that the Minister is the saviour of North sea oil development. Perhaps he is, because salvation is coming after the creation of damnation.

We must take a closer look at the character of the projections, statements and press releases that we have been reading with interest. We have not heard this second wave stuff, but the Minister has been talking to journalists about it. We all hope that development will take place. The Minister mentioned two fields that are covered retrospectively and ten that are in prospect. Then he rather coyly talked about somewhere in the teens for future development but he did not state a figure. Can the Minister tell us when the first batch of fields which are covered by the legislation, and which will benefit from the incredible abolition of all forms of royalty, will actually produce oil? We want only a vague estimate.

Roughly how many barrels a day are we talking about from the oilfields which will benefit from this legislation and also from the tax reliefs embodied in the Finance Act 1983? In practical terms, it is the number of barrels a day which matters. We want to know whether we shall have sufficient oil and what oil production will be in the mid to late 1980s. We are talking about oilfields which will produce in 1986 or 1987 at the earliest. Perhaps they are more likely to produce in 1989 or 1990. Therefore, we need a forecast so that we can understand how important the boom or second wave will be.

One has to make an assessment of the size of oil production to be able to judge how valuable and significant are the developments the Minister has talked about against a production profile. Some of our oldest, largest and most mature fields are being drained at an alarming rate. We are producing well over our needs, as everyone knows. In net terms we are exporting 30 per cent. of our oil. We could have an argument about depletion. Decisions must be made about whether moderation should be exercised on the pumping out operation of the most mature fields. We need to know the context so that we can assess whether there should be a depletion policy.

A major factor in such an assessment is the sort of oil which will be available from the new fields, especially when we are being asked to approve a Bill which will have such a wide and sweeping consequence as taking away any principle of royalty on every future oilfield north of the southern basin. Before approving the Bill we should understand exactly what the forecasts and assessments are. When the Minister replies, instead of more second wave stuff, can he give us some simple, hard statistics and information about the nature of the developments, and the likely consequences of the developments compared with the rapid depletion of the older North sea oilfields such as Forties and Ninian?

We have been reading a great deal about the extent to which exploration appraisal drilling has suddenly leapt forward. The figures are there for us all to see and the little black charts in the business news on Sunday show them graphically. Does the Minister claim all credit for the exploration? From the way the briefing has been going, one would think that Ministers were drilling personally all over the North sea. They are claiming almost total credit. It is all to do with the magic of Government action. I hope that the Minister will at least agree that much of the sudden surge in exploration appraisal drilling has taken place because a whole batch of licences are reaching relinquishment stage. To justify the holding of a licence, many companies carry out appraisal drilling to show the Government what great action is going on.

I am not saying that that is the only reason for the surge in exploration. Obviously there is much stimulation in the southern basin on the gas side. I hope that the provisions in the Finance Act have stimulated additional interest in development. As the hon. Member for Bedfordshire, North (Mr. Skeet) knows only too well, the Opposition supported wholeheartedly the measures in the Finance Act. We must have the modest right to qualify the new Government profile and the marvellous job they are doing in stimulating and developing new North sea oil exploration drilling.

I do not think hon. Members on the Government side will be able to point to a single remark or comment by any of my right hon. Friends or myself on Second Reading or in Committee to suggest that we have not supported and will not continue to support sensible measures designed to encourage the exploration and development of the new range of marginal oilfields which will be so essential to the future oil requirements of the nation.

Conservative Members must not try to hang a label around our necks suggesting that we have tried to inhibit or quarrel with sensible, pragmatic taxation changes that stimulate development of the North sea. On the contrary, before the Government's last-minute conversion, we asked them to take a more positive attitude towards the development of marginal fields. That is why we gave strong support to the oil taxation changes in the Finance Act 1983, and even hastened measures through before the election. I am sure that the Minister will agree that the Government had our maximum co-operation on the important taxation changes. They were sensible and quantifiable. We were asked to approve certain tax changes to aid development. We know how much money was involved and what taxation relief we were granting. We happily and willingly gave our support.

Mr. T. H. H. Skeet (Bedfordshire, North)

I accept that the Opposition gave the Government a certain amount of support during the passage of certain clauses in the Finance Act 1983, but what about the clauses that were excised because the Opposition would not accede to them? That made it necessary to bring forward this Bill today. If the Opposition had given their full support they would have allowed all the clauses to pass.

Mr. Rowlands

I never thought that the hon. Gentleman was part of the usual channels. Indeed, he is an unusual channel in every sense of the word—he is sometimes almost eccentric in his individualism. My understanding is that there was no quarrel between the Government and the Opposition about the provisions that were removed from the Finance Bill. It was agreed that the arguments would be brought forward for further consideration at another time. The Opposition must rightly be vigilant on such matters. No one would be more vigilant than the hon. Gentleman if we were proposing taxation changes. The provisions allowed to go through dealt with essential and immediate changes. We reserved judgment on other measures. We shall continue to take a constructive interest in tax relief that will stimulate development in the North sea.

We oppose the Bill because we are not willing to give our support to the total abolition of royalties for all North sea oilfields from now on. No one in his right mind would do so. As we argued on Second Reading—the Minister admitted that we argued in a constructive manner—such a measure is wholly indiscriminating. It does not relate to the size or character of a field. It has no connection with the way in which oilfields are developed and oil rigs and platforms built. There is no relationship between relief and investment. At least in the taxation changes there was a clear and defined relationship between development and relief. Under this Bill, irrespective of the size, character or profitability of a field, every field in the North sea will receive the same relief. The Opposition are right not to endorse the Bill or to support such a wholly indiscriminate measure.

We object to the Bill because the concept of royalty oil raises issues of ownership and control over one of our most precious resources. It is no accident that almost every oil-producing country —even even those Gulf states that were taken for a ride in so many respects in the evolution and development of their oilfields in the early part of the century —sticks sticks to the simple and basic notion that a nation has the right to royalty oil in kind or in cash. Those countries are of widely varying dispositions and fiscal regimes. Yet since the beginning of oil development they have held on to the concept of royalty oil.

When a decision is taken to abolish that basic principle, there must be a major reason for doing so. Neither on Second Reading, nor in Committee or in the amiable remarks of the Minister today has there been the necessary exceptional reason for total abolition.

Mr. Douglas

Are not the Government taking an extremely depressing view of the probabilities of future finds? While it may be important to give concessions to 25 million or 50 million barrel fields, it is absurd to reject the possibility of our discovering a 500 million or 1,000 million barrel field. Such fields will receive the same concession. Is that not an absurd posture?

Mr. Rowlands

Not only is it an absurd posture, but the reply to that argument from Ministers is that they will impose taxes. Yet I thought that we were trying to produce a stable, fiscal regime for development. It would be better to have a sensitive, tailor-made system of relief related to the size of the field.

Hon. Members who served on the Committee will know that one of the major propositions put forward by the Opposition was that there should be a discriminating character to relief related to the size of fields. I am surprised at the complacency and misunderstanding shown by both the Secretary of State on Second Reading and the Minister in Committee and again today about the role of royalty oil during an oil shortage crisis. The Secretary of State in 1979, the right hon. Member for Guildford (Mr. Howell), faced a serious oil shortage crisis. We all remember the emotional feelings on both sides of the House about the possibility of shortages, and even of rationing. What did the right hon. Member for Guildford say and do then? He said that one of the most useful ways to handle an immediate oil shortage crisis was to take royalty oil in kind or in cash.

It is all right for complacent Secretaries of State, who have not gone through the mill of such a crisis, to argue against that now. I had a great deal of sympathy with the right hon. Member for Guildford when he was struggling through a crisis. Yet he immediately sought to use his power of royalty oil and turn it into barrels of oil to cover the United Kingdom market.

The argument against such a course put by the Secretary of State on Second Reading and by the Minister today is that it involves only a small percentage of oil—6.5 per cent. —because of the participation oil arrangements. I do not need to be converted to the value of participation oil. Indeed. I made a sporting effort to convert the Government to participation oil in the argument about oil and gas enterprise.

In 1979 there were such participation arrangements in place. The Secretary of State for Energy then had a productive oilfield as large as any Secretary of State for Energy will ever have in the late 1980s. The fallacy of the Minister's argument is that in handling an oil crisis such as that which occurred—even a bogus one—in 1979–80, it is not a question of the total amount of oil being produced but rather how much oil can be redirected at any time into the national oil market. It need only be, as it was in 1979–80 a fractional amount of oil. It was not the total amount of oil being produced in the North sea, put the percentage of oil, over which at that time the Secretary of State had a measure of control that was important.

The then Secretary of State deemed that the marginal amounts of royalty oil available during the 1979–80 crisis were most important, and a useful contribution. Those would be denied to a further Secretary of State for Energy if we continued the principles of the Bill. He will not have the right to have royalty oil in kind in 1989–90 out of these fields— which will be marginal, even with the great stimulation of oilfields that we can imagine—as he now has. Therefore, he is taking away, if we approve the Bill without modification, a useful power which, in 1979, the Secretary of State felt was not only useful but essential. He told the House then that this was one of the means by which he intended to handle the crisis. He was not talking about millions of tonnes but about small amounts of oil over which he had a measure of control at any given time.

Thus, it is not a question of the total amount of oil production but of the degree of control, and the power that the Secretary of State has at one moment in time to bring oil back into the United Kingdom market. One of the most simple ways to do that in 1979 was to exercise the right to call in royalty oil in kind, a principle and power that would be denied to a future Secretary of State in such a crisis if we approve the Bill unamended. I hope that the Minister will not return to these arguments again, unless he addresses himself to the specific point and case that I have made. It is not just a problem of amounts, but of access, availability, and capacity to control at any one moment a certain amount of oil.

