HL Deb 15 October 1975 vol 364 cc902-84

3.57 p.m.

House again in Committee, on Amendment No. 18:


I, too, wish to join other speakers in congratulating noble Lords opposite on the atmosphere of great reasonableness in which they have returned to us today, compared with earlier days. Perhaps it is an indication that it would be good for the health of us all if we had two shorter summer holidays rather than a longer one. However, I shall leave that point to your Lordships to decide.

On the two Amendments that we are considering now, I wonder whether I might direct your Lordships' attention to one other aspect. In doing so, I repeat my declaration of my own interest as a director of companies which are involved in exploration and development in the North Sea, and also in the financing side. As noble Lords opposite know, with the exception of one or two fortunate companies which are able to meet the financing of these developments from their own resources, the great majority will be obliged to seek to borrow from banks or other financial institutions. Not surprisingly, banks will need to have a reasonable assurance of a sufficient return from a field to fund that borrowing over the life of the field.

This is not an exact science, and there are a great many uncertainties in this industry. Despite all the technological advances, it is still not possible, even when a decision is taken to develop a field, to be at all certain, within certain limits, of the ultimate output, the reserves, the rate of output and so on. This is not surprising, considering that the oil is underneath 400 or500 feet of sea water and possibly below two miles of geological strata. Therefore, for these reasons there must be a degree of uncertainty. We are introducing a number of other uncertainties by the various powers taken in this Bill for the control of development in one way or another, not least this power to restrict production which I agree will be necessary, within certain limits, at some time in the future. But was glad to hear the noble Lord opposite say that when it came to imposing restrictions the Government would discuss with companies what were the financial implications.

However, I think it has to be looked at a little earlier. I know we have this welcome dispensation that all fields declared, as it were, before the end of this year will be exempt and that there is a starting date, of, I think, 1982. But we have to look a long way ahead in regard to the initial financing of the fields, and I can say from experience that at this stage we are finding that in some cases it is proving very difficult to arrange the initial financing of fields, in view of the escalation of costs and the delay in, and uncertainty of, the passage of these various Bills through Parliament. Financing is proving more difficult than was anticipated. I think we must remove any avoidable uncertainties at this early stage and therefore I ask the noble Lord opposite, in considering how to deal with it, to bear in mind that some limit should be pronounced at the beginning of the development of a field, as to the maximum restrictions that may be imposed later if we are to have a reasonable prospect of raising the finance—and the sums are very large indeed.


It would be churlish of us not to welcome wholeheartedly the concessions promised by the noble Lord in respect of Amendment No. 19. I am sure that these will be welcomed by the industry and they are indicative of the frame of mind of the Government, which is receptive to what we are trying to do here this afternoon. Amendment No. 18 is rather a different proposition and I do not think the noble Lord has given us a convincing case as to why it should not be pressed. I do not think he has made any concessions in respect of Amendment No. 18, which concerns this rather curious expression used in the industry of "pro rationing", whereby the output from a field can be limited at a certain date in its development. Apart from anything else, a Statement made so categorically by a Minister—a Statement which, as my noble friend has pointed out, was most carefully issued in the form of a Press release and repeated in the brown book—all for the purpose of trying to reassure a nervous industry, and nervous financial institutions which were going to back the industry, should be incorporated in the Bill.

Surely no Government can turn around and say, "Well, of course, we said all sorts of things by way of reassurance, but really we cannot start writing these reassurances into the Bill". One is tempted to use words like "sharp practice" if this is the way we are going to behave, and I should have thought we were wholly entitled to say that the Government must put into the law of the land the undertaking which they have given verbally. For that reason alone, I believe that this Amendment should be pressed.


I add my grateful thanks for the fact that the Minister has given way on one of these two Amendments, No. 19. In fact he has accepted our principle that Mr. Varley's assurance given in the House and repeated in the Press release and in the brown "bible" should be written into the Bill, and he is now going to try for some wording at Report stage which, as I understand it, will include financial and commercial viability as one of the considerations which the Minister is to take into account.

One cannot help remembering that Mr. Varley made that Statement, with all the publicity which followed it, when he was responsible for the North Sea industry and one wonders whether this desire to avoid hard and fast facts being written into the Bill may possibly be a "spin off" from the fact that Mr. Wedgwood Benn is now in control there, and is less sensitive to the need for these assurances which the industry so badly requires. One has only to see his track record in his previous job to realise that industries' recommendations and wishes do not take a very high priority in his actions. So I rather hope that the Minister will now go one further and accept not only Amendment No. 19, but also Amendment No. 18.

As my noble friend has said from the Front Bench, since this Statement was made and since this assurance was given, these companies have had a further tremendous escalation in development costs. It is seen to be a dangerous, extremely expensive and risky business, and they would like to have an assurance that no greater cut than 20 per cent. will be made in their production rate. It is quite clearly said that this would generally limit cuts to 20 per cent. at most, so why not accept those words? As a result of this Bill and other actions, the Government already have a tremendous control over these companies. If they acquiesce in participation, which we shall consider on Amendment No. 50, then the power, the leaning-on, the influence which the Government can have on these great undertakings will be terrific. Surely we can have an assurance that 20 per cent. is the most that they will cut back the production—the optimum production—of these companies.

I hope that the Government will look at this most carefully in the interim, before we come to Report stage and Third Reading of this Bill. But I must recommend that the Committee divide, because I believe that this is an important point for the future optimum development of these fields.


May I ask whether, the Government having given those assurances and the Opposition having decided to divide against them, those assurances will be withdrawn?


It is to be hoped that this subject would be approached with greater responsibility than is suggested by the noble Lord, Lord Lee of Newton. I think we should take into account the problems which these explorations are having to face, quite apart from any problems brought about by Government action or decree. As has already been pointed out by my noble friend, if the people working these difficult and expensive fields can foresee that the normal hazards, the normal costs and the normal difficulties of carrying out these operations will get less, or will not get any greater, then perhaps the undertakings need not be written in. The normal development would make the undertakings sufficient in themselves.

But I think everybody would accept that the problems—quite apart from any Government action—facing anyone exploiting these fields will get much greater; the costs and the competition will get much greater and the sharing out of the technical knowledge for doing it will become much greater. It is because one can only anticipate that the job of producing and marketing the oil will get much more difficult as a process in itself that, in order to balance the lack of confidence that the future risk carries with it, something has to be given. I should have thought it would be giving nothing away if we were to write into the Bill the statements that have already been made in good faith by the Minister, which to some extent recognise the problems of the future. That would be more likely to maintain the essential confidence that we need and, if the Government can recognise that, I am certain that they will concede the request that is now made and will write into the Bill the same words as they have already issued in the form of an official Statement.


I should first like to stress what I said earlier in answer to the noble Lord. We have already made a number of concessions and I should like to consider some of these briefly for the benefit of the Committee. When this Bill was introduced, the Secretary of State had unqualified power to increase or cut back production at any time. As the noble Lord, Lord Polwarth, has pointed out again today, the industry argued that the existence of this power could make it very difficult for them, or their bankers, to calculate with any confidence the profitability of proposed investment in any field, and that this would make investment and borrowing to finance investment impossible. Therefore, in Committee in another place the Government introduced an Amendment to establish the limitation notice procedure set out in this model clause which ensures that the Licensee and his bankers know when the programme has been approved—that is, before any development expenditure has taken place—the maximum amount of cutback which his field can suffer. We also provided separately that the limits in the limitation notice were not to be such as to empower the Secretary of State to define an increase in production costing more than the cost of drilling a new well in the licensed area at the time of the further notice. This provision, which did not appear in the Bill as introduced, is based on the belief that an increase in production is likely to be ordered more in a short-term supply emergency, resulting, for example, from an interruption to Middle Eastern supplies. We also amended the Bill in terms of deferment. Once the decision was made on the period of deferment, the Secretary of State was firmly committed to it.

I think we have gone quite a long way to meet the Opposition's request, the request of the oil industry, in this matter. The terms of the limitation notice will be discussed with the Licensee at an early stage before development starts. This is a major concession. I think this should meet the point that the noble Lord, Lord Polwarth, is making. I fully accept that it is important in terms of financing the operation. The noble Lord, Lord Strathcona and Mount Royal, and the noble Lord, Lord Orr-Ewing, made a good deal of the Secretary of State's Statement of 6th December last, and limitation notices will be consistent with it. The Statement said only that the cut-back would generally—these are the Secretary of State's words—not be more than 20 per cent. and we intend that limitation notices should be consistent with this.


If I may correct the noble Lord, it was even a little firmer than he has said. It was said that this would generally limit cuts to 20 per cent. at most—not only the general limit, but "at most".


I am grateful to the noble Lord, and, as I have said, we shall ensure that limitation notices are generally consistent with that. I think it would be sharp practice on the public on our part if we argued for a depletion policy, and were then to restrict it in such a way as to make it not much of a depletion policy at all. I think we have to have much more flexibility and freedom of action than this Amendment is trying to give us.

I should like finally, hoping that I have met the case and that noble Lords may decide not to press this Amendment, to answer the noble Lord, Lord Harmar-Nicholls, and I want to correct an impression that is very widespread. This is one of the least speculative oil-fields in the world; I think we ought to realise that. There is a much smaller proportion of dry holes being drilled in the North Sea as against successful bores than anywhere else.


I think we would accept that, and indeed hope that it is true in accepting it. But the noble Lord must accept the fact that in this country today, particularly in the financial field, there is a real lack of confidence, based upon a downward turn which does not seem to be stopping at the moment, and the whole trust in the value of the oil-fields has to be taken on the one hand. But the lack of confidence of the people who have to take risks in exploiting them is a very real factor which ought not to be denied by the Government.


I do not wish to belittle the efforts of the oil companies in any way. I fully accept the investment and all that is involved in this. However, the point I have tried to make is that we have gone a long way in trying to meet the case put forward in this respect by the other side. I have already given an undertaking in respect of Clauses 19 and 27. I would have hoped that in the interests of agreement in the Committee we might look to noble Lords not to press Amendment No. 18.


I wonder whether I may ask the noble Lord, Lord Lovell-Davis, to clarify the position a little for me. This is probably my stupidity. Is it the case that at the stage of agreeing the development programme with the company at the beginning, when we start initial development and Government approval is sought and details are gone into, the Government will indicate to the company both the earliest date at which restriction is liable to be imposed, and also the maximum extent to which it is liable to be imposed? That is what I am not quite clear on.


I do not think I can give a firm undertaking in this matter, but I will undertake to look into the possibility without making any firm commitment to the noble Lord.


I feel that we have not got quite as far as we want to go on this. I think the Government have plenty of time. If they made out a good case they could amend this Bill by a single clause at a later stage in the years to come. If they find that 20 per cent. is too restrictive and their case is really solid, I have no doubt that Parliament will allow them to amend the Bill accordingly. I must ask that the intention of the 20 per cent. Cut at most, as put in Mr. Varley's Statement, should now be written into the Bill.

4.16 p.m.

On Question, Whether the said Amendment (No. 18) shall be agreed to?

Their Lordships divided: Contents, 124; Not-Contents, 64.

Aberdare, L. Erskine of Rerrick, L. Mansfield, E.
Airedale, L. Essex, E. Margadale, L.
Alexander of Tunis, E. Falkland, V. Merrivale, L.
Alport, L. Ferrers, E. Mersey, V.
Armstrong, L. Ferrier, L. Middleton, L.
Balerno, L. Fortescue, E. Monck, V.
Balfour, E. Fraser of Kilmorack, L. Mowbray and Stourton, L. [Teller.]
Barnby, L. Gisborough, L.
Barrington, V. Glasgow, E. Moyne, L.
Beaumont of Whitley, L. Goschen, V. Moyola, L.
Belstead, L. Grantchester, L. Newall, L.
Berkeley, B. Grenfell, L. Northchurch, B.
Bourne, L. Gridley, L. Nugent of Guildford, L.
Brock, L. Grimston of Westbury, L. Ogmore, L.
Brooke of Cumnor, L. Haig, E. Orr-Ewing, L.
Brooke of Ystradfellte, B. Hailsham of Saint Marylebone, L. Polwarth, L.
Cairns, E. Porritt, L.
Campbell of Croy, L. Hankey, L. Rankeillour, L.
Carrington, L. Harmar-Nicholls, L. Rathcavan, L.
Clifford of Chudleigh, L. Harvington, L. Rockley, L.
Clitheroe, L. Hayter, L. Ruthven of Freeland, Ly.
Clwyd, L. Hewlett, L. St. Aldwyn, E.
Cottesloe, L. Hives, L. St. Davids, V.
Cowley, E. Hornsby-Smith, B. St. Helens, L.
Cromartie, E. Hylton-Foster, B. Sandford, L.
Daventry, V. Ironside, L. Sandys, L.
de Clifford, L. Kemsley, V. Sempill, Ly.
de Freyne, L. Killearn, L. Somers, L.
Denbigh, E. Kimberley, E. Stamp, L.
Denham, L. [Teller.] Kinloss, Ly. Strathcarron, L.
Deramore, L. Kinnaird, L. Strathclyde, L.
Digby, L. Kinnoull, E. Strathcona and Mount Royal, L.
Drumalbyn, L. Lloyd of Kilgerran, L.
Dudley, B. Long, V. Sudeley, L.
Eccles, V. Lonsdale, E. Suffield, L.
Effingham, E. Lothian, M. Tenby, V.
Elles, B. Loudoun, C. Terrington, L.
Elliot of Harwood, B. Lucas of Chilworth, L. Teviot, L.
Elton, L. Lyell, L. Trevelyan, L.
Emmet of Amberley, B. Macleod of Borve, B. Vernon, L.
Vivian, L. Ward of North Tyneside, B. Yarborough, E.
Wade, L. Ward of Witley, V. Young, B.
Wakefield of Kendal, L.
Arwyn, L. Goronwy-Roberts, L. Paget of Northampton, L.
Aylestone, L. Greenwood of Rossendale, L. Pannell, L.
Balogh, L. Hall, V. Phillips, B.
Beswick, L. Halsbury, E. Pitt of Hampstead, L.
Birk, B. Harris of Greenwich, L. Popplewell, L.
Blyton, L. Hirshfield, L. Roberthall, L.
Brockway, L. Houghton of Sowerby, L. Rusholme, L.
Buckinghamshire, E. Hoy, L. Sainsbury, L.
Burntwood, L. Jacques, L. Shepherd, L. (L. Privy Seal.)
Champion, L. Leatherland, L. Shinwell, L.
Chorley, L. Lee of Newton, L. Slater, L.
Collison, L. Llewelyn-Davies of Hastoe, B. Stedman, B.
Cooper of Stockton Heath, L. Longford, E. Stewart of Alvechurch, B.
Crook, L. Lovell-Davis, L. Stow Hill, L.
Cudlipp, L. Lytton, E. Strabolgi, L. [Teller.]
Darling of Hillsborough, L. MacLeod of Fuinary, L. Summerskill, B.
Darwen, L. Maelor, L. Taylor of Gryfe, L.
Delacourt-Smith of Alteryn, B. Maybray-King, L. Taylor of Mansfield, L.
Douglas of Barloch, L. Melchett, L. Wells-Pestell, L. [Teller.]
Douglass of Cleveland, L. Milford, L. Winterbottom, L.
Elwyn-Jones, L. (L. Chancellor.) Noel-Buxton, L. Wootton of Abinger, B.
Fisher of Camden, L.

