OIL AND GAS EXPLORATION LICENCES

HL Deb 22 November 1972 vol 336 cc996-1032

4.48 p.m.

LORD BALOGH rose to call attention to the desirability of withholding further exploration or exploitation licences or leases unless the grantee consortium consists of at least 50 per cent. British public sector bodies; and to move for Papers. The noble Lord said: My Lords, I think that in a debate of this nature noble Lords ought to declare their interest, just as in a previous debate my noble friend declared his. I may say that I am neither interested as a shareholder nor interested as a consultant.

I do not believe I need go over at length the history of this affair, because only 5½ months have passed since I last raised this question in the House. But what a 5½ months they have been! A veritable and beneficent—at least for the oil companies—inflation of prospects; additional gas in the Viking field; oil in the Brent field; doubling of the Ekofisk estimates; upward revision of gas and oil estimates, and the confirmation that the Northern fields will yield plentiful gas. All this constitutes a wonderful 5½ months for the oil companies, and therefore from this point of view I am in no way apologetic. I am also delighted to see that, after a brief excursion to Limerick, I am confronted to-day by the Minister without Portfolio; and I hope that he has put this little affair into his portfolio, because it will fill it, even if he has not got one.

In these 5½ months we have had some very interesting happenings. One of the most interesting was that the Chairman of the Conservative Party in Scotland came out in full support of me. This is almost miraculous, and I am sure it has not earned him a great deal of approbation in the highest quarters. I also think that there has at last been—and perhaps I may claim a little credit for it—some Ministerial action. In fact, the House Bulletin of the Department of Trade and Industry even had an article on this subject in which it was acknowledged that the whole supply needs of the oil industry in the North Sea will top the £1,500 million mark, and that perhaps a little of this will drop into our laps. From this viewpoint I must acknowledge that progress has been made; a little too late, a little too little; but, one must be fair, progress.

This is a very abstruse subject, and I dare to bring it before your Lordships' House only because it is a very important one. The debate is really about a figure which is far bigger than the whole cost of our entry into the Common Market. Maybe that will give noble Lords on this and the other side of the House some insight into the urgency and importance of the matter. Perhaps the Minister who has spoken previously would also note that on the Ministerial side, too, there has to be some learning if we are to make headway not only against the oil companies but also against the French Civil Service.

I fear that on the most important front—the front of the specific conditions under which this tremendous gift of Nature to Britain, and more specifically to Scotland, is being handed over to foreigners—we have missed, and continue obstinately and stupidly to waste, the heritage of the country; and this at a time when our entry into the Common Market, and our unresolved social problems, plague us and cry out for the utmost efforts at good stewardship. The Ministry, I think with an obstinacy which is so characteristic of this Government, go on defending the indefensible. As in so many other fields, such as squeeze and freeze, they plough on towards complete bankruptcy, when the example of others—for instance, Mr. Nixon, in the matter of freezes and squeezes and, in the question under discussion, the Norwegians—should make a change of policy obligatory.

What are the present best estimates of the importance of the Shelf? We saw the Government steadfastly refuse to amend their estimates. But we squeezed some figures out in an indirect way. They are still, of course, acknowledging only a fraction of what is now probable. According to Professor Odell, whose calculation is not only much the most up to date but also prepared by one of the few independent experts in this field, consumption of oil in 1970 by Western Europe was 1,475 million tons coal equivalent, of which 880 million tons were met by imported oil, 25 million tons by European oil, and 95 million tons by European natural gas. Professor Odell estimates that in 1980 consumption will be 2,300 million tons—that is to say, almost double—coal equivalent, of which 1,000 million will be met by indigenous gas and oil in equal parts, and 775 million tons by imported oil.

Mr. Birk, a Director of B.P., estimates that the immediately exploitable fields contain some 1 billion tons of oil, and the proven reserves of other fields up to another 250 million tons of oil. He thinks, however, that on the basis of the remaining unexplored sectors, from what we know about them, one might expect another 2 billion tons of oil; that is £20,000 million worth of oil at present prices, which are likely to rise. Therefore it is not improbable that British oil production will attain 150 million tons, and perhaps rise to as much as 200 million tons, per annum. At to-day's prices this is equivalent to some £2,200 million per annum for 20 years; that is to say, some £44,000 million. Moreover, of course, as I shall show, prices are likely to rise quite considerably, apart from the general inflation. The value of gas is of a lower order altogether but, even so, will represent between £5,000 million and £6,000 million over the lifetime of the fields. It should be noted that experience suggests—indeed, more than suggests—both in the North Sea and elsewhere, that oil and gas fields of this enormous size prove to be much more fruitful than was originally estimated. It is therefore more than probable that we shall get an even higher off-take than is now estimated by Professor Odell, and of course a multiple of that hoped for by the Ministry.

Two things need to be said at this point on the economics of this conclusion. Though the proportionate contribution of the European fields will rise in a formidable proportion from 8 per cent. in 1970 to 44 per cent. in 1980, in absolute terms almost as much oil will have to be imported in 1980 from the Middle East as is now imported; that is to say, 775 million tons against 880 million tons. This, of course, is due to the sharply rising total demand for energy, and has very vital implications on price and therefore on our policy. The second point is one that I have already made, and therefore shall not make again: that in the case of gas the privileged market is limited. The privileged market is the domestic use and petrochemicals, and with the sort of quantities that are now likely to come out of the North Sea—perhaps 6,000 million, 8,000 million, or perhaps 10,000 million cubic feet per day, we are in a situation in which the non-privileged market ought to dictate the policy of the Government.

Let us have a look at the strategy of the Ministry in the last six months. They have put forward four points. The first and most important was their insistence that there must be the fastest possible exploration of these fields, in very difficult circumstances in an unproven field under difficult climatic and physical conditions at high risk. This is what they say. Thus, exceptionally good conditions would have to be granted to the companies, otherwise they would run away. Subject to this, the Ministry said that they tried to get—and they claim succeeded in getting—the maximum possible revenue for Britain and for the British Exchequer by securing favourable conditions for Britain.

Thirdly, and obviously inspired by the Foreign Office (though I am sure that the Ministry of Fuel and Power and its monster successor took this up with great alacrity), no precedents were to be set for the Arabs and others to exact worse conditions from our companies operating in those countries, or for them to discriminate against us in licensing. But the majority of the licensees at the moment in this country are foreigners, which so far as I know is not the case in any of the major territories operating oilfields. It is certainly not true in North Africa or America, and it is not true even in Venezuela. And, of course (this is particularly interesting, and it will have certain consequences to which I shall come in a minute), they count Royal Dutch Shell as a British company, though we know very well that it is no such thing. In fact, 60 per cent. is Royal Dutch and 40 per cent. is Shell, and both Shell and B.P. shares are now very widely held on the Continent and in Arabia. The Arab sheiks, not knowing what to do with the money they get, have invested to a very large extent in oil shares of one kind or another.

To clear up any misunderstanding, I must say at this point that I do not in any way blame the oil companies and the tycoons for having, from time to time, released alarmist views predicting shortages, which have obviously influenced the Ministry. In a difficult world situation, with Arab participation in companies, with high posted prices in the Gulf, and with large taxes combined with extreme political instability in their most important area of operations, they want to do their best for their shareholders in England and Scotland. Those shareholders have not been doing so well lately, and by acting in this way the high oil executives have been doing no more than their duty, and they have done it very well indeed. No blame should attach to them.

What is reprehensible is that the Ministry has still not reconsidered its posture. It obstinately refuses to learn from what is so clear a case as not to be paralleled in economic history, and continues to give away the national heritage of Britain, and especially of Scotland, to no purpose whatsoever. Let me quickly turn to the question of how Britain could benefit from the oil and gas on the Shelf.

