Enterprise Oil

HC Deb 28 June 1984 vol 62 cc1167-72

4.1 pm

The Secretary of State for Energy (Mr. Peter Walker)

With permission, Mr. Speaker, I will make a statement about the sale of shares in Enterprise Oil.

The application list opened and closed yesterday for the sale of 212 million shares at a minimum tender price of 185p a share, payable in two instalments.

The issue was underwritten successfully and in full on 19 June by a wide range of institutions. The share market generally, and the oil market in particular, have substantially weakened between the underwriting of the issue and the opening of the list. Applications were received for 66.4 per cent. of the ordinary share capital. Rio Tinto-Zinc has announced that it applied for 49 per cent. of the shares. All its applications were made through nominees.

At the outset, the Government clearly stated their intention that Enterprise should be an independent oil exploration and production company. The board and the staff of the company were recruited on that basis.

The Government's intention to ensure the continued independence of Enterprise for an initial period was clearly stated in the prospectus. To secure this the Government took two special steps.

First, they retained complete discretion to reject in whole or in part any application for shares on flotation of the company; and, secondly, they retained a special share which, in effect, gives the Government a majority of shareholders' votes in the event of a takeover or attempted takeover of the company, for as long as such a situation continues. These steps were designed to enable the board and management to establish Enterprise as a new independent British oil company.

In keeping with this approach the Government have decided to exercise their power of rejection with a view to ensuring that no single individual or company, directly or through nominees, should hold beneficially more than 10 per cent. of the equity as a result of the flotation.

On this basis applications for over 56 million ordinary shares from more than 13,000 applicants have been accepted as valid and allocations will be made at the minimum tender price of 185p per share. The remaining shares will be taken up by the underwriters and sub-underwriters at the minimum tender price.

Finally, the Government wish to make it clear that it is their firm intention to use the powers available to them to ensure the independence of Enterprise at this stage of its development, consistent with the objectives specified in the prospectus.

Mr. Stanley Orme (Salford, East)

The sale of Enterprise Oil shares was a disastrous flop. It was greater than the Britoil flop and was a sellout of the real shareholders, the British taxpayers. Was the Secretary of State aware of RTZ's market manoeuvres and the use of nominees yesterday afternoon? If so, what did he say to RTZ, or was he left in the dark? How many shares have been left with the underwriters and sub-underwriters and what percentage are they of the total? What effect does he think these shares will have on the price and what is magic about the 10 per cent. limit? If there is any magic about that, why was the 10 per cent. limit not introduced before the sale started?

As the estimates reveal that only about a quarter of the shares were subscribed, does the right hon. Gentleman accept that the exercise has been a disaster? Surely the obvious solution was to cancel the issue and to retain Enterprise Oil as the publicly owned British National Oil Corporation. After Amersham International, Britoil and Wytch Farm, we now have the Enterprise Oil scandal. We call on the Government to abandon this form of public asset stripping.

Mr. Walker

Anyone listening to the right hon. Gentleman will have gained the impression that tomorrow there will not be the happy situation of a new, independent and strong oil company in the private sector. Between 150 and 200 institutions were happy to underwrite the issue. Tomorrow, as part of the underwriting process, they will become shareholders in the company.

I was informed yesterday afternoon by RTZ of its interest in obtaining 49 per cent. of the shares. The company phoned to say that it had made that approach. In the context of the prospectus and the powers taken to guarantee that the company would remain independent, it was decided to pursue a certain course. I have rightly informed the House of that decision this afternoon and I have informed the City.

Mr. Michael Morris (Northampton, South)

Why do the Opposition continually oppose the success which has brought an independent British oil company on to the market? Has my right hon. Friend any idea why they continually resent successful flotations?

Mr. Walker

It will be a considerable advantage to the British economy to have a company of the size of Enterprise Oil with its strength of management. It will make an important contribution to our success in the North sea and overseas in the years to come.

Mr. Ian Wrigglesworth (Stockton, South)

As the sale of Enterprise Oil will not increase competition, will the Secretary of State explain how the sale will benefit the nation? Will not the disastrous sale of Enterprise Oil considerably undermine the possibility of a successful flotation of British Telecom shares later in the year?

Mr. Walker

The Social Democratic party obviously wishes to retain this asset as part of a nationalised industry and is opposed to an independent British oil company. If the hon. Gentleman is suggesting that a company of the size of Enterprise Oil with talented management will not strengthen our competition at home and abroad, he is mistaken.

Mr. Peter Rost (Erewash)

Can my right hon. Friend explain why the flotation of a new enterprise which will create jobs and new wealth for Britain causes so much bellyaching on the part of Labour Members?