On Question, Amendment agreed to.

Resolved in the affirmative, and Amendment agreed to accordingly.

4.27 p.m.

Lord LOVELL-DAVIS moved Amendment No. 20:

Page 62, line 5, at end insert— (7) The Licensee shall ensure that any conditions to which an approval is subject in pursuance of clause 12A(4)(b) of this licence or a consent is subject in pursuance of paragraph (1) of this clause are complied with.

The noble Lord said: May I suggest that with Amendment No. 20 we take the corresponding Amendments Nos. 28, 32, and 35, and speak to them as well. These are technical Amendments and I am sure that we can dispose of them briefly. The point is that the Secretary of State can under the model Clause 15(4) approve a programme outright or subject it to a condition relating to the timing of development. Paragraph (8) of the model clause places a duty on a Licensee to carry out an approved programme except so far as a condition under paragraph (4) requires him to do otherwise, but there is no clear, express and unambiguous duty laid upon him to observe the condition. Clearly the intention of the Bill, and it has been understood as such by the industry, is that any such conditions must be complied with. Our legal advice is, however, that to put the matter beyond doubt this requirement should be explicitly stated. This is the purpose of the Amendment. As I say, it does no more than put beyond doubt what has always been understood to be the intention and effect of the Bill and, on this basis, I recommend it to your Lordships. I beg to move.


The noble Lord is saying that this is a purely technical Amendment. I think that this is a slight overstatement, because again one detects lying behind this the common threat which seems to run through so many of these Amendments; that is, trying to get almost unlimited power for the Minister with draconian sanctions in the event that his directions are not followed by the industry.

As I read this Amendment, which is no more noted for its clarity than quite a number of the other Amendments in this Bill—notably the one to which we shall be coming in a moment—it seems to create slightly further uncertainty and create a slight further threat to the viability of production operations for petroleum products. If one reads this with the attempt to link the revocation of part of a licence to the whole of it, it is understandable that the industry is not very happy about it. Perhaps we should not object to this Amendment to the point of carrying it to a Division, but we need to look carefully at what the Minister has said to be certain there is not something here being added to the considerable and onerous burden which the industry already feels is being placed on it. I do not think there is any point in my expanding further than to say that, with the utmost reluctance, I am prepared for this Amendment to be agreed to.


Did I understand the noble Lord to say that he means to withdraw the Amendment?


The noble Lord moved the Amendment, so it is up to him.


I apologise. The noble Lord is quite right.

4.31 p.m.

Lord LOVELL-DAVIS moved Amendment No. 21B:

Page 63, line 5, at end insert: (2AA) An application for consent in pursuance of paragraph (2A) of this clause must be made in writing to the Minister and must specify the date on which the Licensee proposes to begin the flaring or use in question; and subject to paragraph (2AB) of this clause that date must not be before the expiration of the period of two years beginning with the date when the Minister receives the application. (2AB) If the Minister gives notice in writing to the Licensee stating that, in consequence of plans made by the Licensee which the Minister considers are reasonable, the Minister will entertain an application for consent in pursuance of paragraph (2A) of this clause which specifies a date after the expiration of a period mentioned in the notice which is shorter than the period mentioned in paragraph (2AA) of this clause, an application made in consequence of the notice may specify, as the date on which the applicant proposes to begin the flaring or use in question, a date after the expiration of that shorter period.

The noble Lord said: It may be convenient for the Committee to take with this Amendment the corresponding Amendments, Nos. 29A, 33A and 36A. This is a substantive and not a technical Amendment. Its effect is to require Licensees to give at least two years' notice of intention to flare gas, except in emergencies which are already provided for in the model clause or where it is clear that two years is impracticable. At first sight this might appear to be an onerous new obligation, but I hope I can demonstrate that this is not in fact so.

The Amendment arises from the problem of associated gas; that is, gas which in greater or lesser quantities is produced in conjunction with oil. The problem arises because the interests of the producing company and the nation may well not coincide. The Licensee is understandably principally interested in oil. That is the more profitable commodity, that is what oil companies are really in the business of searching for. From a national point of view, however, natural gas is an important energy source, a scarce commodity supplies of which must be husbanded wherever possible. Anyone who has flown over certain areas of the Middle East, for example, by night and has seen the desert illuminated for miles around by flaring gas will be aware of the enormous waste of a vital energy source that can occur when commercial considerations override all others and there is no control on flaring gas. We are greatly concerned to see that associated gas from beneath the North Sea is not wasted, and if it is flared, burnt off, it is quite simply wasted.

There will no doubt be instances where it is inevitable, where the associated gas is so little or where the location of the field is such that it makes no economic sense to do other than flare. But there may well be other cases where it need not be wasted, where it might be possible and economically viable to feed it into a gas pipe-line already existing or to collect the associated gas from a number of neighbouring fields and transport it ashore in a pipe-line specially built for the purpose. A feasibility study has recently been mounted to evaluate the relative economics of alternative ways of bringing the associated gas ashore, possibly through a gas-gathering pipe-line. But the examination of such possibilities and arrangements to take advantage of them take a long time, and this is why we think it necessary to have warning so far in advance of Licensees' intentions.

The model clause as drafted could too easily be rendered ineffective as a conservation measure by Licensees seeking consent to flare at such short notice that there was no practical alternative but to agree. We recognise that there would be cases where an absolute requirement for two years' notice could be unduly inflexible, and after discussion with the United Kingdom Offshore Oil Authority, we have introduced provision for a shorter period of notice to be approved. But before giving an exemption we shall wish to be satisfied that two years' notice really was impracticable.

Having said all that, however, I hasten to assure the Committee that there is no question of the Secretary of State unreasonably requiring a Licensee to go to immediate expense merely to save a tiny quantity of gas. The industry voiced these fears early on in discussion on the Bill and the model clause already contains provision for Licensees to make representation on technical and financial matters. The Amendment is therefore a strengthening of the Secretary of State's powers to ensure that in the national interest valuable energy resources are not avoidably lost and, as such, I commend it to the Committee.


We can start with the kind things first and say that this Amendment is at least better than the first version which appeared in the last Marshalled List. It does, however, raise a number of questions. It seems a curious moment for this issue to have come up in an Amendment, very late on in the passage of the Bill. I should not think that it is a new point. I think the noble Lord was attempting to answer my second question: why is it necessary at all in view of the powers which are already in paragraph 21(3) of Schedule 2. That says: Notwithstanding anything in the preceding provisions of this clause, the Licensee shall not—

  1. (a) flare any gas from the licensed area; or
  2. (b) use gas for the purpose of creating or increasing the pressure by means of which petroleum is obtained from that area, except with the consent in writing of the Minister and in accordance with the conditions, if any, of the consent."
If I understood the noble Lord correctly, he was saying that the industry could, under that provision, put a pistol to the head of the Minister and virtually say that a dangerous situation was going to be created unless he agreed to give the consent which was required under that clause. It is difficult to see why these new powers are required; and certainly the language in which they are expressed in this Amendment is difficult. I am told by the legalists that it is very difficult for them to understand, and as a matter of fact I assure the noble Lord that for the non-legalist it is most difficult and highly obscure as to what the intention really is. This is, as it were, the technical area of objection to it.

On a more commercial and common sense basis, there are a number of worries. There is the question, of course, that for fields which are about to come into production in less than two years it does not seem to make sense because one cannot give two years' notice if one is wanting to do something in less than two years. I suppose that that is a basically technical point which could easily be overcome. Then there is the worry that if a company is refused permission to flare its gas, it may weaken its commercial bargaining situation when it has only a monopoly purchaser to whom it can sell the gas in any case. I can sympathise totally with someone who says, "I am going to be put in the situation where there is only one person who can buy my product and he is not prepared to offer me a price which makes it in the least attractive for me to sell it to him and therefore I wish to pour it down the sink". But under this Amendment that will not be possible for him to do; the potential buyer will know that very well and this will put him in a very strong position to make life extremely awkward for the company. I should not expect the Government to shed any tears over the lack of profit which some of the oil companies may make as a result of that, but I should expect them to shed a certain amount of tears if this causes a delay in the production of the oil which the country so desperately needs. I believe that one of my noble friends will be referring to the problems which are already appearing in connection with other oilfields in the North Sea; that is, some of the technical problems which have arisen from the specialist equipment.

I am sure that this is not the place for us to go into the questions of re-injection as opposed to flaring. It is a highly complex matter, as I am aware from the little information I have been able to obtain on the subject. I shall be filled with a certain amount of misgiving if the companies are to be asked to go through an elaborate fandangle to explain why they think it necessary to do certain things and if the Minister is to arrogate to himself the right to override them. That is perhaps a rather more general objection, but it inevitably arises from the nature of the Amendment and the time at which it has been produced. I cannot see the need for this, since one would have thought that this would be one of the major issues to be discussed early on when working on the development programme.

Clearly, we are not going to divide the House on a technical Amendment of this kind and one which the Minister has satisfied himself gives him a power which he really needs. I would, however, earnestly ask the Minister to consider the possibility of withdrawing the Amendment which I am advised is inherently badly timed, possibly unreasonable and certainly badly phrased. One would hope that some shorter and more intelligible wording might conceivably be introduced at a later stage. We shall not oppose the Amendment, though we reserve the right to examine it closely and to see whether it will be necessary to bring in a subsequent Amendment at Report stage unless, as I hope, the Government can be induced to put the short time available between now and Report to good use in producing a better Amendment which achieves what they really think they need.


I have listened carefully to what the noble Lord, Lord Lovell-Davis, has said in explaining the reason for this Amendment, but, so far as I understood him, he was concerned merely with the question of the notice required for flaring the gas. However, the Amendment also deals with subsection (2A)(b) which relates to re-injection of the gas into the reservoir of oil underneath. Last week, I had the privilege of visiting the Ekofisk Norwegian oil rigs in the middle of the North Sea. I note that the noble Lord, Lord Ironside, is in the House and he and I were both on this expedition. There, there was re-injection of the gas into the oil space underneath for the purposes of avoiding depletion because the oil rig was not ready with the pipe-line to supply North Germany at Emden with the gas. As I understood the noble Lord, Lord Lovell-Davis, he emphasised that it was necessary to prevent waste and suggested that, instead of flaring, steps could be taken to take the gas somewhere else. However, it may be necessary for a variety of reasons with which I shall not weary the House that there should be re-injection. That is the use which is allowed as stated in sub-paragraph (b) at the top of page 63. I wonder whether the noble Lord would be good enough to explain this aspect of re-injection and whether or not he considers, as a technical matter, that two years' notice would be too long to give in the circumstances of re-injection which is necessitated for technical reasons?


I, too, found it very difficult to understand the noble Lord's reasoning here, especially after the visit which I paid to the Ekofisk field with the noble Lord, Lord Lloyd of Kilgerran, last Friday. When we were at that field, flaring was going on for the reason that the noble Lord has mentioned. They were testing out compressors and techniques of injection and they found that it was necessary to burn the waste gas on site during the test period. We learnt on that rig that the arrangement which the company—Phillips Petroleum—has with the Norwegian Government is that its programme is based on a month to month assessment during this stage when oil is not being pumped to Tee side and when gas is not being pumped to Germany. One would have thought that it would be possible for the Government to be flexible in this matter, because it was emphasised to us that the need to flare when in production is purely technological and arises from assessments made from the reservoir pressures and general statistics. The need to maintain a constant pressure is vital and to operate in any other mode involving "Stop/Go" procedures due to Government intervention or delays caused by Government is not acceptable because any hiccups which are caused in gas production may lead to a situation in which it would be difficult to get the gas flow started again having stopped it. As I understand it and as it has been put to me by oil company representatives, indiscriminate flaring is not technologically practicable. However, in the Norwegian case, should the licensee wish to seek consent under a planned programme to carry out flaring, he would expect to be able to obtain that consent at short notice on presentation of a reasonable case.