THE MINISTER WITHOUT PORTFOLIO (LORD DRUMALBYN)

My Lords, before the noble Lord turns to that, I wonder whether he would explain what he means by "continues to give away". He has just said that the Ministry has continued to give away the resources of Britain since June, or words to that effect.

LORD BALOGH

My Lords, I said that because, first of all, we have not even raised the question of re-negotiation; and, secondly, because there has been no indication that at the next round of licensing the Ministry is contemplating a completely new policy, which ought to have been made plain long ago. Britain can benefit from the oil in several ways. First of all, it might be able to obtain fuel at specially cheap prices. So far as oil is concerned, this is ruled out by the Rome Treaty in conjunction with the fact that, as we have seen, Europe will have to import oil from elsewhere and the Western European price will be dominated by the Middle East posted price. It is of course true that, so far as gas is concerned, there are some clauses which would allow the Minister to interfere between the Gas Council and the oil companies, and to obtain better prices than those for other people. To some extent, I must again admit here that there has certainly been progress (although it is very difficult to be clear about this because we are surrounded by secrecy) in that the inflation escalator clause in the gas contracts has not been invoked. I think we should have heard if it had been invoked. I can perhaps claim a little credit for the fact that the Ministry's non-existent vertebrae have been stiffened up.

Secondly, the discovery of indigenous fuel might put the country into a better bargaining position vis-à-vis other oil producing countries. This is a bogus argument because, as we have seen, we are still dependent on Middle East oil. The discovery of oil will not influence the Middle East price at all. Thirdly, Britain can benefit by substituting indigenous for imported oil and thus save on the balance of payments. All writers on this subject have been bandying about figures reaching into hundreds if not thousands of millions. There was a special supplement to the Sunday Times, there was a special supplement to the Financial Times and there have been inlaid pages in The Times. We have had a spate of not quite accurate information in all these papers. Given the arrangements that have been made, this assertion is wholly misleading. The net saving to the balance of payments is in respect only of that part of the visible import saving which does not lead to an increasing debit on invisibles; that is to say, the cash flow and the profit flow which the foreign oil companies bring in. Even in the case of the British companies, it is not quite accurate to say that there is a complete saving. Inasmuch as the profits accruing to them from the North Sea oil are used to finance other exploration elsewhere, Britain will benefit only as regards the salaries paid and the supplies bought from this country, and we know very well that that has not been much.

In this respect, of course, the persistent underestimating by the Ministry of the importance of the gas and oil fields had fatal results, because they did not alert the British firms to the need to speed up supplies. Even the British Steel Corporation, another part of the public sector, cannot be excluded because, according to my information, it is still quite unable to supply certain types of pipes. It was the Japanese, the Dutch, the French and the Americans who benefited most. From this point of view, at any rate, the tactic of the Government in underestimating the importance of the volume of available resources while at the same time insisting on very rapid exploration was the very opposite of the policy that was required. British Petroleum will benefit us, and so will the Gas Council and the Coal Board; but the participation of the public sector in Britain was said to be decreased. It is now only 21 per cent., and represents a decline of almost 60 per cent. from what was agreed under the Labour Government. Moreover, the Labour Government entirely reserved the Irish Sea to public enterprise and public exploitation, and that will now be taken over almost entirely by foreign private firms without public sector participation.

Whether or not Britain will get an advantage from the oil will also depend on what happens to the proceeds. From this point of view, Britain could benefit by taxation, by direct British public participation, by the share of British as against foreign private companies (excluding Royal Dutch), by the share of British industry in supplying the capital and current production needs, and by the use to which the cash flow is put. As we have seen, on all these counts the policy of the Government was grievously mistaken and, despite all our efforts, remains grievously mistaken. The British share in the total is not really as high as the Ministry avers, because the Ministry's figures are largely irrelevant. They are irrelevant not only because Shell is counted as a British company, which is bad enough, but because they are based on the size of the territory granted and not on the prospective yield of oil. Therefore, as the Brent is now, to a very large extent, foreign and we have only the Forties field, a much larger proportion will accrue to foreigners.

Equally silly is to claim that to have acted otherwise would have encouraged the Arabs to squeeze the British companies more. First of all, there are not many British companies which are squeezable. In Libya, most of them have been expropriated, and in Iraq they have been expropriated; so, on the whole, there cannot be very much risk. Moreover, this feeling is a remainder of the Imperial syndrome which holds that our behaviour influences other people against their own interests, and that they ate unable to realise, and stupid enough not to realise, what is in their interest. It should be said that the OPEC experts are among the world's foremost experts on these questions, and have proven to be superb negotiators. I only wish that we had at the Ministry experts with similar knowledge and similar tenacity.

Given the fact of continuous political trouble in the Middle East and in Nigeria, any condition granted to British and foreign companies in the North Sea better than the OPEC terms tanto quanto reduces the British take, and is a wanton act against the best British interests. In fact, soft terms in the North Sea, combined with the peculiar system of taxation, only makes the oil companies less resistant to demands by the Arabs—the very opposite to what is needed. Moreover, so far as taxation is concerned, the double taxation agreements and the reform of the corporation tax are likely to make it possible to offset tax payments and participation payments to Arab sheikhs against British corporation tax and income tax. It is therefore wholly illegitimate, when calculating the tax revenue of the British Exchequer from the oil, to include corporation tax at the full rate.

Then, as to the riskiness, it is said that the horrible climatic conditions create great riskiness. The industry claims a 1 in 20 success ratio. That was Mr. MacFadzean's estimate. According to the Ministry, out of 195 exploration wells that were driven 29 were found to have substantial yields. Of these, 7 were in very large fields indeed. The Petroleum Handbook itself confirms that this is the sort of success ratio, not 1 in 20, that ought to be expected when there are scientific explorations, geological and otherwise. Moreover, it is the Ministry itself which ridicules this argument. If it was justified in granting unusually favourable terms at the beginning of the exploration process on account of the risk attached to the unknown, it follows that each successive well, whether successful or not, increases knowledge and diminishes risk. Thus, the policy of the British Government in granting more and not less favourable terms after the exploration has been made, after wells have been dug, after the geological structures in the North Sea have been explored, either gives the lie to their arguments or is further proof of their complete incompetence. From every point of view the Ministry's statements and claims have been unfounded, and their refusal to revise their attitude is contrary to their duties as trustees for the nation.

I now turn to the consequences. As I said, the British share in the oil under the North Sea is likely to turn out to be worth at least between £20,000 million and £30,000 million. What sort of profits will arise? The answer to this question is extremely difficult, as the Ministry has not compelled oil companies to open their books. We have only some indications. I am not going over the case of gas because I have already spoken for too long and it is a complicated subject; but in the case of oil the oil companies have made a great play of the superhuman feats which the oil-prospecting crews are performing in the northern North Sea in conditions which are, for human life, perhaps the worst in the world. This is completely true, but it is completely irrelevant to the calculation of profits.

The magazine Ocean Industry, in their March, 1972, issue, reported that the development cost of Ekofisk will amount to some 1,000 million dollars; that is to say, about £420 million; whereas the yearly output of oil alone, without gas—which might yield another £50 million to £60 million—is estimated to be worth £450 million a year. That is to say, there is an output per capital ratio of 1 to 1. No other industry can claim that. Sir David Barren has given £250 million as the average development cost of a 12.5 million-ton oil field, a ratio of 1 to 2. Even that is tremendously low, and Ekofisk has already much improved on it. We know that B.P. raised £360 million for North Sea exploration. It is by no means certain that the whole of this £360 million will be expended on the Forties field, but suppose it were. The Forties field is now expected to yield 20 million tons a year, worth £220 million; that is to say, a capital output ratio of 1 to 1½. This will give tremendous profits, but tremendous profits!