There is also the problem of participation oil. The Minister has justified the happy abandonment of such power over royalty oil by saying that we have participation oil. I am glad that he is now a keen and enthusiastic supporter of participation oil. Some Conservative Members have not gone into the scheme as enthusiastically as I have. In fairness, the Minister spent a great deal of time on an earlier Bill trying to make sure that there were not large scale leakages on our rates of participation oil. However, there have been significant leakages as a result of the silly acts of privatisation.

In this connection, I have a simple question for the Minister. We have been reading in the press during the recess reports that the Secretary of State has been reviewing BNOC (Trading) Ltd. There have been a few heavily-laden rumours that the Government intend to wind it up. BNOC (Trading) is the centrepiece of oil participation, and I hope that the Minister will give a categoric assurance on this matter and scotch rumours that he is reviewing more than certain aspects of the operations of the company. We are all interested in that and happy to investigate and inquire into such matters in detail. Is the Minister contemplating the abolition or the wind-up of BNOC (Trading)? Is that one of the possible actions that he is considering, as one of the press rumours is suggesting? If so, this is a serious issue. We have been asked to approve the Bill on the grounds that the successful participation arrangements are in place, and the organisation that understands participation is BNOC (Trading). If we are winding that up, what will be the effect on our participation arrangements?

Mr. Douglas

This is an important issue, because if there is any truth in these rumours, the House might have been in danger of being misled the other week when we discussed the setting up of Enterprise Oil and the disposal of the British Gas Corporation oil interests. If the winding-up of BNOC (Trading) was in the mind of the Minister he should have come clean with the House then.

Mr. Rowlands

I understand my hon. Friends point. I do not want to wander too widely because we shall have the opportunity to probe on other occasions. I read the order the other day with some interest, and as far as I can remember it said that it was BNOC (Trading) or another organisation that would control the participation rights. Although I looked at the order at the time, we did not have the opportunity to explore it. However, this is an important issue. I am worried about the slight qualification in the order. It may be that I have an over-suspicious mind, which led me to read the small print with too much care.

The simple way to scotch the rumours is for the Minister to say that, whatever review is taking place of BNOC (Trading), it is not a review to wind it up, and that he is not considering that possibility. If he is, we are in serious contention with him about participation. The relationship between this argument and the Bill is clear, and was properly made by the Minister. He said that we can afford to abolish royalty oil and to lose 6.5 per cent. control over oil supplies arising from the rights of royalty oil in kind because we have participation arrangements in place. They are in place in BNOC (Trading). However, even the Chancellor of the Exchequer, the Secretary of State's predecessor at the Department of Energy, contrary to the advice given to him by some of his hon. Friends, did not believe that the Government should abolish BNOC (Trading).

Central to the debates in Committee and to our case against the Bill in the form in which it is presented to us is its undiscriminating nature and character, which is not related to any field of any size or profitability in the North sea. This was a point that my hon. Friend the Member for Dunfermline, West (Mr. Douglas) made earlier when he intervened in my speech. Although the consensus is that there are no Ninians or Forties or large-scale fields left, anybody who says ever or never about oil discovery usually finds himself in an embarrassing position.

An example of this is the famous remark, made by Mr. Drake of BP in the early 1970s, that there was not much oil in the North sea. He then had to admit to finding a large field. There should be no evers or nevers in our thinking, assessment or calculations. We have to think that the prospect might be, in the remaining areas of the North sea that we shall explore, that there will be substantial fields. There will be fields of varying sizes and different characters and to offer such undiscriminating relief across the board is nonsense.

Again, it is nonsense that we are asked to approve a Bill the financial consequences of which we do not know. It is literally a Bill asking for a blank cheque. We do not know how much it is. We probed in Committee, and again today in interventions we have asked about the order of the relief that we are volunteering. If the Minister of State cannot give us the figure on large developed fields, perhaps he can give it in general terms for some of the fields. Let us have rough and ready averages. We do not ask for disclosure of detailed commercial information, but the Minister should let us have some sort of assessment.

The Secretary of State gave an example on Second Reading. He spoke of a field with reserves of about 55 million tonnes—a medium-sized field by the standard of existing fields—with a life of about 12 years". —[Official Report, 4 July 1983; Vol. 45, c. 26.] He came to the conclusion that the benefit to be derived from developing that field was 3 per cent. of revenue, and was therefore worth £120 million. I think my calculation is right. That is a substantial relief for one field. The Clyde field, according to the 1983 Brown Book, has about 20.5 million tonnes, 150 million barrels. That is a substantial retrospective relief to Britoil for a field that has already been developed and which did not need such stimulation. Britoil was going ahead with the development of Clyde. irrespective of whether there was royalty relief, so this represents a happy, gratuitous windfall for the Government's new private creature called Britoil. We are right to argue that the House should not approve such totally undiscriminating provisions and underwrite blank cheques. We on the Labour Benches will not underwrite any such blank cheque, because that is one of our basic objections to the Bill.

The association that represents the industry, UKOOA, never asked for or expected the total abolition of royalty relief. It sought to relate royalty relief to the size of the field. We sought, in the sensible and pragmatic manner in which we have approached the Bill, to produce a discriminating scale of relief according to the size of the field.

The argument became more relevant when we probed the extension of the Bill to the southern basin. Oddly enough, some of us would support the idea of giving certain reliefs to small marginal fields in the southern basin. I do not believe that one can draw a firm line between all or nothing, as the Bill proposes. Although I understand the basic character and nature of the southern basin, as opposed to the North sea, I do not see why, if one wants to stimulate the development of marginal fields, some of the small marginal fields in the southern basin could not receive some form of stimulation, by tax relief or even by royalty remission in certain respects. I take a pragmatic approach to the matter.

The Government's case against our amendment for a royalty relief system related to the size of the field removes any opportuniy to deal with the southern basin in a selective way. If the Government's arguments against a selective approach in the North sea are correct, presumably those arguments are valid for the southern basin also. One either has a selective approach to fields in the North sea or one does not. The Government will find themselves in a curious situation, coming under pressure from the oil industry and the various pressure groups that will raise the issue. The Government will be forced into the absurd and arbitrary position of deciding either to give no royalty remission at all to any of the southern basin fields, or giving it to them all.

We shall vehemently oppose total exemption or abolition of royalty relief for the remaining southern areas. We could have dealt with the marginal southern basin oil fields on a field-by-field basis, relating the relief, as UKOOA suggested, to the size of the field. However, the Government have turned their back on that proposal. They have deployed arguments that will apply, with equal validity, to the whole of the southern basin. I do not know how the Government will get themselves out of the fix that they are in. Why did they not accept some of the principles of our amendments and introduce a selective basis, north or south of the line proposed? We should have looked at that proposal sensitively and with interest. Strangely enough, the concept of remission of royalty relief on a field-by-field basis was written into the original Petroleum and Submarine Pipe-lines Act 1975. It was not an issue of principle. We were willing to be pragmatic on the matter, on a field-by-field basis, so as to help the development of some of the marginal fields.

Mr. Douglas

My hon. Friend speaks about the 1975 Act. Is he aware that those provisions were never triggered because no application was made by any oil company for that type of remission?

Mr. Rowlands

I take my hon. Friend's word for it. I was not a Minister of State in the Department of Energy at the time, so I do not know whether there were any applications. At that time I think I was dealing with issues such as Grenada and the Caribbean— sensitively and successfully, I might add—and the Falklands. We did not lose a single soldier. We did not get ourselves into the fix that this Government find themselves in.

The remission on a field-by-field basis in 1975 was a sensible and pragmatic approach, and we continue to hold that sensible and pragmatic approach. We do not support this all or nothing proposal.

In this context, I want to raise an important semi-constitutional point, of which I gave the Minister's Office advance notice, to ask him to comment in more detail on the discussions that we had in Committee, when the Minister was in a muddle about how the Finance Act 1983 and the Petroleum Royalties (Relief) Bill would be linked. The Minister did not deal with the matter in his opening remarks, so I hope that he will mention it in his conclusion. He said on that occasion: There could be problems over it. It might be possible, but I cannot be certain. Therefore, there is some strength in the hon. Gentleman's argument". — [Official Report, Standing Committee A, 14 July 1983; c. 72.] I hope that the Minister will give us a clear statement about the relationship between that part of clause 2 and the Finance Act 1983, and being able to change one piece of legislation by an action in another. It is an important matter on which he admitted that he was uncertain.

We have consistently argued—from the time that the Bill was mooted, on Second Reading, in Committee and now on Third Reading—that there is a clear distinction between tax concessions and the abolition of royalty rights. That is why we argued that the issue of tax relief could be dealt with in one way, but that there should not be a blank cheque approach to the whole question of royalty reliefs for future North sea oilfields.

This Bill is yet another piece of legislation that will erode the nation's control over its precious oil assets. The first great act of vandalism was the destruction of the successful, vibrant and profitable British National Oil Corporation. It was the only corporation in the North sea that owed 100 per cent. allegiance to this nation, and it was destroyed by this Government. That was followed by the Government's wicked effort to break up the most successful partnership of BP and British Gas in developing Britain's most exciting on-shore oilfield at Wytch Farm. That oilfield is now being damaged and vandalised. That, in turn, has been followed by the petty and spiteful forced transfer of small but useful British Gas North sea oil assets to the so-called Enterprise Oil Corporation.