Mr. Walker

I understand that the Labour party has always been opposed to privatisation and to putting companies into the private sector. The Government believe that the company is highly efficient and that it will be a most successful oil company to the benefit of the nation.

Mr. Dick Douglas (Dunfermline, West)

Will the Secretary of State admit that it is a matter of grave concern that, in terms of previous incarnations, Slater Walker does worse than Lex? Therefore, we are awaiting a further explanation from him of how he might block any move by RTZ to appoint a board member and, in effect, take control of the company. Are the underwriters happy to have such a large amount of shares in their hands because of the Government's incompetence in timing the flotation? Does the right hon. Gentleman accept that it is time that we stopped the selling of public assets and abandoned the idea of putting British Telecom into the private sector?

Mr. Walker

The hon. Gentleman's remarks are not founded upon the facts. The underwriters' assessment was based on the price that they were willing and happy to underwrite. They considered that, at the price stated, the shares were a good investment and a good buy. The spot price of oil fell considerably during the week, but the underwriters would have assessed the risk of that happening as would everyone else.

At the end, the underwriters have perfectly correctly stuck by that commitment. That is why tomorrow Enterprise Oil will be a free new company operating in this country.

Mr. Jonathan Aitken (Thanet, South)

I accept that my right hon. Friend almost certainly made the right decision in letting the smack of firm government be felt primarily on the bottoms of the RTZ directors. Nevertheless, does my right hon. Friend accept that this problem would not have arisen if the Government's timing had been dictated by commercial forces, not by forces such as the legislative timetable and the PSBR requirements?

Mr. Walker

I assure my hon. Friend that the timing was not dictated by those forces. My hon. Friend knows that, because of the nature of markets, the position in the middle east and the OPEC supply reductions, there is unlikely to be any time when one can be guaranteed that in the week concerned there will be guaranteed stability in the market. I have no regret at the timing, and I am delighted that tomorrow this company will be launched in this way.

Mr. Merlyn Rees (Morley and Leeds, South)

Given the division on both sides of the House on this fundamental issue, would it not have been better for the Government to have taken advice from the Public Accounts Committee, which warned of this very thing and whose advice the Government ignored?

Mr. Walker

The Public Accounts Committee suggested that an offer such as this should be made by tender, and that in fact is exactly what we have done.

Mr. Eric Cockeram (Ludlow)

Does not the sudden drop in the oil market in the few days preceding this issue demonstrate the benefit of the underwriting system, and does that not give the lie to those members of the Labour party who, with the benefit of hindsight, criticise the underwriting system when the underwriters make a profit?

Mr. Walker

Yes; and it is absolutely right to use underwriting when launching issues of this nature. In this case, the underwriters negotiated and agreed the terms to the issue. They are, of course, fulfilling their commitments.

Mr. Tam Dalyell (Linlithgow)

How can the Chancellor of the Exchequer sit there without blushing to the roots of his hair? Does he recollect the long lectures on the importance of timing that he delivered to my right hon. Friend the Member for Morley and Leeds, South (Mr. Rees), my hon. Friend the hon. Member for Merthyr Tydfil and Rhynmey (Mr. Rowlands) and others of us during the debate in Room 11 on the Oil and Gas (Enterprise) Bill? What does the right hon. Gentleman have to say about this timing? Should he not admit that this is a rip-off?

Mr. Walker

Either one suggests the fact that more people did not tender meant that the price was too high, in which case it can hardly be called a rip-off; or, alternatively, one suggests that the underwriters made a correct assessment of the important value of this company, and that is why there is no problem in their abiding by their underwriting commitments.

Mr. Kenneth Carlisle (Lincoln)

Does not all our experience prove that the North sea is best developed by private enterprise? Is it not almost certain that we would be self-sufficient in gas supplies, because we would not have to import a great deal from Norway if North sea gas had long ago been open to exploration and development by private enterprise?

Mr. Walker

There is no doubt that private enterprise has had a considerable success story in the North sea, and is continuing to do so. There is no doubt also—every observer made this comment—that the basic financial strength, the prospects and the quality of the management of this company are such that in the years to come it will make an important contribution to activities in the North sea and abroad.

Mr. Robert C. Brown (Newcastle upon Tyne, North)

Is is not equally true that British Gas has had a great deal of success in the North sea? What is so wrong about a highly profitable enterprise being left in the hands of the British people? Is it not a fact that the dogma of privatisation is far more appealing to the Government than the interests of the British people?

Mr. Walker

British Gas has never been an operator in terms of the oil in the North sea, but it has had an interest in assets. We now have highly skilled and high quality management which will be operating to the benefit of the country in the years to come.