Let me finally deal with the central argument of the oil companies and the Ministry, which is that extreme speed in developing the area was required, though the same experts predict a growing oil shortage with very much higher prices due to American shortages—and there can be no doubt that the demand for oil is increasing at a pace which must raise anxieties in the minds of even disinterested people like myself. If that is so, surely it would have been in the British interest to rely at the moment on relatively cheap supplies from the Middle East and to develop the North Sea slowly, with due regard to our future needs—needs which might be very onerous indeed for the balance of payments later. Instead of following this reasonable policy, we have handed over one of the greatest natural resources of the country to mainly foreign exploitation, an act made worse by the fact that the determination of the degree of our exploitation is handed over to the Arabs. This is so because we have allowed oil companies to exact the market price from us for North Sea oil without due sharing of the resultant super-profits. This market price, of course, is set by the OPEC countries, and bears no relation whatever to the cost of getting oil from the North Sea, which is much less than the price exacted by OPEC. My Lords, a more ludicrous policy has never been witnessed in the history of an industry in which Governmental incompetence and company excellence are indeed the hallmarks of the two sides. I beg to move for Papers.

5.18 p.m.

LORD TANLAW

My Lords, I think the noble Lord, Lord Balogh, will agree with me that under the law of averages a gusher is sometimes followed by a dry hole, in oil parlance. I do not want to be a dry hole in this very short debate, but I must say that I really cannot speak on the level of the noble Lord, Lord Balogh, or with the knowledge that he brings to bear on this subject. But I should like to say one thing to the noble Lord, Lord Balogh, and that is that, in his wording of the Motion, I should have liked to see what I believe to be the very necessary distinction between exploration and exploitation of our oil reserves around our coasts. These are two entirely separate operations, my Lords, with different capital requirements and different technologies. The capital need for exploration is negligible compared with the development capital and its constitution, once workable quantities of oil, gas or minerals have been discovered.

This leads me on to inquire from the Government whether there is a proper assessment of British energy reserves and requirements between now and the end of the century. If there is one, I have not read it. In any case, I cannot see how there can be an accurate one until we know the real quantities of oil and natural gas that lie off our shores. It is surely madness to try to withhold exploration licences at this juncture, because such a policy must delay the drawing up of an energy plan for Britain and the part that it has to play in the overall European energy market. There are also major political implications to be considered in drawing up such a plan, not least of which is the future role of the coal industry. Although this does not come into the wording of the Motion before the House, a great deal of unnecessary human hardship will be created unless the coal industry is allocated a place in the expanded energy market of Europe. If the experts are right, and for once I think that they are, Europe will need every lump of coal, every whiff of gas and every drop of oil it can produce to satisfy the future energy requirements of its industry and population.

I believe that the need for a national energy plan is pressing and as urgent as to-morrow. The whole economic future of this country rests on it. For that reason, I want to make a plea to noble Lords who sit on both sides of the Chamber that such a plan should be made on the basis that there will be not only Conservative but Labour and Liberal Governments between now and the turn of the century. I say this because the ideological undertones (with which the noble Lord, Lord Balogh, knows that I disagree) in the wording of his Motion worry me. They imply that there could be a major change of policy towards oil if there were a change in Government. Besides scaring off potentially-interested foreign investors without whom the development of the reserves cannot be fully realised, a basic change in Government policy will make forward planning virtually impossible, both for the oil and gas industry and the national economy as well. The near destruction of the British steel industry by this chop and change policy must surely be a lesson that must not be lost.

I am therefore advocating that a national energy plan should be formulated by a body with all-Party representation, with full representation by the energy producers and by the Government Departments concerned, plus those representing regional and environmental interests. I was pleased to note that the noble Lord, Lord Balogh, referred to Scotland in his speech—and very valid references they were. In short, I am saying that if a national energy plan is to have continuity and if it is to work at all, it must be taken out of day-to-day politics.

I now come to my second and last point, and this is where I draw closer to Lord Balogh's concept of State participation in the development of the oil industry. As I said earlier, larger amounts of capital are required and there is, I believe, a case for the State's subscribing some of it. However, the timing of such development is important, and once the reserves are known through exploration I see no point in rushing to develop them. The development of these reserves must tie in with a national energy plan and the general market conditions prevailing in Europe. For instance, if the oil companies or future planners are right and there is going to be a shortage of oil, prices presumably will go up; therefore I feel that it can only be beneficial to our national interests to leave the oil where it is, at the bottom of the sea, until toward the end of the century. There is an added advantage in waiting for improvement in the very sophisticated development technology necessary for operations in North Sea conditions. Any advances in this field through practical experience must make exploration more economic and therefore more profitable to the developers.

Just as it is impossible to formulate a national energy plan without full knowledge of available fossil fuel reserves, so it is equally impossible to match regional development with oil discovery without a guaranteed phased allocation of funds and a representative body with powers to utilise them. The Standing Committee for North Sea Oil, formed by the Secretary of State for Scotland, has fulfilled a need at this stage for co-ordination of the various interests in Scottish regional development including oil interests and so on; but a body of this kind, however well intentioned, however proper that it should exist and operate at this time, can do nothing without power and money. The time has now come for something more substantial to carry on the good work on a permanent basis. It is for this reason that the Scottish Liberal Party and others have called for the establishment of a Scottish Oil Development Corporation. This body would have all-Party representation, including the unions, the oil companies, bankers and the Civil Service Departments concerned. I must emphasise that the motivation behind this suggestion is not Scottish nationalism but sound common sense. How else are the Government going to prepare regions such as Scotland to take advantage of these new discoveries? We have not heard from them about their ideas. This air of mystery referred to by Lord Balogh I can understand when it comes to figures but when it comes to policy, be it an energy plan or how it is going to be developed on the ground, there is no need for secrecy, either from the point of view of the oil companies and interested parties or from that of every person in Scotland.

My Lords, I return to the Scottish Oil Corporation. It would have a regular supply of funds allocated from a Scottish development bank which would be funded by oil revenues and thus would be enabled to plan ahead on businesslike lines. The present system of waiting each year for an unspecified sum to be allocated by the Treasury and then watching it dissipated by various Government Departments is a blueprint for failure, if ever I saw one. When the noble Lord, Lord Balogh, advocates the involvement of public sector bodies, it is bodies such as the ones I have outlined which I would support rather than the State monopolies which we have in other sectors of the energy market.

I want to conclude with an illustration of what can happen in a small community if full advantage is taken of the opportunities offered by the local discovery of oil. I take this example from the excellent report on North Sea oil produced by Cazenove and Co., the stockbrokers. The place in question is Morgan City on the Gulf of Mexico which had, in 1945, a population of about 4,000 people. After 26 years of off-shore activity, the population has grown to 25,000 and the number of jobs created by September this year in the city and in its environs amounted to 18,750. Out of a total number of 1,023 commercial boats registered, only 297 are commercial fishing boats; the remainder are in service to the oil industry. The transformation that has taken place in Morgan City can take place in a number of locations in Scotland where conditions are similar. I conclude by saying that this transformation cannot be achieved without planning, without funds and without the will to develop the benefits of a new-found oil industry for the benefit of the local community.

5.29 p.m.