When the noble Lord, Lord Lovell-Davis, spoke to the Amendment, he drew attention to all the things we see going on in the Middle East. The North Sea is not quite like the Middle East in this respect, however, and I cannot really see that the fears which he has expressed can be substantiated.


I should like, first, to reply to the points raised by the noble Lord, Lord Strathcona and Mount Royal. He referred to the situation of the fields which will be producing less than two years after Royal Assent. We can make transitional provisions under Clause 46 to cover these. At present, the situation is that there is inadequate control. In future, we shall secure control but, clearly, in the case of rigs which are now moving towards production, two years cannot apply. On the monopoly point raised by the noble Lord, it is only gas for use as a fuel in Great Britain which has to be offered to the BGC and only at a reasonable price which can be determined in the last resort by the Secretary of State. It is true that generally we shall expect flaring plans to be discussed as part of the development programme.

On the matter of re-injection, of course this is a very important aspect of dealing with gas. It is something which, in cases where it is impossible to take the gas out and feed it into the pipe-line, is one potential way of using the gas, just as a certain quantity of the gas—though not very much—can be used to power the rigs. The noble Lord referred to a visit to a rig. I was on one of the rigs in the Forties field which is powered by gas. Gas provides its source of energy. I do not know how many rigs will do this, but it is a potential use, though not very much gas would be involved. There is a case here where a certain amount of re-injection could be done. Perhaps this is one of the points that a producer might have to work out, to see to what extent he could re-inject. I am afraid that I am not in a position to go into technicalities on this, but re-injection is a necessary part of dealing with the gas.

With regard to what the noble Lord, Lord Ironside, said, the fact is that a producer could flare all the gas; it is possible to flare all the gas. The noble Lord says that that would not be done in the North Sea, but unless we introduced control over flaring early on a producer could do it. We must prevent this happening. It is a matter which we shall discuss early on, and it is in the interests of the producers that we should do so. Flaring gas affects the design of the platform itself, for one thing.


The noble Lord seems to be speaking as if the paragraph which I quoted to him is not already in the Bill. But it is already there, and it is clearly stated that it is possible to stop the flaring of gas. No one is suggesting that we want to eliminate from the Bill the power of the Minister to stop the flaring of gas. We are suggesting that it is already there, and that we need to make it even more difficult than it is now.


The point that I was last making answers the noble Lord. We want information well in advance. We want this worked out; hence the two years. I shall try now neither to withdraw nor to oppose my noble friend's Amendments, and so I beg to move.


I do not wish to detain the Committee, but I should like to reinforce other appeals. I am merely a simple industrial engineer, and not a legal expert. But here we have sheer legal gobbledygook. I have read it six times, but it makes absolute nonsense, and I cannot understand what it is about. There must be other people, who are also engineers involved in this business, who will have the same difficulty. The Minister did not reply to this point. There is no political difference on this. All we are suggesting is that there might be a new draftsman to see whether this matter can be made a little simpler in its final version. That is my first point.

With regard to my second point, the Minister said—if I understood him rightly—in referring to the two years' notice, that there was provision for a shorter period. I made a note of what the Minister said in his first contribution, but I was not quite clear on this. Is this to be written into the Bill? Is it to be included in the model clause? Perhaps the Minister can say where we are to find this. Is it already there, or is it to be put in later? I cannot help feeling—and many other people have made the same point—that it will be necessary to be sufficiently flexible for the Ministry to give permission at very short notice.

My noble friend Lord Ironside made the point that it is not a two-year plan at the moment in the case of Ekofisk. It is done on a monthly basis. It is not done two years ahead; it is done month by month. I can visualise times in the life of an oil rig when it may be necessary to rebuild a compressor, enlarge its capacity, or up rate it to deal with higher powers which may be necessary to pump the gas ashore. Such requirements may mean modifications to compressors and render them unserviceable. In such circumstances, would it be possible to send a telex message to the Ministry stating that there has been an emergency or putting forward a certain plan, and asking for early approval? This type of flexible approach must be available if we are not to sacrifice the optimisation of the oil flow which is what the whole debate is all about.


In answer to the noble Lord, Lord Orr-Ewing, I certainly undertake to look again at the precise wording to see whether it is crystal clear, and if it is not we may be able to make it clearer, or make out a stronger case for the existing wording on Report. With regard to the other point raised by the noble Lord, about the provision for a shorter period to which I referred in proposing these Amendments, this is in sub-paragraph (b) of Schedule 2, Part II.


Is there to be a set up so that early permission can be given for a flare-off in an emergency? Would a telex message be sufficient to justify the case?


I am sorry that I did not deal with that point. In the Bill there are provisions which enable flaring to take place in an emergency, whereby the Licensee can, in fact, flare. He has an obligation to notify the Secretary of State, but in an emergency he can flare before doing so.


Before we leave this Amendment, I wish to raise one point, it is not a technical point, at least not in the sense in which we have been discussing the matter. It has a rather wider application than this Amendment alone, Therefore, this may not be the appropriate time to ask the Ministry to reply on it, and perhaps Third Reading would be a more suitable occasion. But what I have in mind highlights a problem. If the Minister has to administer all these different controls—such as whether it is right to flare gas, whether it is right to restrict a production programme, whether it is right to approve a particular production programme for a start; and many other things—he will need to have available to him a considerable amount of skill and expertise, all of which are in short supply. There are two ways in which he can do this; and, obviously, to some extent he is doing this already. One method is for the Minister to have his own experts; the other is to call in outside consultants. No doubt both methods are used already. But it is the experience in the industry that skills of this kind are in short supply. The companies are in hot competition with one another for the limited expertise available. We are now to create a British National Oil Corporation which will also be competing for these skills, which the Minister will have available to him so that he can, as it were, cross-check to see whether he regards the companies' proposals as reasonable.

I can see considerable problems arising from this situation in, for instance, consultancy in relation to reservoir engineering and the attempt to assess the extent of oil revervoirs and their probable production rates. One sees in reports time and time again the name of virtually only one firm which is qualified to express opinions in this very difficult field. The administration of this Bill with all its different controls will put a very great strain on scarce resources. I hope that the Minister will, if not now at a later stage—perhaps on Third Reading—say a little on how the Government intend to deal with this problem.


Yes, I shall certainly do so. I fear it would take up much of the Committee's time if I did so this afternoon. However, I wish to take the opportunity—as the noble Lord, Lord Polwarth, has again intervened—to make quite clear what I said to him earlier. He asked whether before developments start the Licensee will know the maximum cutback and the earliest time that cutback can start. The answer to that is, Yes, I also wish to make quite clear to the noble Lord, Lord On-Ewing, the reference in the Bill which I mentioned earlier in reply to a point from him. Perhaps I did not make it as clear as I might. The Amendment adds two paragraphs to the model clause (2AA) and (2AB). The second of these provides for a shorter period of notice where appropriate.


I beg to move Amendment No. 21A, which is intended to correct a printer's error. I commend it to the Committee.

Amendment moved— Page 65, line 23, at end insert ("of the").—[Lord Balogh.]

5.0 p.m.

Lord CAMPBELL of CROY moved Amendment No. 22:

Page 67, line 35, at end insert: ("(6) Where any of the events specified in sub-paragraphs (b), (f), (h) or (i) of paragraph (2) of this Clause shall first occur this licence shall not be revoked unless the Minister shall have first given written notice to the Licensee of his intention to revoke this licence on those grounds and the Licensee has failed within a period of three months beginning with the date of service of such notice to remedy the breach or non-observance in question.")

The noble Lord said: In discussing Amendment No. 22 I would suggest that we also consider Amendment No. 30, which is its counterpart, where similar wording would have to be written into the Bill. We are now dealing with the procedure for revoking a licence, and the purpose of this Amendment is to provide a period of grace in which Licensees can remedy any alleged breach of the licence terms. This is to avoid a licence being revoked on what might be purely technical grounds, or indeed for breaches of the licence terms of which the company were not aware until the matter was drawn to their attention and which they could quite quickly and readily put right. Revocation of a licence is an extreme step, and it can involve the Licensee losing all the money he has invested in the licensed area as well as the chance of future profits. It should not, therefore, be exercised lightly. The new model clauses give Ministers the power to revoke licences in many new circumstances, and this makes it essential that there should be some safeguard against forfeiture through misunderstanding. The Amendment would provide that a licence cannot be revoked overnight without an opportunity, during a period of grace, to ensure that the breach of the licence terms is remedied.

I foresee that there is one possible objection which the noble Lord who replies may raise; namely, that this course of action could be abused by persistent offenders. But that has been anticipated, and the Amendment provides that the period of grace can apply only to the first breach of the kind in question by the Licensee concerned. I hope, therefore, that this Amendment will be accepted in principle by the Government, though they may themselves seek to put down other words. I beg to move.


This Amendment provides that where a Licensee breaks a licence condition for the first time he should be given three months in which to remedy the breach before the licence becomes revocable. There was some debate on a similar Amendment in another place, and on that occasion the Under-Secretary, while saying that in most cases the Secretary of State would give a first offender a second chance, resisted the Amendment to this effect on the grounds that the way could be open to a chain of successive breaches; and I do not think that the wording as it is now really meets this case. I acknowledge that the noble Lord has sought to meet that objection, but we might still be faced with the case of the habitually careless Licensee who might in minor ways breach a number of licence conditions to an extent which justified revocation. As the clause stands, the sanction of revocation would be real and immediate. As it is proposed to amend it, however, such a Licensee could escape punishment for a long time provided he was prudent enough to breach a different licence term each time.

Another point is that Licensees might be able to adopt a more relaxed attitude in matters of safety and pollution. Can it really be contended that massive pollution or flagrant disregard of safety requirements should not bring about automatic loss of the licence, even if it happens only once? Certainly the Americans thought so when the catastrophe occurred off California, and I should have thought that we might as well follow the American practice.

This is perhaps a rather far-fetched scenario, but it does illustrate the difficulties and risks of dealing in Statute with matters of a type which require flexibility in handling and are better left to the discretion of the administering authority. I can, however, give the noble Lord this reassurance. An undertaking was given in another place that the Licensee who, through uncharacteristic inadvertence or ill luck, defaults on a licence term has nothing to fear. I can repeat that assurance. The Amendment would make no practical difference in his case. In the future, the efficient and conscientious Licensee will have nothing to fear from the revocation clause, just as he has had no cause to fear unreasonable use of it up to now. I hope I have reassured the noble Lord and that he will rot press his Amendment.


I am grateful to the noble Lord for giving that assurance, which I am sure is the sense which most of your Lordships' Committee would support in the kind of breaches which I mentioned, where a company, once the matter has been drawn to their attention, could quickly and very readily put it right. Naturally, we believe it would be better if it were in the Bill. As I anticipated, the noble Lord spoke about persistent offenders, but the words "shall first occur", which are in this Amendment, are there in order to cover that point. When the noble Lord referred to a disaster, that is not the kind of situation with which this Amendment is designed to deal. Of course a disaster on the scale to which the noble Lord referred—a "blow out" off California—is quite another matter.

We should have preferred to have something in the Bill. As my noble friend Lord Polwarth pointed out in a debate on a previous Amendment this afternoon, it is because of latent threats like this in the Bill that many companies are finding it difficult to get finance. Banks and other financial institutions realise that a Government could negative and nullify an investment at very short notice through something that could be a misunderstanding and could lead to a revocation, so I hope that the assurance which the noble Lord has given this afternoon will be widely circulated. It will again help confidence in that respect, in finding much-needed finance for our offshore oil operations. Does the noble Lord wish to intervene?


I merely wish to say that I can certainly undertake that, in our negotiations about the other clauses which we are amending, I shall mention this matter and give that assurance.


I am grateful to the noble Lord for his assurance, and I do not intend to press the Amendment in these words or at this time. This is an important subject, but I beg leave to withdraw this Amendment.

Amendment, by leave, withdrawn.

Lord LLOYD of KILGERRAN had given Notice of his intention to move Amendment No. 22A: Page 72, line 26, at end insert ("being the notional cost thereof to the Licensee assuming that the said conveyance and treatment had been negotiated and effected on arms length terms by a person other than the Licensee").

The noble Lord said: In view of the assurances given by the Minister in relation to Amendment No. 14B, this particular Amendment will not be moved.


Amendment No. 23 is an Amendment which I spoke to with Amendment No. 15. I beg to move.

Amendment moved— Page 79, line 17, at end insert ("and where it is determined in consequence of any reference to arbitration in pursuance of sub-paragraph (a) of this paragraph that the programme in question does not satisfy the relevant requirements the Licensee shall submit to the Minister, as soon as possible after the date of the determination, a further programme which satisfies the relevant requirements.").—(Lord Lovell-Davis.)

Lord CAMPBELL of CROY had given Notice of his intention to move Amendment No. 25:

Page 82, line 21, at end insert— ("(8B) Where in consequence of any breach or non-observance by the Licensee of any requirement imposed upon him by the provisions of this clause the Minister has power by virtue of paragraph (1) of clause 39 of this licence to revoke this licence he shall exercise that power only in relation to that part of the licensed area in respect of which the breach or non-observance has occurred and over which the programme extends; and where he does so the rights granted by this licence shall cease in respect of that area without prejudice to any obligation or liability imposed upon the Licensee or incurred by him under the terms of this licence.")

The noble Lord said: This Amendment was discussed with Amendment No. 17. It is therefore not moved.