All those acts stem from the Government's pathological hatred of successful public enterprise. They do not stem from any sense of national interest or patriotism. All of them, in turn, have eroded important participation rights, and control over our oil. This Bill should be considered in the context of the Government's other actions. This measure, along with the others, will seriously undermine and erode this nation's controlling power over its most precious asset—North sea oil. For that reason, and the others I have outlined, I hope that hon. Members will tonight oppose and reject it.

5.11 pm
Mr. T. H. H. Skeet (Bedfordshire, North)

I do not wish to trespass for long on the time of the House, because we had an excellent innings in Committee. However, I have now had an opportunity to listen to the hon. Member for Merthyr Tydfil and Rhymney (Mr. Rowlands), who raised several interesting points. He mentioned as I did in Committee, that small and large fields are exempt from royalties under this Bill. In Committee, I raised that issue with the Minister and he said: The provisions of the Bill are effective as long as the legislation stands. As my hon. Friend said in an intervention, that does not prevent future Governments from making that particular change through primary legislation. I then intervened and said: Any Finance Act in future could lead to a change." — [Official Report, Standing Committee A, 14 July 1983; c. 44.] Therefore, there is no great anxiety. If there should, by some good fortune, be a large field, and if the Government decided to make changes to include it, that could be done at the time. I sought to secure an assurance from the Minister about how long the Bill would last. I wanted to know whether companies would be able to plan in the long or short term. However, quite rightly, he was not prepared to answer that point.

Mr. Rowlands


Mr. Skeet

The hon. Gentleman made a long speech, but I shall, of course, give way to him.

Mr. Rowlands

The hon. Gentleman has rightly addressed his remarks to the points that we raised. Presumably he is arguing that there should not be any stable arrangement, and that arrangements should be chopped and changed according to the discoveries made.

I thought that the burden of the Minister's case in all our deliberations was that the measure would produce certainty and stability.

Mr. Skeet

The hon. Gentleman must be aware of the evolution of oil taxation. There have been 11 legislative measures since 1975. In 1975 and 1983 there has been and will be oil taxation legislation. There have been seven Finance Acts relating to petroleum revenue tax or some element of taxation. In 1980 there was the Petroleum Revenue Tax Act and we now have the Petroleum Royalties (Relief) Bill. As there has been legislation almost every year, it would not be at all surprising if there was further legislation in about a year's time to cover any anomalies that are likely to arise.

The hon. Gentleman seems to forget that a long lead time is involved after an annexe B has been granted. The lead time is normally about eight years, and is made up of two to three years' appraisal, one year for obtaining the annexe B and three and a half years for development. The hon. Gentleman would have been on much stronger ground if he had referred to other matters. According to the newspapers a short while ago, the managing director of Esso Petroleum in the United Kingdom said: Britain will need a further 90 oil and gas fields in the North Sea in addition to the present 40 if it is to stay self-sufficient beyond the end of the century. Today, the Minister is prepared to say that the number coming forward is nothing like that. I believe that there were 10 fields for development on the plate in June 1983, with the possibility of others in future—another 15.

A similar point was taken up in the Daily Telegraph of 5 July 1983. Alexander Kemp, an Aberdeen university economics don said: Nothing will prevent the production profile from falling, with all its serious implications for the balance of payments and tax revenues. Thus, if there is a surge now, it will take a long time to translate itself into oil that comes out of the ground. Indeed, I believe that the Government recognise that. Unlike the Labour party when it was in power, the Government have got exploration moving.

Mr. Douglas

We all appreciate that the hon. Gentleman knows much about oil matters, but will he apply his mind to the fact that the Government are currently producing in excess of 2 million barrels per day? They are being profligate with existing fields. They have gone ahead with full bore production from the existing fields, and this sort of legislation is about two years too late.

Mr. Skeet

The previous Minister of State said that he had no intention of interfering in the rate of production. Indeed, Mr. Varley gave assurances at the time. The oil price is now declining largely because Dr. Otaiba has been unable to come to the United Kingdom to persuade the Secretary of State that the United Kingdom's production must be reined back. The Arab countries, including Iran and others in OPEC, have decided on quotas of 17.5 million barrels per day. However, they appear to be producing 18.5 million barrels per day, so there is a surplus. By actively producing as much oil as we can, a small country such as ours may cause some instability in the international market. Incidentally, some lowering of the oil price in the market helps all the countries in Europe and the Third world. My only anxiety is that I think that the price should have fallen a little below $30 per barrel, but things did not turn out that way. However, I believe that the output that has been suggested is misconceived.

Mr. Douglas

We should all be indebted to the hon. Gentleman if he gave us his view of the statement made by Professor Odell concerning the long run future price of oil. He takes an extremely depressing view. Is the hon. Gentleman's view consistent with that of Professor Odell? It would be interesting to know, in the light of the Government's policy.

Mr. Skeet

The hon. Gentleman has played into my hands, as I have that article with me. It appeared in the Financial Times of 2 November 1983. Professor Odell said that a decline in the real price of oil during the next 30 years could be forecast. He said that oil could once again become attractive for generating electricity. He also mentioned the decline in the influence of OPEC and the weakness in the internatonal oil market. Does not the hon. Gentleman realise, however, that Professor Odell's argument defeats his point? If there is a surplus of oil on the oil market that will tend to keep prices down. In fact a commentator and financial analyst has said that the oil price for next year may not be good and may be as bad as in the first quarter of this year.

I should like to pursue a little further the interesting point about security. My right hon. Friend the Minister of State said in Committee — I did not necessarily agree with him but is was perfectly right for him to put it— that the 51 per cent. from the participation arrangements gives the Government all the security of supply that they require. My right hon. Friend is aware that, apart from that, the provisions of the Energy Act 1976 give him further security. The United Kingdom is the one country in western Europe, with the exception of Norway, that has a cast-iron position. It is a different angle of security that worries me. If we were engaged in a major world war most of the installations could be shot away, which would cause anxiety, but in a general conflagration there would be no security for anyone.

I referred earlier to the amount of legislation that has been passed. I mentioned the nine Acts since 1975. The Government have had a rethink on this, probably due to the work of UKOOA and the Treasury in getting together to bring about certain modifications. The provisions of the Finance Act 1983, the Petroleum Royalties (Relief) Bill and the Oil Taxation Bill should be read together and all inconsistencies in approach should be removed in a special effort to facilitate the development of marginal fields. As it now stands, the elimination of royalties in this Bill and the increase in the oil allowances in the Finance Act 1983 tend to be offset by the burdens placed on small field operators through the charge of non-oil receipts, particularly pipeline tariffs — a charge to petroleum revenue tax. The Oil Taxation Bill will cause distortion in the market and drive up tariffs, thus making certain small fields uneconomic to work.

Will the good work done in the Finance Act 1983 and in this Bill be considered in conjunction with the Oil Taxation Bill? Will they ride in harmony and not be inconsistent with each other? If they do not ride in harmony the operators on the continental shelf ask what is the point of going ahead with some of these projects and they may be severly discouraged.

I should like to endorse what the hon. Member for Merthyr Tydfil and Rhymney said about the southern basin. I have never been able to understand the Government's case for leaving that out. The sector was mentioned in the Finance Act 1983, but a gas province could contain oil. As I argued in Committee, oil was recovered in the Dutch sector and it is therefore likely that if we have intense exploration in the British sector a little more oil will be recovered.

I also argued in Committee—I think it should be reiterated today — that the price of gas will be determined by the amount of gas that is discovered on the continental shelf. Therefore, if companies are more forthcoming in their operations in this connection it is right that we should do something to erode the monopoly of the British Gas Corporation. It has already come up in price to 23p per therm but I say at once that that is not equivalent to price of oil. Will we rely too much on Norwegian supplies of gas or will we try to locate more of our own? Would not that aim be properly served if the southern basin was included in the provisions of the Bill? My right hon. Friend said that a committee was considering this and that it may be doing something about it, but may we have his immediate thoughts on the subject?

I do not want to say much more about the Bill as I have had a opportunity in Committee to voice my views, but I should like to mention oil prices. The oil price has been declining for some time in real terms. Mr. Edmund Dell spoke in 1975 about the justification for a reduction in petroleum revenue tax. He said that PRT would alter if there was a significant alteration in the real price of oil. He forecast that the oil price would go up and that PRT should be advanced. PRT has been advanced significantly. If the real price declines, it should fall. If the marginal fields are to be developed we must have the right fiscal system. Many of the fields will not be paying PRT but if the oil price is not right the oilfields will never come to fruition.

I compliment the Government on the Finance Act 1983 and the Petroleum Royalties (Relief) Bill. We must look carefully at the Oil Taxation Bill because it has certain inconsistent clauses. The three pieces of legislation must be read together. Modify those clauses. So far so good. This could lead to further developments in the North sea. We have already had a certain amount of encouragement and I hope it will continue.

5.26 pm
Mr. James Wallace (Orkney and Shetland)

It is a pleasure to follow in debate the hon. Member for Bedfordshire, North (Mr. Skeet). Because of my short experience in the House and as I hold the energy portfolio for my party I tend to encounter the same hon. Members, so I recognise the hon. Gentleman's long experience detailed knowledge of this subject. I was particularly interested in some of his comments about gas prices and gas exploration to which I shall return before I sit down.

When I spoke on Second Reading I said that I would be prepared to support the Bill because it was believed that, with the other fiscal measures of the Finance Act 1983 and the new Oil Taxation Bill, of which we have now had sight, it would encourage oil companies to undertake new exploration and development of the marginal fields not only in the North sea—we have tended today to talk about the North sea — but, as I understand the geographical definitions in the Bill, in the west Shetland basin and the Orkney basin, where the possibilities are exciting for the years ahead.