LORD HUGHES

My Lords, I do not intend to speak for any length of time during this debate because my purpose in being here is more to have a watching brief, having regard to the fact that three weeks from to-day we are to have a debate on the Scottish economy with particular reference to the effect on that economy of North Sea oil. But having heard my noble friend Lord Balogh before on the subject of North Sea oil, I was certain that it would be eminently worth my while to be here to-day to listen to what he had to say on this matter. I certainly have not been disappointed, particularly as I had the advantage, for which the rest of your Lordships will have to wait until to-morrow, of having a copy of his notes in advance which made it easier to follow the mass of statistics with which he favoured us. I should certainly wish to stress strongly that anyone who has any interest at all in this subject should take the opportunity of reading at leisure and of digesting the information which my noble friend has given to the House to-day.

It is not without significance that of the five noble Lords who are down to speak in this debate, four are Scots—although probably the Minister is not allowed to plead that, because the Government are not Scottish and he speaks for the Government and not necessarily for Scotland in this matter. We have noticed from time to time that they do not necessarily mean the same thing. In fact, when I was talking to my noble friend Lord Diamond briefly during the debate I slipped into what most of your Lordships would regard as an error, but which most of us in Scotland are beginning to accept as a proper statement of the position, by referring not to "North Sea oil" but to "Scottish oil". There is no subject at present which is of greater interest to the people of Scotland than this one. It is affecting so many aspects of life in Scotland. I do not want to anticipate the forthcoming debate by referring to this subject in any detail, but the location of industry; the way in which house prices and land prices are being affected, not only in Aberdeen but also over almost the whole of the East of Scotland; the effect it is going to have on our road pattern—all of these are very much the concern of the people of Scotland at the present time. It would be a great advantage to us to know the extent to which we are to participate in the revenues which are to come from the exploitation of this oil.

In the Scotsman this week, and I do not supposed that this week is the only one (I happened to be reading the Scotsman on Tuesday morning when I came down to London on the sleeper train; I do not know whether it is by courtesy of British Rail or the Scotsman that we get a free copy on the way down) I read correspondence in connection with Scottish oil. I would ask the Minister whether it is possible to give us some elucidation of the figures which are being used. Apparently the Secretary of State for Scotland said recently that by 1980 the revenue from North Sea oil will be of the order of £100 million a year. It was suggested in this correspondence, by someone writing on behalf of the Scottish National Party, that a more correct figure would be £800 million a year. Another writer on the same day made a comparison with a potential production from North Sea oil of 3 million barrels per day, which he compares with a production of 2.7 million barrels per day in Libya; and the Government of Libya collect a revenue of £771 million from that oil. So £800 million would appear to be nearer the mark than £100 million.

My noble friend Lord Balogh referred to the secrecy which surrounds so much of this subject. Can the noble Lord, Lord Drumalbyn, give us some enlightenment about where the figure of £100 million in 1980 comes from and the sort of basis on which it has been worked out? The people of Scotland will not readily forgive the Government if they are misled by the Government's understating the possibilities of this development. Or it may be that what the Secretary of State has said is correct; in which case it justifies the statement of my noble friend Lord Balogh that the Government are throwing away opportunities of which they ought to be taking advantage; that they are not extracting from this asset the proper share for the people of this country. I should like to have some information which would help us to find out exactly where truth lies. I do not intend to say any more at this stage, but I look forward to what the Minister will have to say in due course. I am certain he will accept that so far as the Scottish debate on December 13 is concerned this debate will be regarded as a rather useful curtain raiser, and I am most grateful to my noble friend Lord Balogh for having given us this opportunity.

5.35 p.m.

THE EARL OF LAUDERDALE

My Lords, I should like to join the noble Lord, Lord Hughes, in expressing the thanks of your Lordships' House to the noble Lord, Lord Balogh, for raising this subject. His Magyar persistence, that of the Danubian plainsman, would do credit to any Highlander, even if we have as a result been exposed to a familiar hindsight rhapsody about the disposal and throwing away of natural resources from the brilliant author of S.E.T. which worked out in such a surprising fashion. I am very grateful—we all are—to the noble Lord, Lord Balogh, for his—

LORD BALOGH

My Lords, may I remark to the noble Earl, Lord Lauderdale, that I am not the author of S.E.T.; he mixes me up with another one. Secondly, it was not from any hindsight. All this has been foresight.

THE EARL OF LAUDERDALE

My Lords, I am so glad to have been able to bring to his feet the noble Lord whom I always regard as a friend. His interventions are always stimulating; they are very often enlightening, especially when one has the chance either to read them beforehand or to read them afterwards. But I am grateful to the noble Lord, and I apologise if I gave credit for S.E.T. when it was not due. I am grateful to him for raising this subject and giving the opportunity, in my case, to declare an interest, which is that of a long-suffering shareholder who has not yet sold out his 200 Shell Transport and Trading shares but who is watching their flotation downwards with a good deal of apprehension.

My Lords, first, is there an energy crisis in the industrial Western World? The National Union of Mineworkers, who have some knowledge of energy, say there is. The National Coal Board through their Chairman who has a right to be heard, say there is. Broadly, the major oil companies say there is. Broadly, The Energy Directorate of the Common Market Commission say there is. So the next question is whether or not it is tin Britain's interests to obtain maximum exploration and development, not only of the Continental Shelf but also of the Continental Slope, and that as soon as possible.

I was much interested in the thoughtful speech of the noble Lord, Lord Tanlaw, and I went along with so much that he said, not least his plea, which I would endorse wholeheartedly, for an inter-Party, as it were a non-Party—a supra-Party—review of energy policy, looking many years ahead; something that can give confidence to the energy industry. But I did not quite follow how he hoped that exploration could be encouraged if exploitation was to be discouraged. But no doubt when we come to our debate on Scotland we shall each have an opportunity to return to that. At any rate, I submit that our interest is to get maximum exploration and development both of the Shelf and also of the Slope as soon as possible.

Nor, my Lords, are the Norwegian, Dutch, Danish and German examples of caution altogether relevant. Germany, Holland, Denmark, and for that matter France and Italy, gladly turn, directly or otherwise, either to indigenous or to East European sources of natural gas. Norway has a relatively small domestic energy demand and already has hydro in abundance. Delay in the publication of their terms for their third round of licences is no doubt due to the politics of their forthcoming negotiations for a trade agreement with the Common Market. Though I share many of Lord Balogh's apprehensions about E.E.C.—we have walked arm in arm through the same Lobby on a number of occasions on that subject—I note Dr. Haverkamp's famous 46 points: the main current source document on Common Market energy policy entitled Progress Required in Community Energy Policy 1975–85 (COM (72) 1200 Final) which was addressed on October 4 by the Commission to the Council of Ministers. This document insists that ensuring long-term security of energy sources is more important than member countries' extraction of the maximum financial profit from them—that comes in subsection (3)(1)(a). That judgment bears out my own view, but still more important supports that of Mr. Boardman, the Minister responsible, which is that Britain needs to do two things: to sustain the momentum of exploration and development, but to keep a balance between the share which the State should enjoy and the share for the entrepreneur, which shall still be sufficient to sustain his own incentives.

The noble Lord, Lord Balogh, believes that it would be of advantage if the public sector, which, as I understand it, now has about 20 per cent. of the licensed areas overall, were lifted to 50 per cent. If we are to have State intervention on a larger and larger scale, as this Government's yoga-like somersaults suggest, then I must say that I would rather it came about through the abrasive disciplines of a canny scrutiny by a critical and reluctant investor—even a Tory Government—than through a policy which indulges in intervention for its own sake.

