North Sea Oil

HC Deb 08 July 1992 vol 211 cc318-9

2. Dr. Michael Clark

To ask the President of the Board of Trade if he will make a statement on his policy for encouraging the extraction of marginal oil from North sea fields.

The Minister for Energy (Mr. Tim Eggar)

The Government are committed to maximising economic recovery of North sea oil and gas. The fiscal regime is designed to achieve this.

Dr. Clark

Is my hon. Friend aware that many companies currently operating in the North sea find little incentive to extract the marginal oil from their fields? Will he therefore undertake to examine the obstacles in their way, including present and planned superfluous legislation, so that investment continues to flow to projects in the North sea rather than to the former Soviet Union, where investment may go if there are no profit and incentives in the North sea?

Mr. Eggar

I completely agree with my hon. Friend that we need a sympathetic legislative and fiscal framework for the North sea, and it is part of my job to ensure that. I am sure that he would agree that we must ensure that safety considerations are paramount, that the expenditure incurred in connection with the Cullen report is taken through and that the necessary measures are improved and implemented by the oil companies.

Mr. Malcolm Bruce

Does the Minister accept that the level of investment in the North sea is reaching a plateau, albeit at a high level of £5 billion, and that this is an appropriate time to consider the fiscal regime to ensure that there are adequate incentives for developing marginal fields, not merely to benefit the oil companies but to maximise the market for British-based service and supply companies?

Mr. Eggar

The hon. Gentleman is right. Investment is at a high level and the chances are that it will level off. That is the nature of investment in the North sea—as the hon. Gentleman realises, even if other hon. Members do not. On his specific point, different oil companies have different tax cases, depending on their problems and the nature of their fields. I have told a number of companies that we shall consider their cases if they put them to us.

Mr. Duncan

In recognising the tremendous success story that has followed investment in the North sea, does my hon. Friend agree that the industry must bear down on its production costs if it is to maintain its competitive advantage? Will my hon. Friend work with the industry to achieve that aim?

Mr. Eggar

I very much agree with my hon. Friend. If North sea production is to remain competitive, we must get control of capital costs, where the industry has been successful, and current operating costs, which need more attention, especially in view of the cost of operating in Aberdeen.

Mr. Dalyell

Is it not deeply unsatisfactory that, under the new set-up, this is the only reachable energy question on the Order Paper? Where precisely in the fiscal regime is there any item of legislation that encourages companies to get that last drop of marginal oil?

Mr. Eggar

I am happy to answer as many of the questions on the Order Paper as we reach, and I encourage the hon. Gentleman and others to ask their questions. On the hon. Gentleman's specific question about the fiscal regime, as he well knows, it is extremely complex. The way in which it operates depends on the fundamental tax regime of the oil company, the nature of the field, the length of time that the field has been operating and so on. The way forward is for each company to consider projects to establish whether they make sense in pre-tax terms, but not in post-tax terms. If that is the case, and if they have kept costs under control, they should make representations to us.

Mr. Colvin

Is my hon. Friend aware that the cost of abandoning the 155 structures in the North sea, in whole or in part, may well exceed the cost of building them? What talks has he had with companies or oil organisations such as BRINDEX, which represents the British independent oil exploration companies, and the United Kingdom Offshore Operators Association about the fiscal regime, to encourage them to set aside the capital required to meet the cost of abandonment when that moment comes?

Mr. Eggar

I recognise that that is a concern. For that reason, changes were introduced in the Finance Acts in the past two years. If there are specific additional worries, I should be willing to hear about them. Additional complications, which relate to prospective suggestions about how field structures should be abandoned and the environmental implications, also concern the industry and I am considering them.