Mr. Tom Sackville (Bolton, West)

Does my right hon. Friend agree that this underwriting has been a great success for the British taxpayer, who will receive a higher price for the shares than they are currently deemed to be worth? Does my right hon. Friend agree that what has happened since the underwriting in the financial and oil markets and the fact that some financial institutions may lose money have little to do with the House?

Mr. Walker

I believe that the investment that the underwriters will be making through their underwriting responsibilities will prove to be perfectly good and sound. The reality is that in a week of considerable instability in the oil market, which neither the underwriters, the Government nor Opposition spokesmen observed or predicted, the underwriting system has seen to it that this issue has taken place, that my right hon. Friend the Chancellor of the Exchequer will receive £392 million and that a new successful private enterprise company has been launched.

Mr. Dennis Skinner (Bolsover)

Whatever happened to the brave new world about which we have been told in the past few years? Whatever happened to the capital-owning democracy? Where is the wider share ownership? Why is it that the Secretary of State can be outwitted not once, but four times? The Cabinet is supposed to be full of business acumen, and it has been outwitted in four separate sales. Could it be that the people who are buying these shares do not have all that much confidence in the Government?

Mr. Walker

They certainly have no confidence in the hon. Gentleman. I am glad to say that 150 to 200 institutions, including pension funds, 13,000 other applicants and a large number of the employees will be participating in the company.

Mr. Henry Bellingham (Norfolk, North-West)

Does my right hon. Friend agree that yesterday's disappointment had nothing to do with the excellence of the company, but was due entirely to adverse modern conditions which were beyond his control? Does he agree that it can only be in Enterprise Oil's long-term interests if a sizeable chunk of that company is owned by an excellent business such as RTZ, which is developing considerable oil expertise?

Mr. Walker

No, because the Government made it perfectly clear from the beginning in statements and in announcements to the staff and management that they recruited and to investors that it was intended that the management would have a few years of independence and would not be under the influence of any outside group or management organisation. That was the basis on which we launched the company and on which we are completing the process. In the subsequent period, the high quality management of Enterprise Oil will operate on that basis.

Mr. James Wallace (Orkney and Shetland)

The House has listened to discussion by the Secretary of State on the difficulty of timing the issue. Does the right hon. Gentleman recall that on 25 October 1983, when the House debated the transfer of assets to Enterprise Oil, I warned that, because of the depressed state of the market and warnings by financial columnists that the market was due to slide again in the spring, it was unlikely that the nation would reap the full value of its assets? In retrospect, which of us does the right hon. Gentleman think was right?

Mr. Walker

Myself.

Mr. Nicholas Soames (Crawley)

Does my right hon. Friend agree that, although he was right to exercise his right not to allow Enterprise Oil to go to RTZ, that company is not a slouch, and it reflects the high quality and depth of the management and investments held by Enterprise Oil that RTZ would even want to be involved in the first place?

Mr. Walker

In past months, a large number of major organisations and groups of oil companies have been interested in the prospects of Enterprise Oil. Obviously RTZ took that view yesterday. There is no surprise about that, because, under any examination, it is a strong company in management, assets, prospects and finance.

Mr. Allan Roberts (Bootle)

Does the Secretary of State agree that this company will be neither independent nor British as long as a multinational vandal like Rio Tinto-Zinc has any interest in it whether it is 10 per cent. or less? Does that not prove that the selling off of the assets of British oil has nothing to do with competition in this country, because capitalism has lost its patriotism and the multinationals have moved in? Would we not have done less damage to the British people and economy if we had sold off the Crown jewels instead of our oil assets—we would probably have raised more money—or are they next on the list?

Mr. Walker

We have not sold off our oil assets. We have created a well managed, strong, new and independent British oil company.

Mr. Timothy Yeo (Suffolk, South)

May I ask my right hon. Friend not to make a permanent restriction of only 10 per cent. on the holding of any individual shareholder, because the retrospective imposition of a condition such as that could affect the attitude of prospective purchasers of future issues where privatisation has been undertaken by the Government?

Mr. Walker

We have stated, following the flotation, that we consider it right not to allocate more than 10 per cent. to any particular group or individual. That is consistent with the prospectus.

With regard to the exercise of the special share, we will see that control does not pass over the coming years. We made it clear that this share will exist for the early period of the company, until it creates its own reputation and standing in the market place, after which it can defend itself.

Mr. Orme

If this was such an outstanding success, one shudders to think what the reaction would be if the Secretary of State had to report a failure to the House. Will he now answer the question that I asked about how many shares have been left with the underwriters and sub-underwriters? What percentage is it of the total? What effect will it have on the price, particularly for the small shareholder?

Mr. Walker

There is no way that I can predict what will happen to the price, because it depends on what interest there is and the degree to which the underwriters retain shares. Of the 212 million shares on offer, 56 million were taken up, and the rest are with the underwriters.