The financial risks off-shore are quite extraordinary. It is not easy to get an exact, or even an average, well-head cost of oil on-shore in the Middle East, but it is somewhere between 6 and 25 cents a barrel; delivered to Northern Europe, it is something like 3 dollars 37 cents. On-shore exploration costs, as against off-shore in shallow waters—and they have been going on all over the world for years—are as 1 to 4: off-shore exploration in shallow waters is about four times more expensive and difficult than it is on land. But in deep waters the difference is not 4 to 1, but 10 to 1. And when we are talking about "deep waters", we are still talking about the Continental Shelf. God knows what the cost is going to be like when we start going down the slope into the Atlantic.

As the noble Lord, Lord Balogh, knows well from the reply given to him last June by my noble friend Lord Limerick, only 29 out of 195 exploration wells sunk in the British sector up to that date showed any sign of oil or gas. Only 7 in 195 wells—that is, 1 in 28—led to an oil or gas field development. These proportions speak for themselves. The oil companies' own recent financial reports scarcely suggest that there is a ripe picking to be had here. Rather, surely, we should regard the oil and the oil companies in Milton's phrase, applying it to our industrial society, Through the porch and inlet of each sense, Drop't in ambrosial oils till she revive. The oil companies' recent performance has been analysed by the Chase Manhattan Bank, who lately published a study of the world's 30 major oil companies and their world-wide performance. It reached these conclusions, having regard to their off-shore, as well as their onshore, operations. First, their recent earnings growth has been too low worldwide to sustain the expansion of capital investment required now. In 1971, overall net profits, at not more than 7.4 per cent. of gross revenue, were the smallest proportion on record. Their second conclusion was that if tax burdens had simply kept pace with gross revenue, instead of rising faster, net profits in 1971 over 1970 would have been some 28 per cent. higher.

Their third point was that, because tax burdens of one sort or another are rising steadily everywhere, and faster than gross revenues, the oil industry itself cannot finance more than 60 per cent. of its 1970 to 1985 investment in expansion out of earnings, capital recovery provisions, depreciation, depletion allowances and the rest. That is probably why the Common Market's Dr. Haverkamp's document so strongly urges aid to the oil companies by way of subsidy, by way of soft loan (in Section 15), by way of tax incentives (in Sections 18 and 24) and in terms of regional development considerations (in Sections 15 and 24). I will not ask my noble friend Lord Drumalbyn to answer now, because I have more questions coming. But would he find an opportunity, either in public or in a letter to me, to let me know what are this Government's views on these of Dr. Haverkamp's suggestions in this major Common Market energy policy document?

My Lords, anyone who believes in the social need for regional policies must accept artificial distortions of the free flow of market forces. I do: and that is why I am a Tory and not a Whig. So if distortions are acceptable, I should like to put these questions about the next round of licences to be issued—and once again I look for the Minister's reply at leisure, no doubt in one of those splendid letters that I always enjoy receiving. First of all, British refinery capacity, both present and now projected, is notably lower, in proportion, than British oil firms' contribution to West European supplies. Will the Government include among desirable qualifications for future licensees a pledge that they will refine in the United Kingdom so much per cent. of any crude oil that they eventually develop? The noble Lord will know very well, as I do, that such a requirement would riot be greeted with whoops of joy by the oil companies; but it could be a serious factor in promoting regional development.

Then, in the event of further natural gas being discovered will the Government require the landing of it on the British mainland, where liquefaction for export and/or use as feed stock for power generation or petrochemicals, or both, could again be a major contribution to regional industrial development?—and here I have in mind the Cromarty Firth. Perhaps I may just say, in parenthesis, that there is great anxiety in certain quarters of that corner of Scotland about the rather narrow margin of power supplies currently available from the grid. And of course we know, for example, that British Aluminium have suffered considerably from cut-backs and trips of power.

I should like to ask the Government this further question: will they, in considering the next round of licences, require evidence that the potential licensees have contributed to research under either of the following two headings? The first is sea-bed operations and habitats, inasmuch as current platforms are likely to be impossible when the time comes to develop the Continental Slope. Sea-bed habitats may take their place. The second subject would be research on offshore platform power generation as perhaps. later on, the cheapest conversion system likely to be able to assist both our desperate need for cheaper industrial power and the very great problem of bringing the product of oil or gas discovery to land.

Lest my noble friend should think that the questions are over, let me warn him that I am not going to miss this opportunity of putting another four, about which I have no doubt he will wish to write to me in due time. First, will the Government think again about the projected Ship and Marine Technology Requirements Board? The sub-sea habitats of to-morrow have nothing whatever in common with ships and very little in common with submarines, for the latter are things that move and the former are things that are designed to stay put. Our underwater technology pioneers are seriously disturbed, and indeed disappointed, at the Government's decision on the kind of Ship and Marine Technology Requirements Board which they have announced they are setting up. Then, do the Government intend to establish fatigue standards for the building of offshore structures; and, if so, how and when? I also have a more general question: have the Government yet repudiated, and, if not, when will they do so, the crude if not condescending implications of the declarations of Mr. Fernand Spaak, speaking as the E.E.C. Commission's Energy Director-General, when he suggested that we should forgo a measure of our sovereignty in licensing policy and forswear a fully national policy in that field?

My last question is this: can the noble Lord tell us, either now or on some convenient occasion, something about the state of play on negotiations to extend the median line in the North Sea North of the 62nd parallel, North of Scotland, between our own country and the Danish Faroes, and with France in the Western Approaches? As the noble Lord, Lord Tanlaw, so rightly pointed out, there is a very great difference between exploiting and developing the offshore. The one is a great deal more expensive than the other. So I could not help feeling about the noble Lord, Lord Balogh, something of the "sweet converse of an innocent mind" when he put down his Motion about these two quite different functions. Our interest, my Lords, is surely to assist both exploration and development. It will assist our energy policy far more both to ease fiscal burdens of every kind and to treat these operations as special development area undertakings qualifying for maximum aid. I ask the Government to look at this, too.

May our policy be ever subject to the keenest discipline of private enterprise scrutiny of investment projects for maximum reward to the citizen as a risk-taking investor but for the minimum cost to him as the overburdened client of the apparently invincible Inland Revenue! Let it not be said of the taxpayers of our advanced industrial society of to-day— They that die by famine die by inches"!

5.55 p.m.

THE MINISTER WITHOUT PORTFOLIO (LORD DRUMALBYN)

My Lords, first of all I should like to thank the noble Lord, Lord Balogh, for raising this matter to-day. As he said, it is not so very long since we last discussed it, and I am sure that he would not expect me to go over the same ground again, although I am bound to refer to some of the matters in order to make clear, so far as I can, the attitude of the Government. The noble Lord, Lord Balogh, is always a very challenging debater. I sometimes wish that I could have the good fortune of the noble Lord, Lord Hughes, of reading what the noble Lord, Lord Balogh, had to say in advance, because it is not easy to follow all the detailed arguments and statistics that he puts up—perhaps partly because he couches them in a fairly polemical way. May I suggest, with deference, that he might perhaps take a lesson from my noble friend Lord Lauderdale, who is often exceedingly critical of the Government but who manages to put his questions in such a way as to make them sound reasonable? I am not suggesting that they are not always reasonable, but at any rate it is a very good start when one is listening to a debate.

LORD HUGHES

My Lords, if I may interrupt the noble Lord for one moment, does he not find also that the speeches of the noble Earl, Lord Lauderdale, are very much better when one reads them the next day?

LORD DRUMALBYN

My Lords, I am sure one enjoys speeches the more when one reads them the following day. However, I should like to make the point—and I am sure that noble Lords will sympathise with me in this—that on a highly technical subject of this kind it is very difficult to give immediate answers. In any case, one does not want to be too long. But may I say right away that what has been said in this debate, as usual—especially in view of the fact that it has been a debate of very high calibre—will be particularly carefully studied, and the fact that I do not reply to everything, even by letter afterwards, must not be taken to mean that what has been said has been ignored.

