§ The Earl of LAUDERDALEMy Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether they will consider amending their petroleum revenue tax proposals to enable producers in the smaller fields to accumulate over several years the right to exemption on the first million tons of crude oil produced each year.
§ The MINISTER of STATE, DEPARTMENT of ENERGY (Lord Balogh)No, my Lords. The relief to which the noble Earl, Lord Lauderdale, has referred is only one element in the Government's proposals which are designed primarily to assist marginal fields in the North Sea. There is no liability to PRT until the capital expenditure, plus 75 per cent, uplift—that is to say, one and three quarter times the capital cost of the field—has been recovered. Liability is then offset or reduced by the oil allowance for each six monthly period. Where the oil allowance is not wholly used, no PRT liability arises, and it would be unjustifiable to carry it forward from the periods when no PRT can have been paid.
§ The Earl of LAUDERDALEMy Lords, in thanking the noble Lord for that reply and wishing that I could praise him for flexibility whereas I must regret his inflexibility, may I ask him whether he would not agree that there is a certain slump in offshore oil exploration all over the world, as witnessed by the fall by about 25 per cent. since last autumn in day charter rates for semi-submersible rigs? Is he not aware that several of 600 the major oil companies involved in the North Sea have raised this matter with great anxiety and apprehension, as it is damaging their prospects of successful exploitation of smaller fields?
§ Lord BALOGHMy Lords, I think the noble Earl is under a misapprehension. No taxes need be paid on marginal fields to the extent to which the exemptions apply. It is not really an arguable point that fields have been discouraged by the Government's proposals for PRT. If the noble Earl tables a Question about rigs, I shall answer it. But I should have expected the cost of rigs to go down, because at last many new rigs are coming into service. Unfortunately, there are now bottlenecks, apart from the number of rigs in existence, which regulate supply and demand in the offshore industry.
§ The Earl of LAUDERDALEMy Lords, while thanking the noble Lord for that reply, may I ask him this question? Without wishing to press him unduly—and as he knows I never do press him unduly—would he not admit that there might be cases in smaller fields, perhaps with reserves of 200 to 300 million barrels only, where the possibility of rolling up and carrying forward this six monthly allowance of half a million tons of tax-free oil would make a considerable difference to the margin of profitability and would, therefore, provide a greater incentive for further exploration?
§ Lord BALOGHMy Lords, I must ask the noble Earl to wait until our next duel takes place, perhaps over the petroleum tax Bill, which, I think, will be in the very near future. When we see the eventual text as it emerges from the Commons, perhaps we can then state our views both privately and publicly. This is a very technical question and I crave the noble Earl's indulgence.
§ Lord WYNNE-JONESMy Lords, does not my noble friend feel that perhaps Her Majesty's Government have gone too far by being excessively generous towards these smaller companies? Does he not agree that the terms which have been offered to them amount to virtual exemption from taxation unless they make a handsome profit?
§ Lord BALOGHMy Lords, I thank my noble friend for that question. Of 601 course there are exemptions, but I cannot say that they are too generous, because it is a very risky venture and this risk has to be recognised. That is the object of the 75 per cent, uplift and the exemption limit. All these proposals, as I have said, will have to be looked at on the basis of the Bill as it emerges from the Commons, and my noble friend will see that these are concessions from a very high level of taxation. The taxation will amount to something like 70 per cent, of the total profits for fields which are successful. Obviously the tax on those fields which are not successful—or are only marginally successful—will be correspondingly lower ; but I think I can defend that point in any assembly the noble Lord cares to name.
§ Lord STRATHCONA and MOUNT ROYALMy Lords, can the noble Lord tell us how a field will be defined for this purpose? Will it be based on a geological judgment, and will the final arbitration on this be left to an independent geological body rather than to either the Ministry or the Inland Revenue?
§ Lord BALOGHMy Lords, I thank the noble Lord, Lord Strathcona and Mount Royal, for that question. The intention is that this should be done field by field on a geological basis. However, the noble Lord might wish to wait until the petroleum Bill is published. That Bill will deal with all these matters in great detail. We hope it will be published before Easter, but since it is a very complicated matter, it is possible that it will not be ready until just after Easter.