Lord LLOYD of KILGERRAN had given Notice of his intention to move Amendment No. 25A:

Page 82, line 26, at end insert— ("(10)(a) If the Minister shall give any notice to the Licensee pursuant to this clause either

  1. (i) rejecting a programme; or
  2. (ii) approving a programme subject to conditions otherwise than on the ground specified in paragraph (i) of paragraph (4)(c) of this clause; or
  3. (iii) requiring a programme to be carried out or shall give a limitation notice in respect of any programme pursuant to clause 16 of this licence, the licensee may within 60 days after the service of such notice surrender the licence as to the whole or any part of the licensed area: being a part comprising the whole of the area to which the said programme relates;
(b) on the surrender of the whole or any part of the licensed area pursuant to paragraph (a) of this clause there shall be paid by the Minister to the Licensee the fair value (disregarding the terms of the said notice given by the Minister) as between a willing seller and a willing purchaser, to be determined in default of agreement by arbitration in pursuance of clause 40 of this licence, of the rights granted by the licence insofar as they relate to the part of the licensed area surrendered.")

The noble Lord said: This Amendment was discussed with Amendment No. 17A, and it is not moved.


Amendment No. 26 is consequential on Amendment No. 18, which was accepted a short time ago by your Lordships' Committee. It is necessary because it repeats in another part of the Bill exactly the words which were passed through this Committee by a Division a short time ago, and therefore I beg to move this as a consequential Amendment.

Amendment moved— Page 83, line 11, after ("programme") insert ("and the quantity so specified in such a further notice shall not be less than four-fifths of the proven production capacity of the field for the period specified in that further notice;").—(Lord Campbell of Croy.)


I beg to move Amendment No. 28 which was spoken to with Amendment No. 20.

Amendment moved—

Page 83, line 47, at end insert: (7) The Licensee shall ensure that any conditions to which an approval is subject in pursuance of Clause 15(4)(b) of this licence or a consent is subject in pursuance of paragraph with."—(Lord Lovell-Davis.)


I beg to move Amendment No. 29A which was discussed with Amendment No. 21B.

Amendment moved—

Page 86, line 13, at end insert: (3A) An application for consent in pursuance of paragraph (3) of this clause must be made in writing to the Minister and must specify the date on which the Licensee proposes to begin the flaring or use in question; and subject to paragraph (3B) of this clause that date must not be before the expiration of the period of two years beginning with the date when the Minister receives the application. (3B) If the Minister gives notice in writing to the Licensee stating that, in consequence of plans made by the Licensee which the Minister considers are reasonable, the Minister will entertain an application for consent in pursuance of paragraph (3) of this clause which specifies a date after the expiration of a period mentioned in the notice which is shorter than the period mentioned in paragraph (3A) of this clause, an application made in consequence of the notice may specify, as the date on which the applicant proposes to begin the flaring or use in question, a date after the expiration of that shorter period."—(Lord Lovell-Davis.)

Schedule 2, as amended, agreed to.

Schedule 3 [Production Licences for Landward Areas]:

5.12 p.m.


Amendment No. 31 was discussed with Amendment No. 15. I beg to move.

Amendment moved— Page 106, line 10, at end insert ("and where it is determined in consequence of any reference to arbitration in pursuance of subparagraph (a) of this paragraph that the programme in question does not satisfy the relevant requirements the Licensee shall submit to the Minister, as soon as possible after the date of the determination, a further programme which satisfies the relevant requirements.").—(Lord Lovell-Davis.)


Amendment No. 32 was spoken to with Amendment No. 20. I beg to move.

Amendment moved—

Page111, line 38, at end insert: (7) The Licensee shall ensure that any conditions to which an approval is subject in pursuance of clause 12A(4)(b) of this licence or a consent is subject in pursuance of paragraph (1) of this clause are complied with."—(Lord Lovell-Davis.)


I beg to move Amendment No. 33A which was discussed with Amendment No. 21B.

Amendment moved—

Page 112, line 39, at end insert— (2AA) An application for consent in pursuance of paragraph (2A) of this clause must be made in writing to the Minister arid must specify the date on which the Licensee proposes to begin the flaring or use in question; and subject to paragraph (2AB) of this clause that date must not be before the expiration of the period of two years beginning with the date when the Minister receives the application. (2AB) If the Minister gives notice in writing to the Licensee stating that, in consequence of plans made by the Licensee which the Minister considers are reasonable, the Minister will entertain an application for consent in pursuance of paragraph (2A) of this clause which specifies a date after the expiration of a period mentioned in the notice which is shorter than the period mentioned in paragraph (2AA) of this clause, an application made in consequence of the notice may specify, as the date on which the applicant proposes to begin the flaring or use in question, a date after the expiration of that shorter period."—(Lord Lovell-Davis.)


Amendment No. 34 was spoken to with Amendment No. 15. I beg to move.

Amendment moved— Page 130, line 35, at end insert ("and where it is determined in consequence of any reference to arbitration in pursuance of subparagraph (a) of this paragraph that the programme in question does not satisfy the relevant requirements the Licensee shall submit to the Minister, as soon as possible after the date of the determination, a further programme which satisfies the relevant requirements.")—(Lord Lovell-Davis.)


I beg to move Amendment No. 35 which was spoken to with Amendment No. 20.

Amendment moved—

Page 135, line 20, at end insert— (7) The Licensee shall ensure that any conditions to which an approval is subject in pursuance of clause 15(4)(b) of this licence or a consent is subject in pursuance of paragraph (1) of this clause are complied with."—(Lord Lovell-Davis.)


I beg to move Amendment No. 36A, which was discussed with Amendment No. 21B.

Amendment moved—

Page 137, line 45, at end insert— ("(3A) An application for consent in pursuance of paragraph (3) of this clause must be made in writing to the Minister and must specify the date on which the Licensee proposes to begin the flaring or use in question; and subject to paragraph (3B) of this clause that date must not be before the expiration of the period of two years beginning with the date when the Minister receives the application. (3B) If the Minister gives notice in writing to the Licensee stating that, in consequence of plans made by the Licensee which the Minister considers are reasonable, the Minister will entertain an application for consent in pursuance of paragraph (3) of this clause which specifies a date after the expiration of a period mentioned in the notice which is shorter than the period mentioned in paragraph (3A) of this clause, an application made in consequence of the notice may specify, as the date on which the applicant proposes to begin the flaring or use in question, a date after the expiration of that shorter period.")—(Lord Lovell-Davis.)

Schedule 3, as amended, agreed to.

Clause 20 agreed to.

Clause 21 [Authorisations for pipe-lines]:

5.15 p.m.

Lord BALOGH moved Amendment No. 37: Page 17, line 1, leave out from ("authorisation") to end of line 2 and insert ("the design and capacity of the pipe-line or of part of it and the steps to be taken to avoid or reduce interference by the pipe-line with fishing or with other activities connected with the sea or the sea bed or subsoil;").

The noble Lord said: This Amendment is in fulfilment of a commitment given by the Under-Secretary in another place—Hansard, col. 1489 (Committee) and col. 1576 (Third Reading). It reflects the Government's intention that in the administration of the pipe-lines control full regard will be paid to the legitimate interests of fishermen and others who use the sea and are dependent upon it for their livelihood. It is of course of paramount importance to exploit our oil resources to maximum advantage, but we have always recognised that there must be full consultation with other interested parties and that oil exploitation and development must take place in recognition of their position. On wider issues there is the Fisheries and Offshore Oil Consultative Group which has proved a valuable forum—for example, as a result of discussion there, UKOOA have agreed to institute a voluntary scheme of payments in respect of damage caused to fishing by sea bed debris resulting from oil operations.

On the narrower questions which arise out of this Bill, the fishing industry will certainly be among the bodies who will be consulted on the routeing of pipe-lines under the provision of Schedule 4, and this Amendment serves further to emphasise the Government's intention that the interests of fisheries and others with whose operations pipe-line development might interfere will be properly taken into account in the administration of these controls.


We welcome the writing into the Bill of this new Amendment. Certainly the fishing industry has been worried, since off-shore oil was first discovered and activities increased, that they might not be taken into full consultation when the oil operations were being carried out. Putting this into the Bill makes it certain that the fishing industry and others connected with the sea or with seabed activities will be consulted. One of the difficulties is that pipelines may be laid right across a fertile fishing ground and it may be expensive and difficult for the pipe-line to be diverted. The pipe-line will be buried at the end of the day, but while the laying activity is going on that fishing ground may be out of use. This could cause disturbance and loss of earnings to the fishing industry. The important point is that the oil industry and the fishermen's associations should be in direct touch in plenty of time to work out what will be the best arrangements. If there is a dispute and a real conflict of interests the Government or some other agency can come in and help to arbitrate.

It is an interesting point that obstacles on the seabed and other under-sea obstacles can attract fish and, by providing shelter of the kind that fish need, cause an additional congregation of fish in those places so that in a way there can be advantages at the end of the day. The more serious point is on the laying of pipe-lines and other under-water activities connected with oilfields. Unless these are known beforehand and synchronised with the normal activities of the fishing industry, they could cause not only damage to the fishing industry but much quite unnecessary ill-feeling between the two.

The noble Lord mentioned the consultative machinery which has been set up (and which I know about) between the fishing industry and the off-shore industry. May I ask whether it has now reached a permanent situation? Is it a Standing Committee? Does it have regular meetings? If the noble Lord cannot answer now, I shall understand; he can no doubt let me know later. I should like to know what progressis being made and how the consultation between these two industries is going forward. Right at the beginning the two industries were nut in touch through an agency of the Government of which I was then a member. I am glad to see that the machinery seems to have been increasing and that consultation has been getting better since. If the noble Lord can give a little information about this or its prospects we shall be grateful.


I ask permission to write to the noble Lord.

5.20 p.m.

Lord STRATHCONA and MOUNT ROYAL moved Amendment No. 38: Page 17, line 40, leave out from ("specifying") to the end of line 44 and insert ("requiring that, in default of the holder and the other person reaching agreement as to the sums or the method of determining the sums to be paid to the holder by the other person for the purpose of defraying the whole of so much of the cost of constructing the pipe-line as is attributable to the term, such sums or the method of determining such sums shall be determined by arbitration;").

The noble Lord said: It may be convenient for the Committee, in this slightly complicated set up that we have in this Bill, if I speak to Amendments Nos. 38, 40, 40A, 42 and 47A which are all on much the same subject. This covers the question of pipe-lines and agreements between more than one participating party concerning the use of a pipe-line. As I understand the situation, we are trying to deal with the point where there is a disagreement between two companies and the question as to who should arbitrate between the two companies in disagreement about the payments which should be made for the mutual use of a pipe-line. According to the present provisions in the Bill, the Government take to themselves the right to arbitrate when there is a disagreement of this kind. This, for matters of the magnitude we are dealing with herd, seems unnecessary and rather inappropriate in principle. Would it not be better to provide that the companies go to arbitration as between themselves rather than calling upon the Secretary of Statet to arbitrate? Perhaps I should say they do not call upon the Secretary of State—he says he will arbitrate whether or not they wish to have it.

I would have thought, on the whole, we had come to the conclusion that rather elephantine and heavy-handed intrusion by Government in matters of this kind is not necessarily the best way of getting the right agreements. I do not think there is any basic political disagreement on this question at all. My instinct is to feel that Governments are best left out until the last moment. I dare say that, in the course of his reply, the noble Lord will mention this in the provision which is borrowed from the Pipe-lines Act—which refers to onshore pipe-lines—which was brought in by a Conservative Government. I am prepared to say that possibly we have learned the error of our ways and feel this would be better done by arbitration as between companies.

Broadly speaking, the other worry the companies would have is that the Government may not exercise their arbitration on purely commercial considerations. They could have other reasons for tending to favour one party or the other through non-commercial considerations. I do not want to try to suggest in any way that we think the Department are liable to be Machiavellian in the way they judge an issue of this kind; but we lay ourselves open to a suspicion on the part of industry that this could happen, and it seems unnecessary. I should have thought that there was a case for saying the Government could be called in; but rather what we would seek to happen is to say that arbitration should be the first recourse between companies, and this gives them the opportunity to agree. I know that it is true to say at the present time they can already go to arbitration before they refer to the Minister, but there is a good case for saying that arbitration has at least to be tried before we involve the Government in what is essentially a commercial disagreement which need not concern them, and it is a quite unnecessary intrusion by them. I should be interested to see how the Minister reacts to the suggestion put forward in this Amendment.


I can understand the noble Lord's anxiety to ensure that equitable treatment is accorded to all parties concerned with pipe-sharing arrangements; but for a number of reasons I doubt if there is advantage in inserting into the Bill the Amendment which is proposed. I shall try to explain my reasons for saying this and, I hope, give assurances to noble Lords which may persuade them not to press their Amendment.

First—and I must make this very clear to allay the fears expressed by the noble Lord, Lord Strathcona and Mount Royal—we see the powers given to the Secretary of State very much as a long stop. The industry know and, I believe, welcome this. It is not our intention to interfere in cases where amicable agreement can be reached between the parties concerned. And they can, if they wish agree to go to a third party arbitrator. It is not a matter of automatic Government involvement. Secondly, the vesting of powers of this type in the Secretary of State finds a precedent—and I shall refer to it as the noble Lord suspected—in the 1962 Pipe-Lines Act which was enacted by a Conservative Government (which the noble Lord says has now become older and wiser), to regulate land pipelines. The provisions on third party use in this Bill are based very closely on that Act for the good reason that experience has shown that that Act has worked well. The power of the Secretary of State to regulate charges is there in the background, and there have been cases where it has helped to secure agreement. We hope that the corresponding provisions in this Bill will fulfil a similar role.