There has been some evidence since Second Reading to support the optimism expressed at that time. The hon. Member for Merthyr Tydfil and Rhymney (Mr. Rowlands) pointed out that the Minister of State has been mentioning that to numerous newspapers. The available evidence gives the Minister of State some justification for that optimism. The most recent Wood Mackenzie report says: Looking at the future, the level of activity in 1984 and 1985 could possibly attain a level never seen before". The Wood Mackenzie report is not noted for hyperbole or the exuberance that one sometimes hears from politicians or Ministers of State.

It would be idle to speculate on the number or the nature of developments but it is clear that for several reasons the industry has emerged from the slacker times of more recent years. The Minister of State pointed out that some companies are coming up to the time to relinquish their licences and that therefore it is time that they did something. There has also been a more stable oil price regime than in recent months which has contributed to greater optimism. Another reason is the more favourable tax regime brought about by the measures introduced this year. I refer to a more favourable regime, but perhaps we may hope that we are coming to the stage when we can settle down to a more stable regime without the numerous changes we have seen in recent years.

It is important for us to look not only at events off-shore but to remember that any exploration and development activity off-shore means a consequent increase in activity on-shore. In my constituency, planning permission has recently been sought for a multi-million pound oil rig servicing and repair base near Lerwick in the hope and belief that Shetland's proximity to present and future oilfields will make such a facility attractive to the industry in terms of saving time and money. Lerwick has the advantage of being close and of having a harbour with deep water that is open for the majority of the year.

As exploration goes further north and west, the facilities available at the airports at Sumburgh, Scatsta and Unst can expect to be used more. The people in and around Sumburgh are grateful to the Civil Aviation Authority for taking steps, albeit belatedly, to reduce its landing charges. One might say that the reduction has been not nearly enough and comes too late, but it is a step in the right direction, following the great increase in charges in recent years, and it is hoped that as a result of that reduction, many more oil companies will be tempted to use the facilities at Sumburgh.

There are local examples of what increased activity in the North sea and the west Shetland basin can do for employment. That applies not only at the local level because increased activity in the North sea has ramifications throughout the national economy. It has been estimated that oil developments have contributed to about 100,000 jobs. Such employment and such future plans—for example, the oil rig servicing base—would be severely dashed if measures such as this Bill were lost and if there were any indication that the favourable tax regime that we have seen in recent months would be set back.

The lack of any projects being given development approval in the two years prior to the go-ahead to Clyde and Alwyn in the latter part of 1982—a lack due no doubt to the tax system which then existed—has meant a lean time for platform construction yards; we have dealt with that to some extent in relation to Scott Lithgow. It is important that companies that have managed to survive through thick and thin, and particularly through the thin of recent years, are given the encouragement that the Bill will provide.

The official Opposition put forward an amendment in Committee to provide that the benefits of the Bill would be available only if a guarantee were given of a 75 per cent. take-up of British manufactured goods in subsequent developments. The House would not expect an hon. Member from the Liberal Bench to endorse such a blatantly protectionist proposal. Nevertheless, it has been established that about 75 per cent. of work generated onshore by North sea oil development goes to British firms. It is important that we give developers an opportunity to continue to provide that work and to make the necessary advances in technology, not only for our oil development but for the opportunities that are increasingly appearing overseas. The pace has quickened and measures such as this will help to ensure continuity of activity from exploration to development and on to production.

Another advantage of sitting on this Bench is that we have an opportunity to weigh up the arguments and vote on the merits. I accept what the hon. Member for Merthyr Tydfil and Rhymney said about the official Opposition not seeking to put a stopper on North sea oil development.. and I appreciate that the points advanced by Labour Members are not designed to be wrecking ones; I believe that they are anxious to give constructive assistance to the Government in this matter. It is important therefore that we listen to and study their arguments but, despite the eloquent manner in which the hon. Member for Merthyr Tydfil and Rhymney deployed his case, we on this Bench are not convinced.

I understood the hon. Gentleman to be challenging the Government in three main areas. The first was on the loss of revenue and the indiscriminate approach which, he alleged, the measure contained; the loss of royalties in kind; and—some time in Committee was spent on this —the handout that the Bill would give to the Clyde and Alwyn fields.

As for any loss of revenue — and the consistent pressing of the Government for more information—I have some sympathy for the Minister. As it is not clear what the benefits of the Bill will be in terms of the number of projects which will be developed which otherwise would not have been, it is almost impossible to make a quantification of the loss to the Treasury. Indeed, there could even be a gain. One does not need to be a mathematical high-flyer to appreciate that 89 per cent. of nothing is less than 88.5 per cent. of something.

The hon. Member for Merthyr Tydfil and Rhymney dealt at length with what he described as the indiscriminate nature of the benefits given by the Bill—that they could apply to a large oilfield, if such should be discovered, as to a small one—and he took the opportunity of my absence on honeymoon to point out an apparent inconsistency in the case which I adduced on Second Reading. I do not criticise him for doing that, but I do not retract from the view that there should be greater stability in the oil taxation regime than we have seen in recent years.

The Bill is designed to encourage activity in smaller and marginal fields, to persuade companies to go in for exploring, drilling and subsequent development. It is clear that such exploration might not take place without a measure such as this.

If, at a later stage, a field of the size of Forties or Ninian should be discovered, it would not be unreasonable then, in a future Finance Bill, to take whatever action was thought necessary. After all, we are thinking of 1992–93. At that stage there could, if necessary, be a further Treasury cut because, an oil company having discovered a field of that proportion, it is unlikely that it would be unwilling to continue with its development. The Bill is designed to encourage the development of marginal fields.

As for royalties in kind, the hon. Member for Bedfordshire, North pointed out that there were already available to the Government numerous powers of direction and control in the event of an emergency. Only yesterday we passed a Bill through all its stages, which shows that if a real crisis arose there would be no problem in getting the necessary legislation through Parliament.

It is worth considering the way in which royalties are collected when payment is made in kind. I understand that it is taken as a straight 12.5 per cent. of total production. That having been collected, it is only subsequently, when the accounting takes place, that allowances can be set against that sum.

The cash remission for small marginal fields can often be quite sizeable. It is noticeable that the Government have chosen to exercise their option by taking payments in cash rather than in kind for small fields such as Argyll, Tartan or Auk. We shall not be losing all royalties because the Bill applies only to new fields. The 12.5 per cent. take from existing fields will not be affected.

Mr. Rowlands

Is the hon. Gentleman saying that the Liberal party does not believe in royalties in kind or in cash for any future North sea development?

Mr. Wallace

We support that which is set out in the Bill. For future North sea oilfields, excluding the southern basin, which is not included in the Bill, we do not, due to our support of the Bill, approve of collecting royalties in cash or in kind. However, if a field of significant proportions is discovered—for example, on a par with Brent or Forties — fiscal measures might be taken in future which would make up for not taking royalties from smaller fields.

The existing North sea oilfields, other than Clyde and Alwyn, are paying royalties either in cash or in kind. We support the continuation of those royalties.

In Committee there was reference to the gratuitous benefit that is being given to the Clyde and Alwyn fields because the Bill's provisions go back to 1982 rather than 1983. I regret that no satisfactory explanation was given by the Minister following the debate on that issue.

Mr. Douglas

Why did the hon. Gentleman not vote against the provisions for the Clyde and Alwyn fields?

Mr. Wallace

If the hon. Gentleman checks the Division list in Committee, he will find that I supported the amendment that was tabled by the hon. Member for Merthyr Tydfil and Rhymney. The terms of those provisions should not lead one to reject the entire Bill. However, one can be critical of the Government, especially of the Minister, for not providing a reasonably satisfactory explanation. I do not accept that that criticism outweighs the merits of the rest of the Bill.

The Government could take steps other than those set out in the Bill to increase oil productivity and exploration in the North sea and in the west Shetland basin. Those in the oil industry are wondering when the Government will be granting new licences in the west Shetland basin. I hope that the Minister will indicate when the granting of those licences can be expected.

It is expected that in the not too distant future there will be a gap between our gas production and demand. This issue was raised by the hon. Member for Bedfordshire, North. What additional measures is the Minister proposing to maximise domestic gas production? Does the Department of Energy subscribe to the view that is current in the industry of pricing gas on a par with oil—about 32p per therm— or does the Minister propose to take other action to stimulate exploration—

Mr. Douglas

The Minister may subscribe to that view but he will not implement it.

Mr. Wallace

Indeed, the Minister may subscribe to the view but I cannot imagine that he will put it into practice. If he does not agree with that view, what other action does he propose to stimulate exploration and prevent importation at what could be even higher prices if we had to buy on the world market? Would he be prepared to allow the British Gas Corporation—is this current policy in the Department — to seek licences outwith the southern basin? The impression that is created by the corporation's annual report is that the previous Secretary of State directed it to concentrate its activities in the principal gas areas. I hope that the Minister of State will tell us whether that is still the Department's policy, or whether the new broom that is sweeping through the Department will allow the corporation to continue to have a wide variety of interests around our shores.

Will the funds that are generated by Enterprise Oil be returned in some way to the corporation to allow further exploration to take place? I appreciate that there is only a faint chance that that will happen, but we can always live in hope.