The Question on the Order Paper is a relatively narrow one. I do not complain of the width, but when in connection with an Unstarred Question the debate ranges widely, and wider than what is on the Order Paper, one has at least some excuse for not replying to every point that is made. To some extent this discussion was, I thought, deliberately used by noble Lords who share my nationality as a curtain-raiser for the debate which we are to have (as the noble Lord, Lord Hughes, said) in the middle of next month. So I do not think I should be justified in detaining your Lordships too long on matters relating to Scotland, however dear they may be to our hearts.

The noble Lord, Lord Balogh, has again criticised the offshore licensing policy that has been followed by successive Governments, but I may say that one thing that is remarkable is the degree of continuity that we have had in licensing policy between successive Governments. I agree with the noble Lord, Lord Tanlaw, that it would be a great pity if we were to have a rapid or a very wide swing from one kind of policy to another. One would expect, perhaps, minor adjustments of policy, but I quite understand his argument there. I am not quite so certain that it will be possible to have an all-Party study of the energy policy, although I am sure we shall have opportunities to debate this matter as time goes on. I should not like to comment further on that: at the moment.

The noble Lord, Lord Balogh, has suggested that it is desirable that to be eligible for a production licence any consortium applying should be able to show that 50 per cent. of the equity—if I understand him correctly—is held by British public sector bodies. Before considering whether it is desirable that there should be such a condition, I would say something in justification of the policy followed so far—a policy which has been supported in a valuable measure by my noble friend Lord Lauderdale. I submit that the policy has been extremely successful in achieving its main object. The main object has been the rapid discovery and development of the United Kingdom Continental Shelf. This object has been achieved more successfully than anybody could have foreseen in 1964 when serious exploration started.

If we take gas, for example, in a few years the position of the gas industry has been transformed. Already 90 per cent. of the country's gas now comes from the North Sea, and total gas sales have doubled since 1967. Gas has penetrated into new markets, especially in industry; and the point my noble friend Lord Lauderdale has made about landings in this country will be very carefully looked at indeed. I would say that our resources in the North Sea are national assets and will be treated as such. The first commercial oil find in United Kingdom waters was made only in 1970. The first oil should be landed in quantity in 1974. By 1980 some 75 million tons—half our total demand—should be coming from the North Sea. Production may well be higher—several noble Lords have made this point—still later in the 1980s. The figure of 75 million tons may not be the end of the story, but that is the best estimate that we can make at the present time. Others may make different estimates based on different data. If we saw that data no doubt we should be able to reconcile the two.

Critics of past policy should remember that these successes were achieved in an area where petroleum resources were virtually unknown in 1964 when exploration started. Listening to the debate to-day, one almost had the impression that the oil was rolling in at a vast speed now in an area which has been proved to contain large quantities of oil only in the past few months; yet the oil companies have spent some £450 million to £500 million in the United Kingdom sector since that year. They have drilled over 400 exploration and production wells—more than twice the total drilled in the rest of the North Sea: the Norwegian, Netherlands, Danish and West German sectors. It will be surprising if the United Kingdom sector does not produce more oil in 1980 than all the others put together. The companies' willingness to commit such substantial resources to work in United Kingdom waters, with its consequent effect on the pace of development, was one of the great benefits that flowed from Government policy. This effort was, moreover, achieved with substantial British participation. The noble Lord is quite right in saying that we have treated Shell as a British asset; the difference that is made in the overall proportions of course is substantial, if one allows for the Dutch content of Shell, but that does not invalidate the statement that there has been a substantial British content in the exploration and, as I prefer to call it, production.

LORD BALOGH

My Lords, would the Minister then correct the 41 per cent., or is it the 41 per cent.? Would he confirm or deny that the 41 per cent. refers not merely to Royal Dutch, but also on the basis of territorial licences?—That is, it is based not on probable production but on the territory held by the licensee.

LORD DRUMALBYN

My Lords, I think that is so; I should like to check that it is based on the territorial allocation. One would expect that to be so, in view of the fact that the estimates of reserves are somewhat uncertain.

To answer the other question, I understand that the overall figure would be of the order of some 32 per cent. if the Dutch element is excluded. This effort was achieved with substantial British participation, as I said; and including the Dutch element, about 40 per cent. of the area licences are held by United Kingdom licensees. British industry also has benefited more than one would think from listening to the critics, although I know that more remains to be done. Of the £450 million to £500 million expenditure which I mentioned, about half was paid to firms resident in the United Kingdom; that is to say, firms which are resident in the United Kingdom, whatever their ownership. Past policy has therefore been extremely successful in what it set out to do. But in determining policy in future we shall need to take account of changing circumstances. One very important change that has taken place this summer is that the United Kingdom sector of the North Sea has been established as a substantial petroleum province. Other recent changes have also confirmed the attractiveness of United Kingdom North Sea oil, in particular the sharp increase in the OPEC take in 1970–71 and the prospect of further changes, difficult to foresee, in conditions in OPEC countries.

What the terms of any future licence round will be I shall not attempt to-night to predict. There is no round immediately in prospect, and circumstances may change before the next one takes place. I confess I had a little difficulty in following the noble Lord, Lord Balogh, at one point, because I was not clear whether he was chastising us for being slow in developing, or whether he was advocating the slower depletion of our oil fields. I thought he did both together at one time. If we were to slow down the depletion of our oil fields it would mean postponing the balance of payments advantages; it could also increase our dependence on OPEC oil—and I should like to make this very clear—at a most dangerous time. Nuclear power and other alternatives will provide an increasing share of the market in the distant future. We want to use North Sea oil to bridge the gulf. I hope that makes the policy of the Government clear in that respect.

May I once again state the three main principles which the Government will have in mind in developing future policy? They are, first, the need to maximise oil and gas production from the United Kingdom Shelf; secondly, the need to ensure a proper return to the Exchequer, and, thirdly, the need to ensure that British industry gets a full and fair opportunity to win orders for goods and services for the North Sea. The noble Lord may feel that to some extent these are considerations pulling in different directions, but considerations frequently do so, and one has to reconcile them.

I should like to say a word about each of these in turn. First the need to maximise oil and gas production from the United Kingdom Shelf. This must continue to be a prime object of policy. Recent events have underlined its importance to us. We are at present dependent for about half our total energy needs on oil, most of which comes from the Middle East. We have to take into account the risk to security of supply, to which my noble friend Lord Lauderdale referred, and also the cost to the balance of payments. In 1971 our net oil imports cost us £1,000 million, although the foreign exchange cost was rather less, as the noble Lord, Lord Balogh, said, because of the sterling element in our import costs. This already heavy cost may rise in future as costs in the producing countries rise. The exact saving to the balance of payments from development of the North Sea will depend on a wide variety of circumstances, including the future of oil prices, but by the end of the decade it will clearly amount to several hundred million pounds a year—I do not think we differ in this at all. The object of maximising oil and gas production is more important for us than for Norway whose potential supply is very much larger than her demand, especially in view of the point that they are hydro-electric producers as my noble friend mentioned. Norwegian policies are of course well suited to Norway's needs, and we can certainly learn from her experience—all countries can learn from the experience of others in offshore licensing policy. But the fact remains that, for such a big energy consumer as the United Kingdom, early and rapid development of the resources of the Shelf is of special importance, particularly in view of the considerations I have mentioned.