Thirdly, where the Secretary of State exercises his power, he will act in a quasi-judicial capacity rather than a political capacity. In such situations it is not usual to make the Secretary of State's exercise of his powers subject to arbitration. I will try to set the noble Lord's mind at rest and say the Secretary of State will not let himself be a party to the dispute and, in this respect, the situation is different from disputes concerning licences where the Secretary of State is a contractual party to the licence. In fulfilling a quasi-judicial role of this sort the Secretary of State will act fairly and impartially. He will be answerable to Parliament for the exercise of his powers and, in certain circumstances, appeals will be possible to the courts or to the Parliamentary Commissioner.

To sum up: there is no question of the Secretary of State using his power to discriminate unfairly between Licensees by setting charges by reference to extraneous factors. The powers are a long stop; they reflect the 1962 Act, which has worked well; the Secretary of State will be responsible to Parliament for his actions, and in the last resort an aggrieved party may have recourse to the Parliamentary Commissioner or the courts. I hope, in the light of these considerations, noble Lords will not feel it necessary to press their Amendments.


Lest it should be thought I have come to make trouble this afternoon, I have been busy in a Select Committee, and I would not want your Lordships on the opposite Benches to think I am not interested in this subject. I am interested in what the noble Lord, Lord Lovell-Davis, said. He says in certain instances there will be an opportunity to appeal. I wonder whether he or his colleagues could give us some examples of the instances in which there would be an appeal. He referred to the quasi-judicial capacity in which the Secretary of State would act. I felt certain when we were last debating this matter that this famous phrase would recur. Those of us who have had the opportunity to sit in another place with constituents who had endless problems subject to the quasi-judicial activities of the Secretary of State, have had cause to wonder both at the Secretary of State's official imperviousness to pressure—which has been very impressive from time to time—and on other occasions, one has been sceptical as to whether it was the quasi or the judicial which was the effective factor. On that point, I am sure the Minister will be able to give us some kind of assurance.

He has also used the second argument which we have heard before; that is, that because an assurance is given there is no need to put it into the Bill. This is, of course, a question of principle which has arisen many times and I am sure that the Government Front Bench are as tired of it as we are on this side, but it is all very fine saying that the Government will give certain assurances. One day there will be another Government in Office. It may be of the same Party as that of noble Lords opposite, though I hope not; it may be of the same Party but of a different wing of that Party; it may be a Government from this side of the Chamber. How can noble Lords opposite say that a future Government will be bound by an assurance given now? This is really very unsatisfactory, therefore, and, as I say, it raises a matter of principle which we have brought forward more than once.

I have not come here this afternoon to make trouble and I do not wish to delay the proceedings. Indeed, as noble Lords opposite will see, my very absence has been intended to be helpful and my brevity this afternoon is intended to be equally helpful. I only hope that during the rest of the afternoon which is before us we do not have that strong—I will not say "smell"—scent of prejudice against arguments used on this side, which reminds one so very much of what was written by the Reverend Sydney Smith in 1822: I never read a book before reviewing it; it prejudices a man so.

5.32 p.m.


I am afraid that my imagination is not working very fast this afternoon. I cannot think of instances where the appeal could be made, just offhand—but someone has just leapt to my help! The instances which I have before me indicate that reference to the Parliamentary Commissioner could be made in the case of maladministration, or failure to take account of the material facts or circumstances of a case. Appeal could be made through the courts where the Secretary of State had acted in a wholly unreasonable manner—for example, by a denial of natural justice. It has been established by court decisions that a Minister, in exercising his powers, must act within the bounds of reasonableness. I give the noble Earl those two examples. I do not know what to say on the matter of assurances. I realise these can be given fully only in terms of the Government who make them, It is a commitment by the Government. One hopes that the spirit of the legislation will be followed through by subsequent successive Secretaries of State; but it cannot, of course, be fully binding. I can only say in this case that laws also can be repealed.

I am most delighted to see the noble Earl this afternoon, and even more delighted to know that he is not here to create trouble. I therefore hope he will accept my rather inadequate replies to his several questions.


Before the noble Lords sits down, may I put two points to him? I am interested in what he said about the Parliamentary Commissioner. I have sat for many years in another place since the creation of the Office of Parliamentary Commissioner, and so I know rather a lot about the way he works. I should like to ask whether the Parliamentary Commissioner has had the matter discussed with him before, so to speak, he gets into this Bill, or is it the intention of the noble Lord to get him put into the Bill? I quite realise that he gives a sense of security. However, I should like to know whether he has agreed, because I did not quite like the phraseology which was used by the noble Lord. He said that it would be possible for the Parliamentary Commissioner to act if he considered that the material facts had not been properly considered. I think that might be a little risky, because I quite understand that politicians of any Party may argue a great deal about the material facts, and I did not entirely like the way in which it seemed to be envisaged that the Parliamentary Commissioner would be brought in, without being absolutely certain that the Government have an agreement with him, so that the Parliamentary Commissioner would know what his powers were to be under this Bill.

Then, before we go any further, it would be very interesting to know how many decisions have been taken to the effect that it is not necessary to write into the Bill proposals and observations that have been made. So many clauses have been discussed in connection with Amendments, and I should like to know the numbers, because they are rather difficult to keep in one's mind. At the same time, I should like to know who represents the fishing industry, because, of course, I represented an area which had a big fishing industry. Over the years there have been a great many discussions of every kind between Scotland and England concerning inshore fishermen, middle-water fishermen and so on. Therefore, it would be extremely interesting to have all that on the record, so that in future years when we are discussing the fishing industry people will know who represented that industry during the discussions which have taken place in this Chamber. I should like to have some information about all these matters.


Perhaps I should first correct a false impression which has been gained by the noble Baroness, Lady Ward of North Tyneside, about the Parliamentary Commissioner being "written into the Bill". I was referring earlier to the fact that the Secretary of State would he answerable to Parliament for the exercise of his powers, and to the fact that in certain circumstances appeals could be made to the courts or to the Parliamentary Commissioner. The noble Earl, Lord Lauderdale, asked me to quote examples of when a case would be referred to the Parliamentary Commissioner and when it would be referred to the courts. I was able to give him two examples; and I mentioned that a case could be referred to the Parliamentary Commissioner if maladministration had been alleged. The Parliamentary Commissioner, of course, can only consider complaints which are brought to his notice by M.P.s, although—




I should say that I would think so. He can also intervene automatically in cases which are suitable to his responsibilities. He does not have to be specifically mentioned in the Bill and in fact he is not so mentioned. The only other point—


Before the noble Lord leaves the point of the Parliamentary Commissioner, what I asked was this: has this matter been discussed with him, even though he is not going to be put into the Bill? He is going to appear in Hansard as one of the arguments being used. Has he been brought into the matter by means of discussion before being used in debate?—if I may put it in that way. That is what I should like to know.


No, no more than every Bill which involves a possible recourse to the courts is discussed with the Lord Chancellor or the Lord Chief Justice. The Parliamentary Commissioner is there and he is able to take action if called upon. There is no need whatsoever for us to have discussed with him an area in which he has absolute freedom to act or in which people have freedom to use his services. I can assure the noble Baroness there is no need to have consulted him, and we have not in fact written him into the Bill as it stands.

On the other point that the noble Baroness, Lady Ward, raised as to who represents the fishing industry, I am sure she knows the answer to that a great deal better than I do. I am not sure, but feel certain that the industry does not lack representative bodies which could look after its interests, although of course in framing this legislation we have very much taken into account the interests of the industry, partciularly so far as the laying of pipe-linesis concerned.


On that point, when we had an Amendment concerned with the fishing industry just now, the noble Lord, Lord Balogh, said that he could not reply to me immediately which I quite understood, on the question of consultations and the machinery which now exists and what is likely to happen in the future where the oil industry and the fishermen's representatives are concerned. He said he would write to me. I suggest that when one of the Ministers writes to me he should also deal with this point and write to my noble friend Lady Ward, because we are both very concerned about these matters. I myself would not expect the Ministers who are here now to be able to reply to all the fishing points with which my noble friend Lady Ward and I are concerned, but as I have had an undertaking to receive a letter on this matter I hope we can both be given the information we need by correspondence.


Most certainly.


I am sure we all hope very much that there will not be cases of division and altercation about the best use of pipe-lines. When I was involved briefly for the Government with certain aspects of this industry, one of the things I was keenest to avoid was a proliferation of pipe-lines like spaghetti across the bed of the North Sea. We want to see the best possible use made of the available line. At the same time, inevitably a dispute will arise sooner or later, I am sure, possibly because a company has a pipe-line which has spare capacity, another company would like to make use of that spare capacity and the first company has a promising find a little further on and hopes that it may be bringing in oil from that and will want to use it itself. So disputes are bound to arise, and possibly some day a case will arise where there is a dispute about this, or as to the terms of an arrangement between a private oil company and the British National Oil Corporation. Without imputing any motives to any Ministers, actual or potential, who I am sure do their best to be fair in these matters, I can see again from experience how very difficult a position a Minister would be in where he has to adjudicate between an outside interest and what is, in effect, his own creature. Would it not, therefore, for the avoidance of doubtor suspicion in the terms of this kind of arrangement, be better to have had provision for an independent arbitration? I raise that question once more before we leave the subject.


In answer to the last point raised by the noble Lord, Lord Polwarth, which is one I think he particularly wanted me to take up, the point is that BNOC will be involved in all of the companies. The Secretary of State, acting in his quasi-judicial capacity, would find it very hard; he would not know who to favour, BNOC being involved in all the companies concerned.


Will the noble Lord elaborate one point? He said that BNOC will be involved in all the companies. Surely that statement must be squared with the assurances we have had over and over again, that negotiation with the companies is entirely voluntary and their collaboration will be voluntary and there will be no use of force. How, therefore, does the Minister know that BNOC will in fact be involved in all the companies?


It is our declared aim to go for 51 per cent. participation. I trust that we shall obtain 51 per cent. participation right across the board. This is the whole purpose of our continuing negotiations.


I am sorry to press the noble Lord, and I do so in the friendliest possible way, as he knows. Surely, it is one thing to say that this is the Government's intention and policy—and reluctantly we recognise that that is so. But to say that it will in fact be achieved is to say that all the companies concerned will be willing. There is no evidence that they are willing; our evidence is that they are unwilling. Surely, the noble Lord is in that very statement, with the use of the word "all", introducing an element of menace. Obviously, we shall have to come back to it later, but he is anticipating the situation. Does it not contradict his own side's argument that these negotiations are entirely voluntary and without pressure?


The noble Lord, Lord Polwarth, on the other hand, was tending to impute rather sinister motives, possibly—well, no; but the suggestion was that the Secretary of State may act in the wrong way in a certain situation. The point I was trying to make—and perhaps used the word "all"inadvisedly—was that BNOC would be involved. The noble Earl knows our aims. I do not think there is any menace in what I was saying. These are our aims. Whether BNOC becomes more or less quickly fully involved in all these companies, there is no doubt that it will be involved in a number of them. This I think is the answer to the original question I was trying to answer from the noble Lord, Lord Polwarth, about the situation of the Secretary of State when he has to act in his quasi-judicial capacity.


I will not pursue the matter further here, except to say that since we have come on to a new Part of the Bill concerned with pipe-lines, I perhaps ought to have repeated again my interest, not only as before but actually in an oil and gas company which itself already possesses at least part of a pipeline.


We seem to have strayed rather widely in the course of discussing this comparatively innocent probing Amendment. It is fairly clear to me that the Government are disposed to be totally reasonable and I do not think there is very much between us. We disagree to the extent that we believe that more independent arbitration would be desirable before dragging in the Government's activities here. The question of participation and the amount of leverage to be used in obtaining it is something to which we are going to address ourselves in a few minutes, so I do not intend to refer to that at all.

We have had quite an interesting little debate on this question. I detect a lack of rigidity in the Government's approach, and I can assure them that this is the feeling on this side of the Committee. I believe that in the circumstances the best course would be to withdraw this Amendment at this time until we have had a chance to hear what the Minister says, in the hope that he and the officials in his Department will be doing the same. A number of legitimate misgivings have been expressed this afternoon, and I sincerely suggest to the Government that they should consider carefully whether all the points that have been raised have been covered, unless one or another of us brings in an Amendment at a later stage. Having said that, I beg leave to withdraw this Amendment.

Amendment, by leave, withdrawn.

Clause 21, as amended, agreed to.

Clause 22 [Compulsory increases in capacity etc of pipe-lines]:

5.49 p.m.

Lord CAMPBELL of CROY moved Amendment No. 39: Page 18, line 26, after ("pipe-line") insert ("can and").

The noble Lord said: This is, I suggest, a drafting Amendment. Before deciding whether a pipe-line should be modified the Secretary of State clearly ought to be satisfied that it can be modified, that it is capable of modification. In the Committee stage in another place, the Government accepted a similar Amendment in another Part of the Bill and the effect was the same; that is, that the capacity of a pipeline should be capable of being increased before the Secretary of State is able to require an increase in capacity. I trust, therefore, that the Government will have no difficulty in accepting this Amendment.


I must say that this Amendment strikes me as extremely odd. It is interesting that noble Lords, who are after all Members of Parliament and potential holders of very important Offices, including the Department of Energy, should believe that the Secretary of State, provided he is in his right mind (and if he is not he would probably he removed from office) can require somebody to do something which it is impossible to do. I do not wish to sour the amicable spirit in which, in the absence of the noble Earl, we have been discussing these matters by suggesting that this is unnecessary and rather a slight upon our political system. The mind boggles—mine certainly does—at the thought of anybody requiring something of a very important and costly character to be done which cannot be done. In view of this explanation, I hope that the noble Lord will feel able to withdraw his Amendment.