In Committee the hon. Member for Merthyr Tydfil and Rhymney said that I had been fairly slavish towards the oil industry on Second Reading. It is easy in politics to knock the oil industry. It does not have a great number of friends among the electorate. However, it is always somewhat difficult readily to come to its support and assistance. I support the Government, as I support previous Governments formed by both the Conservative and Labour parties who have dealt with the oil industry to date, and as I also support the local authorities, including the two authorities in my constituency which have tried to drive a tough bargain with oil companies. I doubt whether the companies would expect anything less. However, we must be realistic. An army of civil servants would not get the oil out of the ground but the oil companies will do so. They will do so only if we drive a fair bargain as well as a tough one. My right hon. and hon. Friends will support the Bill because we believe that it will encourage the companies to get oil out of the ground which otherwise might not be extracted.

5.47 pm
Mr. John Hannam (Exeter)

I welcome the speech of the hon. Member for Orkney and Shetland (Mr. Wallace), for I think that he accepts the principles, which I accept, which are laid out in the Bill. In forming a conclusion on this measure it is necessary to consider oil and gas resources and developments overall. We have in reserve or under development about 11 billion barrels of oil in 28 fields. Those fields have already been found and they are being developed. On average each field can be expected to produce about 400 million barrels. Almost 4 billion of the original 11 billion barrels have been produced. We are quickly using up the remaining 7 billion barrels.

The next category consists of probable developments. These fields could be developed after additional studies and evaluations have been undertaken. In this category there are about 1 billion barrels in 10 fields. There is an average of about 100 million barrels in each field. This means that each field is about one quarter of the size of the first 28 fields.

In addition, there are about 3 billion barrels of proven oil on the continental shelf whose development is pretty uncertain. There are about 60 fields in this category and it will probably be necessary to develop these reserves. The average capacity will be about 50 million barrels per field.

Those are the three categories of proven oil in the North sea, but in looking 20 or 30 years on—this is the area which we are beginning to consider in the light of tax changes and the need to create incentives for aggressive exploration—there are probably another 8 billion barrels available if we achieve the target of further successful development.

As the smaller and deeper fields come to be developed, costs are certain to rise sharply and, accordingly, profits will diminish. The Government's proposals — I think that we all agree with them in broad terms — will encourage the exploration and development of the increasingly marginal fields. The royalty concession is needed for it is based on the gross sales revenue of a field and not on that field's profits. A royalty could be due even if a small field made little or no profit. If we do not abolish this royalty, small fields could be unduly burdened by this taxation. This a logical and sensible step to take.

If this country is to maintain oil self-sufficiency throughout the 1990s, there should be continued exploration and development during the remainder of the 1980s. The pre-Budget tax regime offered little or no incentive for the small fields or those producing fewer than 150 million barrels. Most of our developments are probably capable of producing 50 million or 100 million barrels. Therefore, I support the package of tax and royalty changes.

Several hon. Members have pointed out that the concessions will not apply to gasfields and to the southern basin.

Mr. Rowlands

Recognising the importance of the way in which a royalty bears on an oilfield, it is a fact that UKOOA saw a way in which there could be a discriminating arrangement on royalty relief based on field size. That has not been invalidated in any way by the hon. Gentleman's argument.

Mr. Hannam

It would be true to say that the Government's decision to eliminate the royalty was an agreeable surprise to the oil industry and one which it welcomed. Nevertheless, it is the correct decision if we look at the development pattern of the ever-diminishing fields. I believe that the Government made the correct decision, rather than involving themselves in a complicated system of variable royalty relief.

In one or two years, it will become increasingly apparent that similar tax relief will be needed for gasfields north of the southern basin line—and probably also for the smaller fields in the southern basin. The hon. Member for Merthyr Tydfil and Rhymney (Mr. Rowlands) mentioned this possibility. During the 1970s, about 33 trillion cu ft of gas were discovered in the North sea—I include the Frigg field where 60 per cent. of the 8 trillion cu ft field lay in the Norwegian sector. At the rate of consumption in 1970, that gas was expected to last for about 60 years. Therefore. there was no great panic about future exploration and development.

Since then our rate of consumption has increased from 5 per cent. to 25 per cent. of United Kingdom primary energy consumption. One reason is the low price of gas compared with other energy fuels. The low price being offered to gas producers by the monopoly buyer, British Gas, meant that there was virtually no gas exploration by the private sector for about 12 years until the beginning of the 1980s. Gas exploration dropped from more than 30 wells a year in the late 1960s to five or six a year in the 1970s. It ceased entirely in 1979 and 1980. Exploration picked up again in 1981–82 due to the higher prices being offered by British Gas.

At present customers are paying 32p a therm for gas and British Gas is still paying only an average of 12p a therm to producers. This will certainly change dramatically as a major shortfall of gas develops in our gas supply in the early 1990s. To obtain new suppliers, a much higher price must be paid to the producers, and therefore either the price to the consumers must rise to cover it—that will cause inflationary damage to the economy — or something must be done about the tax regime.

To obtain new gas the British Gas Corporation is already having to offer a price well above the 12p a therm average cost. The corporation is now offering 22p or 23p for new supplies. There are three reasons for the higher price. First, new supplies are needed in a hurry; secondly, there are higher costs to produce the gas; thirdly, there are much higher taxes on the producers, which means that they have to ask for more.

It has become increasingly evident over the past two years that the lack of exploration for new gas reserves could not continue much longer without serious shortages developing. The available firm gas supply which BGC has under contract from existing fields amounts to 25 trillion cu ft. This gas peaks out in the late 1980s, and then declines rapidly. A shortfall in supply from contracted supplies starts to appear in about 1990 and rapidly becomes worse.

We need to look ahead 25 years because of the time it takes to find, develop and produce new gas. The BGC needs about 30 trillion cu ft of new gas to carry it through this period. Most of this new gas will have to come from offshore fields.

The known but undeveloped reserves in the British sector total about 15 trillion cu ft. There are seven in the southern basin, five in the central North sea, two in the northern area and one in Morecambe bay. The Norwegian undeveloped reserves are much larger. The Troll field alone has more than 30 trillion cu ft in its reserves.

Because of the developing supply, British Gas has decided to negotiate with the Norwegians to buy gas from the Sleipner field. The price will be high—probably about 32p a therm— because the corporation will be competing with other European buyers willing to pay that sort of price. If this deal goes through, the British economy will obtain no benefits in the form of tax revenue from the field profits and probably limited opportunities for jobs to develop and operate what will be a Norwegian sector field. If the Norwegian gas is not obtained, the BGC has said that Dutch, or even Russian, supplies could be contemplated.

Does Britain need to buy Norwegian or anybody else's gas? I believe that much more gas could be found in British waters with the type of aggressive exploration that we are encouraging. We could probably produce sufficient to meet all of Britain's needs without resorting to foreign sources. Producers will need either tax incentives or more than the 22p a therm which the BGC is beginning to offer. One reason is that the new gasfields will have to pay a much higher tax than the old ones under the present tax regime.

Mr. Wallace

Does the hon. Gentleman agree that because of too aggressive an attitude, gas exploration, inshore or offshore, which he considers necessary, has been much imperilled? Could that occur now, because of the Government's attitude to the privatisation of BGC assets has in many respects shattered morale among geologists and exploration teams in the BGC?

Mr. Hannam

I take the opposite view. The feeling in the oil and gas industry is that because of the breaking of the monopoly, which we are endeavouring to achieve, there is a new wave of enthusiasm for exploration and development of gas reserves. I am trying to point out why we may be imperilling the new dynamism in gas exploration and development which is essential for the future. The main crisis in the future will stem from the huge shortfall of gas which is looming up in the 1990s after the vast increase in the number of gas consumers during the past 12 to 15 years.

Mr. Skeet

If the Government, through the Oil Taxation Bill, are to cause pipeline tariffs to be subject to petroleum revenue tax, will this encourage many people who are not deriving any profit to find more gas?

Mr. Hannam

There is a rapid development of gas pipelines through the various consortia which is enabling them to get their associated gas brought ashore. This is a healthy development. If we see the same type of encouragement throughout the gas industry in the northern areas, we shall see a sharp improvement in the production of gas. Originally gas production from the southern basin and Frigg was exempt from petroleum revenue tax. The Government take then was a relatively modest 53 per cent. Subsequently the Government decided that new gasfields should pay the same taxes as apply to oil production. That means that the Government will take about 70 to 80 per cent. of the profit from any substantial new fields in the central and northern areas. The take will be even higher —75 per cent. to 85 per cent.—from any new fields found in the southern gas basin. As one knows from previous debates, the recent tax improvements for new fields did not extend to that area.

The key issue is how British Gas will obtain its supplies for the 1990s and beyond. Should foreign supplies be sought which will cost about 32p a therm? That will certainly push up gas prices to consumers and will not do a great deal of good for the British economy. Alternatively, should there be a maximum effort to find and produce British gas? If so, it will require more incentives for the producers. There are two choices available. First, the price paid to British producers could also be increased to 32p per therm which, as with foreign gas, would push up prices to consumers but at least most of that higher price will end as tax and be recycled in the economy. Alternatively, the price paid by British Gas could remain low, as it has in the past, in which case, if we want to avoid the effects of a sharp rise in gas prices, lower taxes must be applied to gas exploration.

It is important to know whether the Minister can say anything about how we may include the new gasfields and gas exploration in what will be difficult areas in the central and northern North sea in the general tax regime. I hope that a conclusion will be reached within the next year or two to encourage the exploration for and development of gas in the North sea.

Mr. Rowlands

I have been following the hon. Gentleman's case with a good deal of attention. Although we would be willing to consider the matter field by field for some form of royalty relief extension, we would not support the blanket extension of this provision to the southern fields. I assume that the hon. Gentleman understood my point.