Secondly, there is the need to ensure a proper return to the Exchequer. That of course is related to the size of production: the greater the production, obviously, the greater the payment of royalties and tax. This is another reason for attaching special importance to getting a high rate of production. The Exchequer will clearly get substantial benefit from the North Sea, with rent and royalties alone accounting for some £100 million a year in 1980, according to present estimates. But the Government will continue to be concerned to see that what is called the "total take" is adequate.

May I refer in passing to the point made by the noble Lord, Lord Hughes, about the revenue from North Sea oil? I am not certain that he was comparing like with like. Total revenue on all oil and gas from rents and royalties alone will be about £100 million in 1980, assuming no rise in prices. If there is a rise, as there may well be, then revenue will be higher. The producers will also be liable to corporation tax. Liability to tax depends, of course, on the circumstances of individual producers—capital allowances and the like—and cannot be forecast in detail; but it will not be near the £800 million figure quoted. The figure of £800 million may be based on production of—I am sorry; I am defeated by a note that I have received from the Box here: I think it is 3 million barrels a day and 150 million tons a year, twice our estimate.

LORD HUGHES

I am sorry, my Lords. Would the noble Lord repeat that?

LORD DRUMALBYN

My Lords, I am told that the figure of £800 million is anyway based on production of 3 million barrels a day or 150 million tons a year, which is twice our estimate. The noble Lord, Lord Balogh, has suggested—

LORD HUGHES

My Lords, is the noble Lord about to depart from that point?

LORD DRUMALBYN

Yes, my Lords.

LORD HUGHES

May I point out then that if correspondence in the Press is correct (and of course I am not guaranteeing that it is) the Secretary of State would appear to have said that the revenue from oil in 1980 would be £100 million. The noble Lord, Lord Drumalbyn, is now saying that the royalties will be £100 million; and therefore the revenue, when one takes the other things into account, will be appreciably greater. By how much greater than £100 million would he expect it to be? Would it become £200 million or £300 million or £400 million?

LORD DRUMALBYN

My Lords, I should think it would be more like getting in the region of £800 million at that stage.

LORD HUGHES

My Lords, even on the 75 million figure rather than the 150 million?

LORD DRUMALBYN

My Lords, I should like to look at this question. It is a little difficult to have these figures thrown at one and to be asked to make calculations. I think there is a confusion on the use of the word "revenue". I think it is revenue to the Revenue that is intended here.

LORD HUGHES

My Lords, I agree with the noble Lord that it is much too difficult to try to argue this point across the Floor, particularly when I am relying on what he is saying, and he is relying on sometimes difficult-to-read notes coming along the Chamber. Would the noble Lord be good enough in due course to write to me—preferably before our debate on December 13? And, if he is writing, will he send a copy of any letter that he sends to me to the others who have taken part in the debate? And if he is writing to the noble Earl, Lord Lauderdale, would he send copies of that letter to the rest of us, because I think we are all equally interested in the replies to the various questions?

LORD DIAMOND

My Lords, I hesitate to interrupt but I am sure my noble friend will forgive me for saying that, in view of the fact that these two figures—the gross take and revenue coming to the Exchequer—are crucially important, it would be very helpful if a Question for Written Answer could be put down and an Answer given, because in that way everybody would be able to see it.

LORD DRUMALBYN

My Lords, that is a very useful suggestion. Perhaps the noble Lord will allow me a little time to explore the situation, and then perhaps we could agree to a time to put down a Question.

THE EARL OF LAUDERDALE

My Lords, may I support what the noble Lord has just said? If the Minister is good enough to write to me in reply to half the questions I have asked, I shall be very happy if conies of his letters to me also go to other Members who have taken part in the debate. If he can answer half the questions I shall be very happy—though I naturally hope that he can answer them all.

LORD DRUMALBYN

My Lords, I was very careful not to promise to answer them all in correspondence, but I will certainly do my best to answer those which seem to be susceptible of an answer. Before I leave the point of the question, it is worth while considering whether this should be a Question for Written Answer or an oral Question. If it is a detailed one, it will probably be better in the form of a Written Answer.

My Lords, I was going on to say that the noble Lord, Lord Balogh, suggested a new way of ensuring adequate Government take; namely, to require all new licensees to have at least a 50 per cent. public sector interest. As I mentioned earlier, I cannot say to-day what the terms of the next licensing round will be, and certainly it is desirable that the public interest should continue to be represented on a substantial scale. The noble Lord's Motion suggests one way of achieving that result. But, of course, as he well knows, it is not the only way. Another interesting way, close to the noble Lord's approval, is by the Norwegian system of carried interest.

Under the Norwegian system the State reserves the right, when a commercial find is proved, to take up a specified share of profits, meeting the same share of costs; but it should also be recognised that all such suggestions would have not inconsiderable disadvantages. They would involve the public sector in finding very large sums of capital. Some indication of the sums at stake is given by the estimate that the industry will need to spend some £2,000 million by the end of the decade on exploration and production in the North Sea. I know that there again the figure has been put higher. But what the noble Lord's suggestion implies is that up to a half of that would fall on the public sector. Such a big public sector stake would also mean heavy involvement in management and decision-taking in the oil industry. There is much to be said for the view that this is a risky and speculative business, of which Government have little operating knowledge, and that oil matters are therefore best left to the oil industry, so long as the public interest is protected in the way that I have described. But that is not to say that the Government are not concerned whether British companies get a fair share of any future licences allocated or not, or whether the Exchequer, directly or indirectly gets a fair return or not. The Government are very much concerned about both.

Another way that has been suggested of increasing Government take is to allocate blocks to the highest bidder. Allocation by tender certainly brings in extra immediate revenue for the Exchequer. But it also makes it more difficult to ensure that a fair share of the benefits of North Sea oil goes to British oil companies and British supplying industry. British participation in the competitive tender part of the last round amounted to 22 per cent. as compared with almost double in the discretionary part. There is also a risk that the cost to industry of acquiring licences by auction will reduce the funds available for exploration and development—and of course the point made by my noble friend Lord Lauderdale about the resources available for development is a very important one indeed, and I was aware of the figures that he quoted. But the Government will certainly consider carefully the full results of the experimental auction round in 1971 before deciding on future licensing terms.

The third object of policy which I mentioned was that British industry should have a full and fair opportunity to compete for orders. The market at stake is very large. During the next few years the companies could be spending £200 million to £300 million a year on goods and services for the North Sea. If British industry can establish itself in this market it can become a strong competitor in the world offshore market. May I say that British industry is having to establish itself into one of the most difficult areas in which oil is being sought, and if it succeeds there it will probably do well in any part of the world. As I have said, the share of past orders placed in this country is higher than one would expect from what the critics say. But the Government have always recognised that they have a responsibility to do as much as a Government can do to encourage British industry to get a bigger share of orders in the future.

The Government are now reconsidering policy on this, following the report of the consultants, International Management and Engineering Group of Great Britain, on the opportunities for British industry, which they have recently received. My noble friend Lord Lauderdale asked my noble friend Lord Limerick whether this report would be published. We hope next month to publish a summary of the report (it is very voluminous) but we have already said that we shall see that British firms are given a full and fair opportunity to compete and that we shall take account of the performance of oil companies in this respect in allocating future licences.

The Department of Trade and Industry are working out, in consultation with the offshore producers, an arrangement for quarterly returns to be made voluntarily by the producers. In this way the Government can be kept informed of the nationality of orders placed, and can also be given an indication of the orders to be placed. I hope that this will go quite a long way to meet the criticism that we have not exercised sufficient foresight. I think both the proportion of orders so far placed in Britain and the steps now being taken go a long way to refute that.