This is very strange. Everything that the noble Lord has just said applies to his colleague who at the Committee stage in the other place accepted exactly the same words in a similar place in the Bill. We thought we were doing a little elegant editing for the Government because they have accepted the Amendment in exactly similar wording a paragraph or two away. If the noble Lord will look at column 1531 of the Report of the Committee stage in another place, he will find the debate and the Minister accepting this Amendment and appearing to regard it as helpful. I am not going to press this Amendment to a Division but we are trying to help the Government on a small point of drafting. If the noble Lord really believes that this Amendment is too difficult, even though it was accepted in Committee in another place in exactly similar circumstances, of course I will not press it, but I must point out that we are doing only what the Government have already accepted and seem to have overlooked in another place in the Bill.


Is it not obvious that the noble Lord has done his homework very much better than I have? Also, it is probably true that the experts who are helping him are very alert. However, as he has made such an impassioned plea, I will undertake to look again at the drafting of Clause 22(1)(b) to see whether or not we can meet the noble Lord's wishes.


I am grateful to the noble Lord for being so generous. I have not tried to catch him out because in my opening statement I made it clear that this had already been accepted by the Government in an equivalent place in the Bill and that this was the other place where it needed to be done. I have not kept that up my sleeve and I hope that the noble Lord will acquit me of any discourtesy. I referred to the fact that this Amendment had been accepted in Committee in another place but had been overlooked in another part of the Bill. In the light of what the noble Lord has said, and in order to give him time to think about it, I hope that the Government will put it down at Report stage. In any case, I give notice that I shall put it down at Report stage to make sure that the Bill is complete in this respect and that an Amendment that has been made in one place is also made in the appropriate place elsewhere. Therefore, I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Clause 22 agreed to.

Clause 23 [Acquisition by persons of rights to use pipe-lines belonging to others]:


I must inform the Committee that if Amendment No. 40A is agreed to, I cannot call Amendment No. 41.

Lord CAMPBELL of CROY moved Amendment No. 41: Page 20, line 12, at end insert ("so as to secure to the owner recovery of an equitable proportion of the relevant capital and operating costs of the pipe-line;")

The noble Lord said: I beg to move Amendment No. 41. May I suggest that Amendment No. 42A should be discussed with it, as they go together. In these two Amendments we are suggesting an alternative way of dealing with the kind of problem to which my noble friend referred when lie moved Amendment No. 38 and the group of Amendments that go with it. At present, Clause 23 gives no guidance on the compensation to be paid to the owner by an applicant who wishes to use an existing pipe-line. The Secretary of State might arbitrate on the basis of formulae based on historic costs and these would be most unfair in a period of high inflation. Also, he might ignore the opportunity which the owner is giving up in conceding a portion of his existing capacity. The Government have made it clear that they wish to retain flexibility so as to require pipe-line owners to accommodate third parties but that on occasions this should be done on less than commercial considerations. At the Committee stage in another place on 10th July, 1975, the Parliamentary Under-Secretary made this clear.

There is a case that, irrespective of whether the original pipe-line owner has fully depreciated his capital outlay and nominally recovered his investment, he should not be required to dispose of spare capacity at less than its commercial value. Spare pipe-line capacity has a commercial value and the owner, having borne the cost and risk of installing the pipeline system, should be entitled to derive a fair commercial consideration for that value. I recognise that the Government may say that there will be certain occasions when it is in the national interest that spare capacity should be used by a third party and that for that reason the consideration should be less than commercial. However, this can be unfair as it is a matter of chance whether the owner of a pipe-line system happens to be in a position where the national interest is engaged or whether it is one where the national interest is not involved. This is simply a hazard. Therefore, we believe that the Government should face up to this situation and that there should be criteria to ensure that proper commercial factors are taken into account.

Since the Minister has penal sanctions to terminate an authorisation if changes are not made, the owner of the pipe-line has no effective appeal against what he may consider to be unfair treatment. This Amendment provides safeguards in the form of principles governing the sums the applicant should pay to the owner to ensure that such sums shall reflect a fair payment to the owner for real costs and for opportunities foregone and that it should be based on commercial considerations.

5.58 p.m.


I can understand the motives behind the Amendments and I recognise that there is some need for a further clarification of Government policy on the matters they deal with. I cannot, however, advise the Committee to accept them. Let me first explain why this is so, and then give an explanation of Government policy which will, I hope, deal with some of the concerns which lie behind the Amendments.

I said that I cannot advise the Committee to accept the Amendments. This is not only because of the difficulty of applying the concept of commercial terms to a pipe-line, since a pipe-line owner is naturally in a monopoly or partial monopoly situation and there is no free market in pipe-line capacity. There are also difficult questions of timing, since the newcomer's use of the pipe-line may be only temporary or may commence after the owner's use of it has started to decline. But, above all, we must retain flexibility—the flexibility referred to by the noble Lord, Lord Campbell of Croy—to provide some assistance to marginal supply. Where a supply is very marginal, making it bear a full share of the basic capital cost of a pipe-line might make it uneconomic. This consideration is especially important for gas, for which tanker loading does not provide an alternative. I think I am right in saying that all parts of the House are anxious to encourage marginal production in order to achieve maximum output of the oil and gas we so badly need, and so I hope that noble Lords will agree that this measure of flexibility is therefore desirable.

The pipe-line owner will of course be a net gainer in so far as the newcomer makes any contribution to basic fixed costs, but as I have said I recognise that there may be a need for some further clarification of Government policy on the payments to be made by statutory third-party users. Therefore the Government have carefully considered, in the light of the proposals in the two Amendments, what undertakings they can give as to the exercise of the new powers. I am very glad this evening to give your Lordships the following assurances which are new and which 1 think the industry will find of considerable interest.

First, it is certainly not the intention of the Government that the owner of a pipeline should be in any way out of pocket as a consequence of the exercise of the Secretary of State's powers. The Bill already provides that the third party must reimburse the owner for the direct additional capital costs arising from the former's entry. It does not deal with indirect costs; for example, the cost of interruption to the owner's throughput which arises while the line is being modified to enable the third party to use it. I can however undertake that we shall ensure that these costs also are reimbursed to the owner.

Secondly, the tariffs will be so fixed that the third party bears a fair share of the total running costs incurred after his entry. Thirdly, the Bill makes no provision for the third party to pay a share of the basic capital costs of the line. I can give an assurance that unless the supply in question is a marginal one or the pipeline owner has already made other sufficient arrangements to recover the full capital costs, we would normally expect the financial arrangements proposed to take account of the basic capital costs as well as costs arising from the entry of the third party.

I think it is fair to say that these assurances are an important new statement of Government policy. I hope that they will go a long way to meet the points made by noble Lords and the anxieties which I know are felt by the industry. I hope also that in the light of what I have said the noble Lord will not wish to press his Amendment.


Just for clarification, may I ask whether the noble Lord can explain a little further this rather complicated formula which he read out, which taxed my rather rusty shorthand, when he said that the Government are going to make sure that the pipe-line owner is not out of pocket. That could mean a variety of things. Is this in terms of the historic cost of the pipe-line or is it in terms of the historic cost as corrected by inflation to today's price? I hope the Government do mean that, but it was not said and perhaps it is worth getting it clear.

The noble Lord also made the point that because there is no free market in pipe-line capacity, therefore it is impossible to judge what are the commercial terms. I take it that the Government are trying to do just that—to decide what, in the absence of a completely free market, would be commercial terms. I hope that that is really their purpose.


To answer the second part of the noble Earl's question first, that is the Government's purpose. I am sorry if I dashed ahead and exceeded the noble Earl's shorthand capacity. The noble Earl's first point was with regard to the kind of out-of-pocket expenses or indirect costs which are not dealt with and which might arise as a consequence of the Secretary of State exercising his powers. For example, I quoted the cost of interruption of the owner's throughput which is bound to arise while the line is being modified. We intend to ensure that the owner does not suffer as a consequence of this being carried out.


I welcome the Government's statement on this and I thank noble Lords on the Government Front Bench for having taken so much trouble in considering these two Amendments. I am sure that the statement that has just been made and to which the noble Lord, Lord Lovell-Davis, has given great emphasis, will he considered most carefully, not only by us here, who will want to look at it in writing, but also by those outside who are much concerned with these problems and who, after all, will have to carry out the exceedingly intensive and difficult operations of laying and operating pipe-lines.

I should like to ask one question. The noble Lord made a very important statement, but does he intend to put anything into the Bill on this matter or is it simply to be a Government statement about the way in which they intend to handle this question?


It is a statement and an assurance of the way in which the Government will approach this part of the Bill and pipe-line sharing. They are assurances given by the Government.


I am grateful to the noble Lord. It is clear that it is not his intention to put anything into the Bill on this, but none the less I welcome the important statement which the Government have made and I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Clause 23 agreed to.

Clause 24 [Termination of authorisations]:

6.8 p.m.

Lord LLOYD of K ILGERRAN moved Amendment No. 42B:

Page 22, line 16, at end insert— Provided that if the contravention is capable of remedy by or on behalf of the holder the authorisation shall not cease to remain in force unless such contravention has not been remedied within the period specilied in the notice or any extention thereof which is reasonable having regard to all the relevant circumstances appertaining to the notice.

The noble Lord said: It is intended that this Amendment should be helpful to the Government in a practical situation which could quite frequently arise in relation to the termination of authorisations given under the Bill to a company as a licensee. If I may briefly outline it to your Lordships, the position would arise in this way. Under the Bill, the Secretary of State would have given authorisations to a company as licensee under certain working projects concerning the use of pipe-lines and matters of that kind, There then would have been a contravention of one of the conditions of the authorisation and under the Bill there will be consultation between the Secretary of State and his representatives with representatives of the licensee. After those discussions the Secretary of State can issue a notice terminating the authorisation.

The purpose of my Amendment is a quite simple and quite practical commonsense one. If the contravention is capable of remedy, then in my submission the Secretary of State should give the licensee the opportunity of remedying that contravention. It may be that in the course of the discussions to which I have referred between the representatives of the Secretary of State and the licensee, the Secretary of State would have given a notice terminating the authorisation with a long period to enable the licensee to remedy the contravention. But that is not clear from the wording of the clause as it stands at present. I hope your Lordships will consider my Amendment to be fair and just. It is that, provided the contravention is capable of remedy by or on behalf of the holder of the authorisation, then that authorisation shall not cease to remain in force unless the contravention has not been remedied in the period to which the Secretary of State has decided the notice should come into force. It means to say that for a period during the notice the licensee can endeavour to remedy that contravention and if he does so remedy it the authorisation should be capable of continuing.

The Amendment takes one other point; that is, that if the licensee, acting perfectly sincerely and desiring to remedy the contravention, for reasons often likely to be beyond his control, is unlikely to be able to remedy the contravention in the period given by the Secretary of State, there should be a discretion by the Secretary of State to allow a reasonable extension of that notice so as to enable the contravention to be remedied. It quite often happens that when you fix a period of time for doing anything in this field—something involving difficult technologicalmatters—it is impossible to keep to the time because of difficulties of industrial unrest or technical problems that were not noted or were not realised.

Therefore, the purpose of my Amendment is that the Licensees should have an opportunity to remedy the contravention within the period of the notice set by the Secretary of State, and during a reasonable period thereafter if the Secretary of State finds that the Licensee is doing his utmost to remedy the contravention, and has been prevented from doing so by the technological or industrial reasons reasonably held to be beyond his control. I beg to move.

6.11 p.m.


This Amendment would provide that if the holder of a pipe-line authorisation breaches its terms the authorisation cannot be revoked until the holder has had a reasonable time to remedy the breach. This sounds fair and equitable, but an earlier Amendment, No, 22, proposed a similar provision for breaches in licence terms. I advised noble Lords against that Amendment and I must advise them against this one, basically for the same reason.

First, the Amendment opens up the possibility of repeated breaches in the terms of an authorisation, with the authorisation never revoked, because each breach is in the prescribed period. Noble Lords should recognise how unsatisfactory this situation would be in the dangerous atmosphere—or perhaps we should say lack of atmosphere—of the seabed.

Secondly, while I readily see the force of much of what the noble Lord, Lord Lloyd of Kilgerran, said, there may be some breaches of the authorisation which, even if they happened only once, are so serious that it is right that they should lead to revocation at once. A breach of safety requirements involving loss of life should certainly do so, as should a breach of good operating practice leading to much pollution.

However—and I see the force of much of what was said by the noble Lord—the Bill as drafted merely empowers the Secretary of State to revoke an authorisation when its terms are breached. It does not compel him to do so. It also requires him to consult the holder before revocation. I can give noble Lords the assurance that the Secretary of State will administer these provisions reasonably, and will not revoke for minor or technical breaches of the authorisation, without giving the holder a chance to remedy them. This assurance will, I hope, meet the spirit of the Amendment while leaving the flexibility necessary to deal with major breaches which are not covered by the Amendment. In the light of all this, I hope that the noble Lord will not find it necessary to press this Amendment.


I should like to support this Amendment of the noble Lord, Lord Lloyd of Kilgerran. It should be underlined that many of these are technical exercises carried out for the first time in the world. With all the good will in the world, mistakes can be made. This clause seems to be to give the flexibility that the technologists will require in carrying out these very difficult enterprises on the sea floor.