Mr. Hannam

Yes. I did not mean to imply that the hon. Gentleman supported that contention. He mentioned the problem of the southern basin in relation to the small gasfields. I believe that the gas is available, but that we may not get it out. There is very little activity in the more difficult northern areas, and if we do not encourage it by a severe price hike—and the British economy does not want that—then it has to be by bringing the same tax regime to bear on gas as on the oil producers.

While fully supporting the Bill, I hope that the Government will bring their mind to bear upon the looming problem of gas supplies.

6.3 pm

Dr. Norman A. Godman (Greenock and Port Glasgow)

My immediate interest is the construction of structures within the offshore engineering industry. I believe that I am right when I say that the Minister recently made a number of observations about the generation of orders for the industry stemming from the Government's actions. What likelihood is there of orders for floating oil production platforms being placed in the near future vis-a-vis the development of the smaller fields where profit margins are less certain and narrower? What is his Department's view on the development of the concept of the single well oil production system? I should be grateful for some response by the Minister to those two questions.

6.4 pm

Mr. Alistair Burt (Bury, North)

I am grateful for the opportunity to address the House on a technical matter from a slightly different point of view. This is a technical Bill, and we have heard the technical points argued most ably by hon. Members on both sides of the House.

The principles underlying the Bill are clear and understandable and they will receive greater support from the public if they are understood in that way. I speak on the wider principles of the Bill rather than the technical aspects. The Bill encourages the extraction of oil, which will be of benefit to the community, industry generally and those industries which depend upon oil extraction and energy in particular. I should like to take two views—first, as a Member for an industrial constituency where energy is most important, and secondly, as a younger, newer Member of the House, where long-term energy interests are, I hope, coincidental with a personal lifespan.

My constituency has made paper its major industry. That industry is an extremely high user of energy and has been hard hit recently by rising energy costs. There are many reasons for this but a major cause was the oil crisis of the 1970s. It is my interest in energy prices and oil shortages that prompts me to speak. The hon. Member for Merthyr Tydfil and Rhymney (Mr. Rowlands) will recall the feeling of the House and the problems it had when dealing with the 1979 oil crisis to which he referred. I can comment upon what that oil crisis meant to industry in my area. The central purpose of the Bill is to encourage the extraction of oil and to try to prevent such a crisis recurring.

The oil crisis and resulting higher prices meant that the paper industry in Bury has been curtailed drastically. It has lost many men, and factories have closed. Therefore there are two points in the Bill of which I have taken note and in which I am interested. The first is the guarantee of security of supply. Recently the oil industry trends and energy demand have been notoriously difficult to predict.

My hon. Friend the Member for Exeter (Mr. Hannam) mentioned the increased demand for gas, which shows what can happen to even the best laid plans. Demand, which was expected to he stable, rocketed suddenly and there was a crisis. If that happens again supplies of the fuel may suddenly run out. Although it is difficult to predict what may happen to oil supplies, unless oil extraction is encouraged we face a shortage. I am persuaded by the Government's arguments on guaranteeing security of supply. There is no better way to prevent the discovery of oil than to make on those who might find it demands that discourage them from looking for it in the first place. The Bill's central aim is to encourage the companies to look for oil and to develop their finds. That will have benefits not only for industry in general and industries in my town but for the people in the onshore developments who supply the oil industry. Those particular interests have already been mentioned by several hon. Members, including the hon. Member for Orkney and Shetland (Mr. Wallace).

How are those interests to be preserved and how will the construction element of the onshore energy industry be encouraged if those who go out to look for the oil are not similarly encouraged? Disregarding the technical arguments that we have heard, the Bill's central principle, understandable to all, is that the Government are looking for a way to encourage those who want to extract oil for the benefit of all.

The second principle of the Bill which persuades me to support it is the Government's consideration in last year's review of the fiscal regime and its effect. The Government would have been irresponsible and would have failed in their duty if, having looked at the tax regime and decided that some areas that had been profitable to the oil companies were no longer so, they had not taken the steps contained in the Bill to rectify the problem. Last year's review pointed to difficulties and showed that oil companies would have been in serious trouble if they had tried to develop marginal fields. Areas of exploration would not have been touched. Again, mindful of the problems caused by the oil crisis, the Government acted correctly.

Governments may have ideals that are not always adhered to, but when a possible crisis point is identified they must act.

It is in my interest to take a long-term view. Governments who fail to have a long-term view are failing in their duty. In this case, the Government have identified a possible oil shortage which could cause another crisis, the effect of which might be to push the price of energy still higher at a cost of yet more jobs in my town. I commend the Government for taking the action that they have in order to avoid such a crisis. They have looked at what should be done and have acted. That is the point of government and it is eminently proved by the Bill.

It is not often that the people of Bury pay great attention to petroleum royalties and their consequences. They are not matters that are often on their minds. However, in this instance they have been constantly on the minds of some workers because of the problems that I have described. The difficulties created by an oil crisis are long lasting throughout the world. They debilitate industries that rely on a plentiful supply of energy at a price that is comparable with prices abroad.

If the Government, through the Bill, act to avert an oil shortage in Britain, to protect and encourage the oil industry and to encourage those who extract oil to use British equipment, they will have done a fine job. I am happy to support the Bill.

6.13 pm
Mr. Buchanan-Smith

With the leave of the House I am delighted to respond to the useful debate that we have had. Some of the topics have been thoroughly debated previously, both on Second Reading and in Committee. Having had so many detailed debates in Committee, it is to the benefit of those hon. Members who were not fortunate enough to be selected to serve on the Committee to be able to discuss again some points in the final stages of the Bill.

The hon. Member for Merthyr Tydfil and Rhymney (Mr. Rowlands) made several points. One, of considerable importance, concerned the future of BNOC. The review of its activities was announced by my right hon. Friend the then Secretary of State for Energy and related to the way in which it conducts its functions and is not a fundamental reappraisal of BNOC. From our experiences earlier this year, in March, at the time of the price crisis, I believed, as did my right hon. Friend, that BNOC's functions and the way they were carried out were to be tested. In general, to its credit, BNOC reacted. Having had occasion to use its powers in difficult conditions, it would be foolish not to carry out a review to see whether any lessons could be learnt in order to meet a similar situation in future. That is why the review is being carried out.

I was flattered to hear the extent to which the hon. Member for Merthyr Tydfil and Rhymney has been reading my speeches lately, but I am sorry that he has not read everything that I have said. I have been careful to point out that we are not questioning BNOC's basic functions, simply the carrying out of those functions.

The hon. Gentleman also asked me about the British Gas Corporation's disposal directions that were debated earlier.

Mr. Rowlands

I thank the right hon. Gentleman for the satisfactory assurance that the Government are not considering the abolition of BNOC, but when will the review be completed and when will he come to the Dispatch Box to tell us about it?

Mr. Buchanan-Smith

I cannot say exactly. I can only say it is well advanced. It is a joint review, carried out by my Department and others within the organisation. Discussions are taking place. The review is not being carried out without the participation of BNOC and I hope that it will be completed before long.

The hon. Gentleman asked about the BGC's disposal directions and participation by BNOC or any other body on behalf of the Government. Again, he tried to make out that the Government might have had some insidious intention. In fact, that definition of participation was lifted from the Labour Government's Participation Agreements Act 1978 and, if there is anything insidious in it, it was present while the Labour party was in office.

The hon. Gentleman also asked about the extension of royalty relief to the southern basin. The extension to the southern basin is still under consideration and is the subject of discussions between the industry and my right hon. Friends in the Treasury. They have not yet come to a conclusion and their result will be announced in due course. We have also invited further information on particular points that have been raised. I know that my right hon. Friends in the Treasury will be ready to listen to any further arguments that may be put forward by those who have interests in the southern basin.

Again, I must emphasise that we are undertaking the review in response to the industry and we need to be persuaded of the need for change. No decision has yet been reached. If a future Finance Act extended the definition of relevant new fields to the southern basin, royalty relief would automatically apply. Clause 1(4) has been drafted specifically to ensure that. Its purpose is that if, following the present review, a case were established to extend relief to the southern basin, as well as elsewhere in the United Kingdom and on the continental shelf, only one piece of legislation would be needed. However, if, following the review, a case were established for giving some relief but not the total amount, legislation would need to be drafted to give that relief by means other than extension of the definition. Therefore, extension of the definition will apply only if it is a total extension—

Mr. Rowlands

All or nothing.

Mr. Buchanan-Smith

It is all or nothing. However, the Government's hands are not tied if they are persuaded that another approach is needed.

The hon. Gentleman also referred to the wider question of security of supply. I listened carefully to what he said. He referred to the BNOC particpation agreements and the figure of 51 per cent. I believe the change to be relatively marginal. There is no attack on the security of supply.

I have always said that there is a reduction in the amount of oil that can be used. However, as my hon. Friend the Member for Bury, North (Mr. Burt) said, what matters at the end of the day is the availability of oil in a form in which it can be used, whether at the pumps or as fuel oil. Participation and the payment of royalties agreements ensure the availability of crude oil. However, one has to bear in mind that for proper reasons, which I do not believe the hon. Gentleman would dissent from, BNOC, like any other company in that situation, enters into contracts for crude oil. The oil will not be available anyway because of the commitment that has been rightly made. The change is marginal for crude oil. As the hon. Member for Orkney and Shetland (Mr. Wallace) said, at one extreme, the Government must take special powers. Another measure has been tabled, covering security of supply, whereby certain companies are obliged to hold supplies for a certain period. That is the supply of oil products in a form in which the public and industry can use them. If we are talking about security of supply, we should deal with the matter in that context.