Of course there is a limit to what the Government can do. The responsibility for selling goods and services must rest ultimately with the British supplying industry itself. We cannot expect the oil companies to subsidise the industry. But certainly our oil industry will hot be able to break into the international market unless its products are fully competitive in price, quality and delivery. But if they are, I should like to make it quite plain that British suppliers have the prospect of supplying one of the fastest growing and most advanced markets in the world. It is one of the finest opportunities to open up before British industry for many years. I am confident that they can and will grasp it.

I have dealt with as many points as I can in the time available but I would say once again that what noble Lords have said will be carefully studied before the next round of allocations, although I must say that in our view it would be wrong at this stage to commit ourselves to any particular system or to any particular amount or manner of public sector participation. Therefore, while this has been a splendid debate I am afraid that I cannot accept the Motion of the noble Lord in the terms in which he has moved it.

LORD HUGHES

My Lords, before the noble Lord finally sits down may I ask, in reference to what he said about the Government giving the maximum encouragement for the placing of orders for the exploitation of these fuels for British manufacturers, whether they will take into account any element of subsidy which is given from other countries in this direction? Because it has been stated, for instance, that oil companies buying in America are able to buy at prices where the labour element is, to some extent if not entirely, subsidised.

LORD DRUMALBYN

My Lords, again I should like to look at that point. It is one that will have to be taken carefully into account.

6.26 p.m.

LORD BALOGH

My Lords, before I withdraw the Motion, which unfortunately I have to do, may I thank those noble Lords who participated, and may I also apologise to the noble Lord the Minister that I have not yet thanked him for his kind letter to me—various letters in fact—which really were very informative? Obviously I should have thanked him, but I was rather busy. I shall try to submit to him my next speech in good time so that he can perhaps do his homework. I fear that I do not altogether feel that his present brief has shown that quite the right homework was done.

He said that there were three considerations which actuated the Government in deciding their policy, but surely out of those three considerations only the speed was achieved. Here I must confess that I am baffled by both the Minister and the noble Earl, Lord Lauderdale, when they say that there is a tremendous urgency about this affair. This would indicate a complete misreading of the time horizon about which we are now speaking. Whether the Dutch or the Germans or the Danish or the Norwegians will be first to exploit the North Sea is really a minor question. The problem is whether we should exploit it without making a profit nationally; and I must say that the attitude of the noble Earl and the Minister reminds me of a very funny story. When I was a young secretary in the League of Nations there was a sort of "boy scout"—an Englishman—who ran round the building 50 times every morning in a négligée. There was a Frenchman living in our pension opposite to that old hotel and this Frenchman asked my English friend, Mr. Evans, why he did this every morning, come snow, come hail. The Englishman said, "To keep fit". So the Frenchman said, "For what?" and the Englishman said "To keep fit". The Frenchman said, "For what?" and the Englishman could only repeat, "To keep fit". You do not exploit a natural resource because you want to exploit it. You exploit it in order to achieve a purpose—for example, to give a leg up to Scotland.

The figures which my noble friend Lord Hughes quoted are very interesting because they coincide with the figures published by Mr. Waddams, who was the Shell adviser in Libya. The figures are of the same order of magnitude. In other words, we should get £70 million, he said, and the Libyans could get £700 million. That was before the upgrading. Why should we develop for £70 million when we could get £700 million by waiting a little while? I have the same sort of horrible feeling about this affair as I have about the appointment of Mr. George Thomson as our representative in Brussels. Surely one should not appoint someone who is enthusiastic for the idea. Such a person is bound to fail in the job of diplomatic representation. For example, Mr. Thomson obviously wants to make Europe go rather than Britain go, and on the whole the French will not take the same attitude. If we cannot stand up against the marvellous negotiators of the oil companies, what will happen to us when we are faced with the Cassius Clays of the French civil service? It is to be feared that all this will end in miserable failure. We shall not get a "due take". We shall be the suckers about whom all the others will say, "Here come the suckers. Let us sell them something for a high price."

The same can be said of the industrial policy. Nobody can claim that British industry got a due share, and certainly British industry was not assisted by the Government to get that share. The Ministry, and afterwards the Department, deprecated every estimate we made, and they did not notify the people concerned in due time. The fact is that if they had accepted the sort of figures we put forward in 1969–70 matters would have been different. I agree that on the whole officials rather than Ministers make the policy in this field, but Ministers accept that policy. However, the Labour Government, at any rate, got 50 per cent., and I dare say that there were terrific rows over that. Perhaps the noble Lord, Lord Rothschild, should have come in and raised the figure of our take, in the way I tried, against the Ministry.

Next we have the question of a heavy public involvement. It is surprising that the Minister adopted this line or argument when the Government own B.P. Is there no heavy involvement of Britain in B.P.? Did this entail so much investment? We are the only country with such an involvement. It is 49 per cent. It was 51 per cent. before the present Government sold out our majority shareholding. Originally, B.P. cost £3 million, and now it is worth a couple of thousand million. For a British Minister to say that a heavy involvement should prevent us from participating when we already participate in that way is extraordinary. We decided to participate because of a laissez faire Liberal First Lord of the Admiralty, Winston Churchill. He was not a Whig but a Tory, and a good Tory at that. When he was with the Whigs he bought up the holding and secured for the nation a major share in B.P. The Minister is trying to tell us that we cannot do now what we did in 1911. That is absolutely ridiculous.

LORD DRUMALBYN

My Lords, I hope the noble Lord, Lord Balogh, will give due weight to the fact that we should in that case have to put up a great deal of money for investment in the meantime, and as my noble friend Lord Lauderdale made clear, oil companies are finding it very difficult to find the money needed for investment out of their own resources.

LORD BALOGH

My Lords, the Minister's argument counts for little. After all, a Government who give away £2,500 million by way of taxation relief per annum should not adduce arguments of the sort that the noble Lord put forward. The return at the production stage would be a multiple; the capital output ratio shows that the money would come back in one or two years. Anybody who refuses to participate in such a venture should not be in business, and I always thought that the Tory Cabinet was recruited from the City. I fear that my original estimate of the City may not have been all that I had hoped for.

It is said that the revenue on royalties in terms of corporation tax is 40 per cent. and one noble Lord quoted Cazenove in this context. How much corporation tax will in fact be paid, bearing in mind that taxes paid in Arabia as well as development expenditure incurred there can be offset against "Scottish" revenue? It seems that the Minister is saying that Scottish "suckers" should subsidise exploration in Nigeria, and that seems to put a new light on the story of the Scotsman and his pennies.

I quoted certain figures and I have never said that I wanted precipitate development. My whole argument was based on the need for our not to be precipitate—that we should sit back, look at the problem and decide at our leisure. After all, the worse the deal we get from OPEC the more we must pay the Americans. If that is not silly, I do not know what is. I should have thought that there was an important issue to be considered here. In other words, Ministerial command should be reasserted.

There is a point I wish to make to the noble Lord, Lord Tanlaw. I am in agreement with the noble Earl, Lord Lauderdale, that we cannot separate exploration from exploitation. In any event, why should we? Why should anyone bore holes in the middle of the ocean if he is not permitted to exploit the results of his exploration?

THE EARL OF LAUDERDALE

My Lords, I made that point because the terms of the Motion referred to exploration and exploitation. It seemed, therefore, that the noble Lord was drawing a distinction. I naturally take his word that he was not.

LORD BALOGH

Either, and both, I think. I agree with the Minister that it would be better to do it in the Norwegian way, but I wanted to be forthcoming. I went a long way towards the Minister in the hope that he would come a little way towards me, but he rose to new heights of not telling us what we wanted to know. However, I beg leave to withdraw my Motion.

Motion for Papers, by leave, withdrawn.