Can the noble Lord, Lord Balogh, help us on this point? He assured us—and I do not doubt that it is the case—that there would be consultation before revocation. But anybody who has listened in this House to a Government Statement on consultation with other countries and so on, will know that consultation can mean a lot, or absolutely nothing. It can mean a single letter. I wonder whether the noble Lord can tell us what sort of procedures of consultation are envisaged. Is it that the Department will write a letter to the company, and will expect an answer within a week? Is it that there will be inspectors who will go around all the time, inspectors known and respected by the industry, as happens, for example, in the aircraft manufacturing industry with regard to air-worthiness? What is to be the operation of this consultation? If there are to be inspectors known perfectly well as individuals by the industry so that it is said: "Oh, here is Bill again. He has come to see if we are all right", that is one thing. But if it is to be the sort of consultation where there is perhaps an abrupt telephone call, or a series of letters, then that is not adequate consultation. If the noble Lord could tell us more about this, I am sure the Committee would benefit.


If the noble Earl, Lord Lauderdale, reads subsection (4) of this clause he will find the answer. Subsection (4) reads, If the Secretary of State is of opinion, after giving the holder of an authorisation an opportunity of making representations in writing to him about the matter and considering any such representations then made by the holder … and so on. It means that before anything can be done, the Secretary of State must consult and must accept the representations of the holder of the authorisation.

Again, we may say, that this does not mean that the Secretary of State will handle the matter in an equitable manner. But I do not see why we should assume that in the normal practice of British administration, this should happen. I do not see how one could remedy this if one assumed that the Secretary of State would act maid fide. On the whole, I think we have given sufficient assurance, and the Bill itself gives sufficient assurance, that normal representations will be made. They will be seriously considered as in other cases, and, with the permission of the noble Baroness, I can refer to the Parliamentary Commissioner Act which gives a remedy against maladministration.


Having listened to the noble Lord, Lord Lloyd of Kilgerran, and to the support given by the noble Lord, Lord Energlyn, I am bound to say I find myself in sympathy with this Amendment. We are dealing here with technically extremely difficult matters in many cases, and I am sorry to detect in the attitude of the noble Lord, Lord Balogh, a trace of rather more of the attitude of the policeman than the reformer. I seem to hear him say, "We must have the power to punish if someone does something wrong". But surely we are trying to ensure we get it put right. I should have thought that the spirit of this Amendment was very much that of "Let us get together to get things right". The less the Government find themselves in the position of punishing people and, indeed, looking for occasions when they might need to punish people for doing something wrong is surely the spirit in which we ought to be approaching this job.


I quite agree. But I assure the noble Lord, Lord Strathcona and Mount Royal, that we are not approaching this matter in that spirit. It is not a question of punishment, but a question that if someone has committed a major disregard of the rules of the authorisation—and this is what I would say to my noble friend—if he acted against the best technical rules then, in the dangerous and extremely risky situation with pipe-lines in which we find ourselves, obviously preventative action is necessary. If one cannot trust the operator who has committed a major breach of the authorisation, and one came to the conclusion that one could not trust a series of minor breaches, then, after all, it is a fact he knows the terms of the authorisation and ought to hold himself to the rules. Any breach of the rules might in those circumstances cause really catastrophic consequences. As the noble Lord said, we are faced with very important and very dangerous problems, and it seems to me that you have to have a certain flexibility of action in order not so much to punish but to prevent a repetition of the mishap.


Before I decide what to do about this Amendment, may I ask the noble Lord a question? I quite sympathise with his approach that where there is the most catastrophic action taking place immediate action must be taken to terminate the authorisation. But it is inherent in my Amendment that the hands of the Secretary of State are not tied in those circumstances: he has in my Amendment the flexibility he is asking for. If I may ask the noble Lord to look at the first line of the proposed Amendment, the Amendment starts off with a proviso, Provided that if the contravention is capable of remedy by or on behalf of the holder … If a catastrophic situation arises as a result of some contravention it is entirely in the hands of the Secretary of State; he can say, "This is not a matter which can be remedied in the normal way". My Amendment is directed to the straightforward difficulty; a licensee company dealing with these difficult technological problems in new fields feels that they ought to have some extra time to deal with the contravention. In the case of catastrophe the Secretary of State has full powers; the flexibility is, in my submission, inherent in the Amendment.


But the noble Lord has not dealt with the problem of the repeated smaller infringement. In this environment, with these extremely difficult technological problems, this situation must lead to a substitution of somebody who is capable of maintaining the rules. I do not think the noble Lord's Amendment secures that.


With great respect, I did not deal with the question of repeated breaking of the authorisation. There again, in my sub mission, my Amendment covers that situation perfectly, for this reason. Assume that the Secretary of State has been kind to the holder of the authorisation on one occasion, and he breaches the authorisation again; the Secretary of State can then say "I terminate this authorisation tomorrow morning". He can terminate that authorisation whenever he likes. It is inherent in my Amendment that the Secretary of State has powers to deal with the recalcitrant Licensee who is constantly breaching the authorisation. He gives him a chance the first tune to remedy. The noble Lord was good enough to say that he sympathised with the general principle of fairness inherent in my Amendment, but if the Licensee abuses that courtesy and sympathy which the Secretary of State has given him in the difficult technological circumstances that arise, if he again breaches it, the Secretary of State can say to him, "You have had your chance. The authorisation is terminated as of now". He is capable of terminating the authorisation almost immediately.


I did not quite understand what the noble Lord, Lord Balogh, meant at that moment by introducing the Parliamentary Commissioner. I really must put on the record, in relation to this Amendment, that I do not think the Parliamentary Commissioner could possibly be involved. I thought I had better just put that on the record.


He could easily be involved, through an MP. A complaint can be lodged of maladministration, and in that case a report will be made. The

Secretary of State has to receive representations from the holder of the authorisation if he cannot explain why he did not obey the rules. It is not as if the operators of the pipe-lines do not know the rules they will have to keep to; it is not a problem like the finding of oil, where a similar Amendment was not accepted, and where you do not know what situation will occur. The way in which these undertakings operate is known. They have to maintain certain safety factors. It seems to me that the assurance I have given to the noble Lord and a reading of the respective passages of the Bill should be sufficient.


I am grateful to the noble Lord for the assurances he has given, and I do not wish to waste the time of this Committee. But I am afraid that I must say that the assurances given do not go far enough, in my view, particularly having regard to the observations the noble Lord was good enough to make in answer to the points I have raised. In those circumstances I feel it is my duty to ask the Committee to accept this Amendment, and ask them to divide on it.

6.27 p.m.

On Question, Whether the said Amendment (No. 42B) shall be agreed to?

Their Lordships divided: Contents, 101; Not-Contents, 51.

Aberdare, L. Elton, L. Hylton-Foster, B.
Alexander of Tunis, E. Emmet of Amberley, B. Inglewood, L.
Alport, L. Energlyn, L. Ironside, L.
Amherst, E. [Teller.] Essex, E. Kemsley, V.
Amherst of Hackney, L. Falkland, V. Killearn, L.
Auckland, L. Ferrers, E. Kilmany, L.
Balfour, E. Ferrier, L. Kimberley, E.
Banks, L. Fraser of Kilmorack, L. Kinloss, Ly.
Berkeley, B. Gainford, L. Lauderdale, E.
Broadbridge, L. Garner, L. Limerick, E.
Brooke of Cumnor, L. Glasgow, E. Lindsey and Abingdon, E.
Brooke of Ystradfellte, B. Glenkinglas, L. Lloyd of Kilgerran, L. [Teller.]
Brougham and Vaux, L. Goschen, V. Long, V.
Byers, L. Gowrie, E. Lonsdale, E.
Campbell of Croy, L. Greenway, L. Lyell, L.
Carrington, L. Gridley, L. Mackie of Benshie, L.
Colville of Culross, V. Grimston of Westbury, L. Macleod of Borve, B.
Cottesloe, L. Hailsham of Saint Marylebone L. Merrivale, L.
Cowley, E. Middleton, L.
Daventry, V. Halsbury, E. Monck, V.
Denbigh, E. Harmar-Nicholls, L. Mowbray and Stourton, L.
Deramore, L. Harvington, L. Moyne, L.
Digby, L. Hawke, L. Newall, L.
Drumalbyn, L. Henley, L. Norfolk, D.
Ellenborough, L. Hives, L. Northchurch, B.
Elles, B. Hornsby-Smith, B. Orr-Ewing, L.
Pender, L. Selkirk, E. Thorneycroft, L.
Polwarth, L. Somers, L. Tranmire, L.
Rankeillour, L. Strathclyde, L. Trevelyan, L.
Redesdale, L. Strathcona and Mount Royal, L. Vivian, L.
Reigate, L. Wade, L.
Ruthven of Freeland, Ly. Sudeley, L. Ward of North Tyneside, B.
St Aldwyn, E. Suffield, L. Wigoder, L.
St. Davids V. Terrington, L. Wise, L.
Sandys L
Balogh, L. Hale, L. Paget of Nothampton, L.
Bernstein, L. Harris of Greenwich, L. Pannell, L.
Beswick, L. Houghton of Sowerby, L. Phillips, B.
Blyton, L. Hoy, L. Pitt of Hampstead, L.
Briginshaw, L. Jacques, L. Popplewell, L.
Champion, L. Kirkhill, L. Segal, L.
Collison, L. Lee of Newton, L. Shepherd, L. (L. Privy Seal)
Cooper of Stockton Heath, L. Llewelyn-Davies, L. Shinwell, L.
Crook, L. Llewelyn-Davies of Hastoe, B. Slater, L.
Darling of Hillsborough, L. Lovell-Davis, L. Stedman, B.
Darwen, L. Lyons of Brighton, L. Stewart of Alvechurch, B.
Douglas of Barloch, L. MacLeod of Fuinary, L. Stow Hill, L.
Douglass of Cleveland, L. Maelor, L. Strabolgi, L. [Teller]
Elwyn-Jones, L. (L. Chancellor.) Mais, L. Taylor of Mansfield, L.
Evans of Hungershall, L. Melchett, L. Wallace of Coslany, L.
Fisher of Camden, L. Milner of Leeds, L. Wells-Pestell, L. [Teller]
Goronwy-Roberts, L. Morris of Kenwood, L. White B.

On Question, Amendment agreed to.

Resolved in the affirmative, and Amendment agreed to accordingly.

Clause 24, as amended, agreed to.

Clause 25 agreed to.

Schedule 4 agreed to.

Clause 26 [Safety]:

6.36 p.m.

Lord IRONSIDE moved Amendment No. 43: Page 23, line 12, at end insert ("submersible apparatus,")

The noble Lord said: I think it will be for the convenience of the Committee if I speak to Amendments Nos.43, 45 and 47. I should first like to say that the noble Lord, Lord Lovell-Davis, and his noble friend Lord Balogh, were kind enough to have discussion with me on these Amendments and other matters which I raised earlier in the Bill connected with functions of research, and I hope that they will be able to say something to me about them tonight.

This Amendment and the subsequent ones concern the inclusion of a relatively new type of vessel which will become a new class in its own right under Part IV of the Merchant Shipping Act 1974, when the regulations for the registration of submersibles are shortly invoked. Part IV of the Act requires submersible apparatus to be registered, which includes life support equipment generally. This would include such things as articulated suits, remotely controlled submersibles, and lockout chambers in due course. As I understand the position, at the moment submersibles are first on the list and the other things will come later when sets of standards have been worked out in the industry and in insurance generally. Part III of the Bill covers safety and inspection in the control areas and fills a gap in the off-shore safety rules left by the Mineral Workings (Offshore Installations) Act 1971.

Safety and inspection are about the most important issues raised in this Bill, and even now we do not know whether all safety and inspection issues offshore have really been covered, as we have no one Act that provides for them in an all-embracing way. In fact, three Departments are concerned: the Department of Energy, the Secretary of State for Employment—that is to say, the Health and Safety Commission—and the Department of Trade. Perhaps this pattern is too complex and, quoting from a recent article written by the Head of the Marine Division in the Department of Industry, he says that it is "currently being considered". The Government may have something to say about this.

We cannot yet say whether safety of our nationals is properly provided for in the ocean concessions which some future agency may grant beyond the continental shelves. The death rate stands at 24 since 1971, which is an average of about 4 per 1,000 per year. None of these deaths is attributable to submersibles which, worldwide, have had an extremely clean record; the only recorded incidents being in America, neither of which was under insurance control. The two vessels concerned, your Lordships may remember, were the "Sealink" and the "Nekton Beta". We have been guided considerably by the classification societies in offshore works and they have set the pace. But they themselves are under considerable pressure and the five appointed organisations are becoming more and more overloaded in the North Sea, so we must be careful that they do not let us down.

One point mentioned by my noble friend Lord Lauderdale was that it was most important that firms should be working in close harmony with inspectors, and if the inspection societies are under pressure then this becomes even more important. There are possibly now eighteen submersibles operating in the North Sea, eleven of which have been there for some time and five of which belong to Vickers Oceanics Limited, and therein I have to declare some interest with that organisation from the point of view of research. Of the seven now on order, which go to make up the total of eighteen, five are on order by Vickers Oceanics.

The point I am making is that they have graduated to a distinct class of their own. Through their use, considerable British achievements in oil and gas developments have been pioneered, very largely by this one British company, Vickers Oceanics; so there is a considerable feeling that submersibles should for many reasons be formally classed as such in the Bill, instead of being sieved out through a mixed mesh of words such as aircraft, vessels, vehicles, structures, plant, equipment and other things. Indeed, I think the noble Lord would find it a bit of a challenge to say exactly what they are. Under the Bill they cannot be described as fish or fowl; it is difficult to say exactly what they are. It has always been argued that drafting requirements in any Bill need only be the legal minimum; but submersibles, through not being properly defined, have since April 1975 attracted 25 per cent. VAT. In Treasury eyes they are boats, like "Morning Cloud". They are classed with the products of the domestic appliance, leisure and luxury trades, like radio and television sets, caravans, photographic equipment, binoculars, furs and jewellery. Because they are of a limited gross tonnage—and this is questionable in the case of submersibles, which alter their buoyancy and displacement from time to time—they do not escape this net. One would have thought that submersibles would escape—that because they are not designed for domestic or recreational use there would be some derogation—but they do not, and they are unfairly and obliquely captured for this 25 per cent. rating.