Mr. Rowlands

Why did the previous Secretary of State turn to royalty oil as the most useful, immediate and helpful way in which to deal with an oil shortage and crisis?

Mr. Buchanan-Smith

No situation is identical with another.

We do not believe that our assessment will necessarily have an effect. The hon. Gentleman tried to make a comparison between 1979 and what might happen in the future. It is easy to do so, and I say so advisedly. However, the hon. Gentleman forgets that we were just coming to the end of a period of price controls under the Labour Government, which had a considerable effect on those who chose to export oil in other ways, and exacerbated the crisis. One cannot make that comparison.

Mr. Rowlands

I did not use that argument.

Mr. Buchanan-Smith

The hon. Gentleman may not have used the argument, but it should be considered. The change that has been made on security is minor and will not have a serious effect.

I refer to the southern part of the North sea. My hon. Friend the Member for Exeter (Mr. Hannam) referred to future gas supplies. This is not the time to have a wide-ranging debate. That is a matter for commercial negotiation between the British Gas Corporation and the industry and, in the Norwegian sector, with Statoil, about the possibilities of further aupplies from there. I listened carefully to what my hon. Friend said. Perhaps this is not the most important point, but one must remember that we are moving forward. In recent weeks I have approved the new generation of condensate gasfields in the North sea, including North Brae. Until now we have talked largely in terms of the natural gas supplies from the southern basin, which will continue, but there will be more supplies from other areas of the North sea. There is an improvement in supply within the United Kingdom continental shelf, although I appreciate the argument that if higher prices are agreed as a result of other circumstances that will stimulate further development.

What happens in the southern basin of the North sea is of considerable significance. When I came to office I had before me four annexe B developments. I have already approved two of the gas developments and I hope to approve another two before the end of this year. There is a considerable number of blocks in the eighth licensing round, which include areas in the southern basin that were excluded from earlier rounds. I am encouraged, from the interest in that licensing round and from the amount of drilling and exploration, by the fact that there is much interest in the southern basin which will lead to further gas supplies from that area. One or two companies in my constituency in Aberdeen have started strengthening some of their teams working in such places as Yarmouth. There is firm evidence of greater interest in the southern basin.

Mr. Skeet

Why does it take so long to get an annexe B?

Mr. Buchanan-Smith

If an annexe B is well prepared and well presented, I hope that it will not take too long. I have considered the matter and I am concerned about it. I have recent experience of it. I have a particular task on annexe Bs. One wants the development to go ahead in a form that is of benefit to the United Kingdom. If the criteria are met, I am happy and I hope that the company is, too. However, as my hon. Friend fairly said, the procedure for annexe Bs is only a small part of the total process. I have urged companies with proposals for development to talk informally to us at an early stage so that the formal stage can be as short as possible and so that the difficulties and problems can be resolved. That is already the practice of many companies. I want to encourage that. I shall do what I can, to the best of my ability, to process the annexe Bs as soon as possible.

The hon. Member for Greenock and Port Glasgow (Dr. Godman) referred to the single well oil production system. I have a proposal from British Petroleum before me at the moment. I hope that we shall be able to clear that annexe B proposal before the end of the year.

Mr. Douglas

The Minister will be aware, when referring to SWOPS, that the proposed development is for a ship-shape vessel, which is shipyard work. Will he ensure that that work is placed with a United Kingdom shipyard because yards in the lower Clyde require that work?

Mr. Buchanan-Smith

I cannot comment on that matter because it awaits my consideration. I refer the hon. Gentleman to my earlier remarks about procurement policy.

The hon. Member for Greenock and Port Glasgow also referred to the amount of work that is available. I am conscious of the fact that such work relates to construction yards and not just to those shipyards which have adapted themselves to such work. I have visited yards in England and Scotland and, although some yards can see that more work will be forthcoming, they are suffering from a gap in the continuity of work at present, and perhaps in the coming months.

There have been developments by British Gas in its structures and superstructures for the Morecambe bay project, and the Rough project, which did not come within the terms of annexe B, although I approved that development. That is generating some work. The Clyde and Alwyn projects are at a fairly advanced stage and I hope that they will help to fill the gap, although the British yards must compete for those contracts. Although that work is not immediately available, it will be available in the middle term rather than the long-term future. I have spoken to members of management and shop stewards in the relevant yards and I am conscious of the anxieties about the gap in the coming months. However, work will be available in the interim, and I hope that the yards will benefit from it.

My hon. Friend the Member for Bedfordshire, North (Mr. Skeet) referred in his constructive speech to the measures that the Government have approved in the Bill, in the earlier Finance Act and in the Bill tabled for First Reading on 26 October. I cannot anticipate what will he said in the debate on the other Bill, but I believe that the measures are compatible. The Government are seeking to achieve the best way of sharing assets and the most economic way of using resources. If my hon. Friend the Member for Bedfordshire, North thinks that the Government are wrong, he will have an opportunity to express his views in later debates, but I assure him that we regard those proposals in the context of the policy which is behind this Bill and the legislation introduced earlier in the year.

Mr. Skeet

In a marginal field, a pipeline tariff which is subject to petroleum revenue tax will distort the market. Moreover, the tariff will be doubled because it must be recouped by the relevant company. That will put a great strain on the marginal field producer. Could that matter be reconsidered and receipts which are non-oil payments be treated specially and not in the way outlined in the Bill?

Mr. Buchanan-Smith

This is not the time to debate a Bill which has not yet come before the House, but I am grateful to my hon. Friend for giving notice of the topics that he will raise on that Bill. I assure my hon. Friend that we shall examine the subject closely before the Bill is presented to the House.

As the hon. Member for Merthyr Tydfil and Rhymney made a long speech, he may have been slightly inconsistent in what he said. I was interested when he raised questions on the depletion oil policy. I wondered whether he was questioning the assurances given by his party when in office. We are operating under the same assurances as were given by the Labour Government. If the Opposition are changing their policy, I should be interested to hear it. I hope that the hon. Gentleman will support us.

In Committee, the hon. Member for Merthyr Tydfil and Rhymney fairly and properly debated the more dogmatic subject of the status of royalties. I do not disagree with the hon. Gentleman's analysis of the importance of royalties which give the nation a return on an asset which fundamentally belongs to the nation. The use of royalties as the correct way to proceed is a fair and respectable point of view. I do not rely on doctrinaire or historical arguments. Like the hon. Member for Orkney and Shetland, I tend to take a pragmatic view. As my hon. Friend the Member for Exeter said, we must consider the effect of certain fiscal measures on the rate of exploration in the industry and the benefits to the United Kingdom economy. The conclusion of a recent review was that, without the combination of fiscal measures and royalties the development of the marginal fields would not take place, production would not continue at the rate which we believe to be in the best interests of the United Kingdom, and, most important, the continuity of work in our supply industry would be affected.

As I explained more fully in Committee, in dealing with the new marginal fields the Government are trying to remove the forward loading of fiscal measures when a field is in its early stage of development. The forward loading and especially royalties levied at a flat rate throughout the process are precisely the measures which would discourage future developments. That state of affairs was satisfactory when large fields were involved.

Like the hon. Member for Dunfermline, West (Mr. Douglas), I hope that further large fields will be discovered but it is not possible to predict whether they will be discovered. If we are fortunate enough to discover a large field in the North sea we must not lose the chance of developing it. If we do not take the opportunity, development may take place in other parts of the world. We must maintain the continuity of development in the North sea. I believe that the Government can help by relieving the forward loading and carefully considering the allowances given against PRT. We regard the abolition of royalties as part of such a package which will ensure that the development of such fields is not hindered at an early stage.

Mr. Rowlands

I remind the right hon. Gentleman that the Government's track record of 12 tax changes in four years almost brought North sea oil development to a standstill.

Mr. Buchanan-Smith

I note how quickly the hon. Gentleman changes his ground. He cannot have it both ways. He says that we must get the maximum benefit from North sea oil and that the Revenue must obtain as much money as possible, but at the same time he denies the Government the right to change the arrangements. There will always have to be changes to reflect the changing situation. We are dealing with a natural resource and with physical conditions. As we move into new areas. we shall face new problems and situations. It is, therefore, totally unrealistic of the hon. Gentleman to suggest that we can have one tax regime for a whole decade.

If we genuinely believe in continuity in North sea development, that we are past the early stages and entering a new era, we must accept that we shall be dealing with more difficult and marginal fields as well as new technologies. A Government who failed to respond to that would be failing in their duty to the nation.

Like the hon. Members for Orkney and Shetland and Greenock and Port Glasgow, I represent a constituency in an oil area. We want to see continuity for the supply industry onshore as well as offshore. By proposing the Bill, we ensure that continuity, jobs and a British stake in the offshore industry, not only in the United Kingdom but elsewhere. By opposing the Bill, the Opposition will be acting against the interests of those involved in the industry.

Question put, That the Bill be now read the Third time:—

The House divided: Ayes 221, Noes 117.

Division No. 58] [6.41 pm
Aitken, Jonathan Atkins, Rt Hon Sir H.
Alton, David Atkins, Robert (South Ribble)
Amess, David Baker, Nicholas (N Dorset)
Ancram, Michael Banks, Robert (Harrogate)
Ashby, David Batiste, Spencer
Ashdown, Paddy Beaumont-Dark, Anthony
Aspinwall, Jack Beith, A. J.
Bellingham, Henry Hawksley, Warren
Bennett, Sir Frederic (T'bay) Hayes, J.
Benyon, William Hayhoe, Barney
Berry, Sir Anthony Hayward, Robert
Bevan, David Gilroy Heathcoat-Amory, David
Biffen, Rt Hon John Heddle, John
Biggs-Davison, Sir John Henderson, Barry
Blaker, Rt Hon Sir Peter Hickmet, Richard
Body, Richard Higgins, Rt Hon Terence L.
Boscawen, Hon Robert Hind, Kenneth
Bottomley, Peter Hirst, Michael
Bowden, A. (Brighton K'to'n) Hogg, Hon Douglas (Gr'th'm)
Braine, Sir Bernard Holland, Sir Philip (Gedling)
Brandon-Bravo, Martin Holt, Richard
Bright, Graham Hooson, Tom
Brooke, Hon Peter Howard, Michael
Brown, M. (Brigg & Cl'thpes) Howarth, Gerald (Cannock)
Browne, John Howell, Rt Hon D. (G'ldford)
Bruce, Malcolm Howell, Ralph (N Norfolk)
Bruinvels, Peter Hughes, Simon (Southwark)
Buchanan-Smith, Rt Hon A. Hunter, Andrew
Buck, Sir Antony Jenkin, Rt Hon Patrick
Budgen, Nick Jenkins, Rt Hon Roy (Hillh'd)
Bulmer, Esmond Jessel, Toby
Burt, Alistair Johnson-Smith, Sir Geoffrey
Butterfill, John Johnston, Russell
Carlile, Alexander (Montg'y) Jones, Gwilym (Cardiff N)
Carlisle, John (N Luton) Jones, Robert (W Herts)
Channon, Rt Hon Paul Kershaw, Sir Anthony
Chapman, Sydney Key, Robert
Chope, Christopher King, Roger (B'ham N'field)
Clark, Hon A. (Plym'th S'n) Knight, Gregory (Derby N)
Clark, Sir W. (Croydon S) Knight, Mrs Jill (Edgbaston)
Clegg, Sir Walter Knowles, Michael
Colvin, Michael Lang, Ian
Conway, Derek Lawler, Geoffrey
Coombs, Simon Lawrence, Ivan
Cope, John Leigh, Edward (Gainsbor'gh)
Couchman, James Lester, Jim
Cranborne, Viscount Lewis, Sir Kenneth (Stamf'd)
Dickens, Geoffrey Lilley, Peter
Dicks, T. Lord, Michael
Dorrell, Stephen Lyell, Nicholas
Douglas-Hamilton, Lord J. McCurley, Mrs Anna
Dover, Denshore Macfarlane, Neil
Dykes, Hugh MacKay, Andrew (Berkshire)
Eggar, Tim MacKay, John (Argyll & Bute)
Emery, Sir Peter Maclean, David John.
Evennett, David Maclennan, Robert
Eyre, Reginald McQuarrie, Albert
Fairbairn, Nicholas Malins, Humfrey
Fallon, Michael Malone, Gerald
Favell, Anthony Maples, John
Fookes, Miss Janet Marlow, Antony
Forman, Nigel Mather, Carol
Forsyth, Michael (Stirling) Mawhinney, Dr Brian
Forth, Eric Maxwell-Hyslop, Robin
Fowler, Rt Hon Norman Mayhew, Sir Patrick
Fox, Marcus Meadowcroft, Michael
Fraser, Peter (Angus East) Mellor, David
Freeman, Roger Merchant, Piers
Gale, Roger Meyer, Sir Anthony
Galley, Roy Miller, Hal (B'grove)
Gardiner, George (Reigate) Mills, Iain (Meriden)
Garel-Jones, Tristan Moate, Roger
Goodhart, Sir Philip Morrison, Hon C. (Devizes)
Gower, Sir Raymond Morrison, Hon P. (Chester)
Greenway, Harry Moynihan, Hon C.
Griffiths, Peter (Portsm'th N) Neale, Gerrard
Ground, Patrick Neubert, Michael
Grylls, Michael Nicholls, Patrick
Hamilton, Hon A. (Epsom) Norris, Steven
Hamilton, Neil (Tatton) Onslow, Cranley
Hanley, Jeremy Oppenheim, Philip
Hannam, John Ottaway, Richard
Hargreaves, Kenneth Owen, Rt Hon Dr David
Harris, David Page, Richard (Herts SW)
Harvey, Robert Peacock, Mrs Elizabeth
Haselhurst, Alan Penhaligon, David
Hawkins, Sir Paul (SW N'folk) Pollock, Alexander
Porter, Barry Stewart, Andrew (Sherwood)
Powell, William (Corby) Stewart, Rt Hon D. (W Isles)
Powley, John Temple-Morris, Peter
Prentice, Rt Hon Reg Thompson, Donald (Calder V)
Price, Sir David Thornton, Malcolm
Proctor, K. Harvey Thumham, Peter
Raffan, Keith Townend, John (Bridlington)
Renton, Tim Tracey, Richard
Rhodes James, Robert Viggers, Peter
Ridsdale, Sir Julian Wainwright, R.
Rippon, Rt Hon Geoffrey Wakeham, Rt Hon John
Sackville, Hon Thomas Walden, George
Sainsbury, Hon Timothy Walker, Bill (T'side N)
Shaw, Sir Michael (Scarb') Wall, Sir Patrick
Shelton, William (Streatham) Wallace, James
Sims, Roger Waller, Gary
Skeet, T. H. H. Warren, Kenneth
Smith, Tim (Beaconsfield) Watson, John
Speed, Keith Watts, John
Spencer, D. Wells, John (Maidstone)
Spicer, Jim (W Dorset) Wheeler, John
Spicer, Michael (S Worcs)
Steel, Rt Hon David Tellers for the Ayes:
Stern, Michael Mr. David Hunt and Mr. John Major.
Stevens, Lewis (Nuneaton)
Stewart, Allan (Eastwood)
Archer, Rt Hon Peter Crowther, Stan
Beckett, Mrs Margaret Cunningham, Dr John
Bennett, A. (Dent'n & Red'sh) Davies, Rt Hon Denzil (L'lli)
Bermingham, Gerald Davies, Ronald (Caerphilly)
Bray, Dr Jeremy Davis, Terry (B'ham, H'ge H'l)
Brown, Gordon (D'f'mline E) Deakins, Eric
Brown, Hugh D. (Provan) Dewar, Donald
Callaghan, Rt Hon J. Dixon, Donald
Callaghan, Jim (Heyw'd & M) Dormand, Jack
Canavan, Dennis Douglas, Dick
Clark, Dr David (S Shields) Dubs, Alfred
Clay, Robert Dunwoody, Hon Mrs G.
Cocks, Rt Hon M. (Bristol S.) Eadie, Alex
Coleman, Donald Eastham, Ken
Concannon, Rt Hon J. D. Evans, John (St. Helens N)
Cook, Frank (Stockton North) Ewing, Harry
Cook, Robin F. (Livingston) Fatchett, Derek
Corbett, Robin Field, Frank (Birkenhead)
Craigen, J. M. Fields, T. (L'pool Broad Gn)
Fisher, Mark Miller, Dr M. S. (E Kilbride)
Flannery, Martin Morris, Rt Hon A. (W'shawe)
Forrester, John Nellist, David
Foster, Derek O'Neill, Martin
Foulkes, George Orme, Rt Hon Stanley
George, Bruce Park, George
Gilbert, Rt Hon Dr John Parry, Robert
Godman, Dr Norman Patchett, Terry
Golding, John Pavitt, Laurie
Gould, Bryan Pike, Peter
Hamilton, James (M'well N) Powell, Raymond (Ogmore)
Hamilton, W. W. (Central Fife) Prescott, John
Harman, Ms Harriet Randall, Stuart
Harrison, Rt Hon Walter Redmond, M.
Haynes, Frank Robertson, George
Heffer, Eric S. Rooker, J. W.
Hogg, N. (C'nauld & Kilsyth) Ross, Ernest (Dundee W)
Home Robertson, John Rowlands, Ted
Hughes, Robert (Aberdeen N) Sheldon, Rt Hon R.
Hughes, Sean (Knowsley S) Shore, Rt Hon Peter
John, Brynmor Short, Mrs R.(W'hampt'n NE)
Jones, Barry (Alyn & Deeside) Skinner, Dennis
Kinnock, Rt Hon Neil Smith, Rt Hon J. (M'kl'ds E)
Lewis, Ron (Carlisle) Snape, Peter
Lewis, Terence (Worsley) Strang, Gavin
Lloyd, Tony (Stretford) Thomas, Dr R. (Carmarthen)
Loyden, Edward Thompson, J. (Wansbeck)
McCartney, Hugh Thorne, Stan (Preston)
McGuire, Michael Tinn, James
McKay, Allen (Penistone) Torney, Tom
McKelvey, William Wardell, Gareth (Gower)
Mackenzie, Rt Hon Gregor Wareing, Robert
McNamara, Kevin Welsh, Michael
McTaggart, Robert Wigley, Dafydd
Madden, Max Williams, Rt Hon A.
Marek, Dr John Winnick, David
Marshall, David (Shettleston) Young, David (Bolton SE)
Mason, Rt Hon Roy
Maxton, John Tellers for the Noes:
Maynard, Miss Joan Mr. Harry Cowans and Mr. Ron Leighton.
Michie, William
Millan, Rt Hon Bruce

Question accordingly agreed to.

Bill read the Third time and passed.