Unlike boats, such as "Morning Cloud"—and I mention this because everybody knows everything there is to know about "Morning Cloud", the cost of which we are told was about £60,000—these submersibles cost £500,000; so that for a firm such as Vickers Oceanics taking delivery of five new submersibles during the next 12 months a very large sum of VAT is to be paid, and when they are paying of the order of £2,750,000 for all these submersibles, the VAT comes to about £670,000. This applies to the P & O Company, the British Aircraft Corporation and others. All are in the same position; they are rated by the 1894 Merchant Shipping Act formula of length times breadth times width over 150. It is of course possible to reclaim this money from the Customs and Excise after one month, but more likely two months; but the commitment in terms of extra working capital to finance this operation in the case of Vickers Oceanics, assuming the ability to raise it at 12½ per cent., is immense, costing I think £20,000, and the transaction merely becomes a banker's benefit.

I have already given the noble Lord some details of this situation and I should be happy to give him further detailed information when I have this at hand. I hope that he and his right honourable friend will do as much as they can to correct this situation, as it only encourages companies such as Vickers Oceanics in the use of flags of convenience and tax havens, something which I am sure all noble Lords regard as unpatriotic in a situation where British offshore contractors such as Vickers Oceanics are performing a service for which we shall be grateful in future years.

What are the incentives for these companies? BNOC is excused the petroleum revenue tax. We are told that it pays it in a notional way; like a dose of salts, it seems to go straight through the system into the National Oil Account. If underwater contractors like Vickers Oceanics were excused VAT, they would be delighted. Perhaps they could be notionally rated. I have a number of ideas to offer the noble Lord, and I should be happy to discuss these with him in detail at any time. I am simply saying that in this Bill it should be possible to use proper terminology in tune with the times, and I hope that the noble Lord will give this Amendment consideration. We do not want submersibles escaping the safety net, and it is fully recognised that they must be monitored by inspection procedures at all times. This is something we want and the contractors want, but these new vessels should be mentioned by name in the Bill.


I appreciate, and I am grateful for, the concern of the noble Lord, Lord Ironside, to ensure that full powers are available to regulate safety in respect of submersible apparatus. My reply is a simple and short one: submersible apparatus is covered by the existing wording of Clauses 26 and 27. These clauses were intentionally framed in wide terms, and I assure the noble Lord that there is no doubt that submersible apparatus will be covered by the words: … any … vessel … plant, equipment or other thing"— used for the purposes of any pipe-line works …". Similarly, in Clause 27 inspectors have power to enter upon vessels and inspect and test equipment. This, too, I assure the noble Lord, is wide enough to cover submersible apparatus. So far as the question of VAT on submersibles is concerned, I can only say that I have noted the matter and will draw the attention of my right honourable friend the Chancellor of the Exchequer to it.

With the leave of the Committee, I will, while I am replying to the noble Lord, Lord Ironside, refer to a matter which he has mentioned and which he raised in an earlier debate—the question of BNOC's power to commission as well as carry out research. I can assure the noble Lord on this point, too. It is true that Clause 2(2)(b), where research is specifically mentioned, refers only to "carrying out", but that provision is not the one which actually empowers BNOC to carry out research. It merely illustrates some of BNOC's powers and is stated to be … without prejudice to the … powers conferred by the preceding subsection… That is to say, it is Clause 2(1) which confers powers on BNOC and under Clause 2(1)(g) it would be able to carry out or commission research. I hope that the noble Lord now feels reassured on these points and that in the case of the former—the inclusion of submersible apparatus—he will feel able to withdraw the Amendment.


In support of the noble Lord, Lord Ironside, I am not quite content to accept the interpretation of Clause 26. It could be, as the Minister has just said, that submersibles would be adequately covered by the wording therein but, as the noble Lord, Lord Ironside, has pointed out, this is a piece of terminology which will affect not only the present development of the North Sea but any future development of the seabed. So in establishing the definition of "submersible apparatus" on page 31 as suggested by the noble Lord, Lord Ironside. I feel that we should be doing a very prudent and sensible thing and I see nothing difficult about inserting the definition, into the Bill.


May I point out to the noble Lord, Lord Energlyn, the difficulties of doing this in the present case? The primary intention is to have the submersible taken up in the definition and fully covered for the purposes of the Bill. I have assured the noble Lord, Lord Ironside, that this is done and it is so. If we were to define submersibles specifically we should be getting into a very long list of equipment used in pipe-laying and oil exploration generally.

It is impossible to tell what lengths one would have to go to define all the equipment employed in the construction and safe operation of pipe-lines and in securing the safety, health and welfare of people engaged on pipe-line works. We should have to include helicopters, possibly hovercraft, and we should wind up with a very long list and one which would have constantly to be added to as new equipment came into use. The important point here is that the clause is intentionally framed in wide terms and that it does take in submersible apparatus. We have taken the advice of Parliamentary Counsel on this and we are assured that submersibles are fully covered. That is the intention in this clause.


I should like to thank the noble Lord, Lord Energlyn, for his support of the Amendment. However, I see the difficulty pointed out by the noble Lord, Lord Lovell-Davis, of introducing terminology specifically to cover submersibles. I raised the point because we have been somewhat laggardly in legislation on safety generally. However, we are now seeing more of it and it is all rather piecemeal and not all-embracing. We have an example of American legislation on the safety of submersible vessels which has been in operation since 1968 and which the insurance industry uses as a model for its own business.

I do not want to press the point any further. I should like to thank the noble Lord, Lord Lovell-Davis, for giving me reassurances concerning the research and development functions of BNOC. One reason why I raised the point was because it was somewhat different from other points such as that which covers moving petroleum. We all understand that a person who wantsto move petroleum will do it in his own tanker or will hire some, body else's tanker, but, when it comes to research, the philosophy of extra-mural and sponsored research is something which is fairly new to everybody. That is why I thought it should be specifically mentioned in the Bill. We have had the Rothschild proposals in operation and the customer/contractor principles are now working well and are understood by everybody. They have become established practice. But, generally speaking, this is a new philosophy and I should have thought that it would have been worth including this, by example, in the Bill.

However, I shall not press the point any further, except to say that the reassurances which the noble Lord has given will be welcomed by the Association of Independent Consulting Research Organisations and many other research firms in the country. I accept the noble Lord's assurances about Clauses 26 and 27 and I am grateful to him for saying that he will take up the matter of the 25 per cent. VAT rating on submersibles. I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Lord BALOGH moved Amendment No. 44: Page 23, line 41, after ("44") insert ("(1)").

The noble Lord said: These are minor technical Amendments, associated with the Amendment to be moved later to Clause 44. Clauses 26(3)(a)(ii) and 45(2)(b), the subjects of the Amendments, refer to "such an other installation" as is mentioned in Clause 44. But Clause 44 mentions installations at several points. It is subsection (1) which refers to "other installations"—that is, those brought by the Bill under the safety controls of the Mineral Workings (Offshore Installations) Act 1971. Subsection (2) will refer to a sub-class of offshore installations which are already within the 1971 Act. It was thought that, to avoid any doubt, Clauses 26 and 45 should be amended to make it clear that they are referring to the other installations referred to in subsection (1) of Clause 44 and not to the installations referred to at other points in that clause. I am sorry that that answer read like a Bill. In short, the draftsmen want to clarify something in Clauses 26 and 45 following a rather loose definition of "installations" in Clause 26.

Clause 26, as amended, agreed to.

Clauses 27 to 33 agreed to.

Clause 34 [Control of construction and extension of refineries]:

On Question, Whether Clause 34 shall stand part of the Bill?

7.0 p.m.


We have not put down any Amendments to Clauses 34 to 39, which provide for a new system of authorisation of sizeable new refineries or extensions to refineries. From some future date such projects will require a new kind of special refinery authorisation. It appears from the Bill that the intention is that before the Town and Country Planning Acts are invoked and planning applications under them are considered, the Secretary of State—we presume that in this case it will be the Secretary of State for Energy—must issue an authorisation, no doubt on industrial considerations. But we should like an explanation from the Government about this. I say straight away that I sec the object of this and I personally sympathise with it. I can see that there is no point in embarking on the time-absorbing public inquiry which usually has to take place where a refinery is concerned, because a refinery—particularly a refinery on the scale mentioned in this clause—is the type of project to which people object, not only because of its appearance but also because it gives off pollution.

It seems unnecessary to embark upon the trouble and the expense of a public inquiry if it is later found that the refinery, or the extension proposed, is not necessary from the industrial point of view; or that there are reasons against it. I presume that it is the intention that the industrial question should first be considered by the Minister concerned, and that any planning application and consideration of it should come later. With that I sympathise. But I wish toput one point. I presume that the Secretary of State who gives the first authorisation for a refinery, or for an extension to be built, will be the Secretary of Slate for Energy. In the Bill reference is made, in the usual Parliamentary terms, merely to the "Secretary of State" and as a result it can be any Secretary of State. That is our normal way of working in such matters. But in these cases the Secretary of State for Industry might also be involved, I should be grateful if the Minister can tell us whether either of these two Ministers is likely to be involved, or whether the Secretary of State for Energy will have this function, which is an entirely new function.

So far as the consideration of the second part of such a project is concerned—that is planning permission—the procedure is laid down quite clearly in the planning Acts. So far as I can see, the Bill again refers to the "Secretary of State," in the singular. But it is pointed out in the clauses that this applies in Scotland to the Secretary of State for Scotland (who is the planning Minister there) and in Wales to the Secretary of State for Wales; and that is well understood in our legislation. Having myself been the planning Minister in Scotland, and after inquiries having had to undertake personally—because it cannot be delegated to another Minister—the quasi-judicial decisions on very controversial matters, I can certainly sympathise with the intention here of dealing with the industrial question first.

I wish to ask the Government this second question. Do economic considerations come into the picture when both these points are being considered? Presumably, when the Secretary of State is considering refinery authorisation, in the first place he will, besides considering the refinery capacity in the country and other matters affecting the oil industry and energy, take into account as well the general economic situation of the country. In the past that has certainly also been a factor in planning decisions: there has been the question of whether something is, from the point of view of the economy of the country, a matter of national importance. I presume that that economic consideration will also be taken into account when decisions are being taken after planning inquiries under the Town and Country Planning Act, but I should like confirmation of that.

I turn now to my third question. Have the effects on the planning Acts—both those affecting England and Wales and those affecting Scotland—been fully considered, and are any more changes to them required? Changes are incorporated in the Bill. Are they all the changes that are necessary? I raise this matter because it is a very delicate piece of legislation which has been evolved by Parliament over the years which enables objectors to put their case as fairly as possible, but which also enables promoters of schemes to put their case—often against advice—in order to try to test their case in the courts, thus giving them freedom to apply in order to see whether they are able to get planning permission for development on a certain site. Thus there is this very delicate machinery, which is difficult to operate and is often misunderstood. But it is there to promote the greatest degree of fairness as between objectors and promoters, and as between the general public and anyone else who has an interest. That is my third point. Are any changes required to the planning Acts as a result of this innovation with which, in principle, I agree but which could disturb the practice which is well understood and which is also the basis of the practice of many lawyers who operate in the field of the planning Acts?


I think I can reassure the noble Lord on those three aspects. It is the Secretary of State for Energy who is responsible. His authorisation will have to be sought before planning permission is applied for, and planning permission cannot be sought for a refinery before the consent of the Secretary of State for Energy has been sought. With regard to the effects on the other planning Acts, I am told by my experts that this matter has been thoroughly discussed with both Wales and Scotland and that there is no reason to suspect that there is anything remiss at the moment. But obviously, with changing conditions, one might need some Amendments later. But at the moment my experts think that these points are all covered.

I come now to the most important point raised by the noble Lord; namely, considerations. There are a number of considerations which will interplay. There is the industrial consideration, which is derived from the fact that our mix in demand and our mix in supply, as soon as North Sea oil is ashore, will have certain difficulties. The oil is sulphur-free and rather light, and the demand spectrum in this country is rather biased towards the heavy oils, not like in America and Germany where it is biased towards the lighter oils. Therefore there are many kinds of industrial and technical considerations involved about what sort of refineries there should be and what extensions to existing refineries should be sought or provided; for instance, catalytic crackers in which we are at the moment, on the whole, not so well equipped as we might be.

Obviously this involves economic considerations, because the options are very wide. The Secretary of State has said in another place that we wish to refine up to two-thirds of the oil gained from the North Sea, and clearly this will have a certain impact on refinery planning. Equally, the wish of the Continental countries to get some of our oil is very great because it is suitable for their needs. It is a politically safe area and it is very near; so there is a certain amount of agreement.

These are the considerations which the Secretary of State will have to take into account in coming to his conclusions. The amount, distribution, nature and ownership of oil refining capacity is largely determined, of course, by the structure of the United Kingdom oil market. It is important that the movements in this field should accord with the Government's oil policy and with the aim of obtaining maximum benefit from the North Sea oil. Our present refinery projects are subject to the usual planning procedures, but up till now at no stage are such projects evaluated in oil policy terms. This will now happen, and I can assure the noble Lord that the Secretary of State will take due account of both the economic and the larger political considerations in coming to these decisions.


I am grateful to the noble Lord for his reply. This is an important subject, and I think we have been able to deal with it in a very short time considering the size of it; but the noble Lord has been able to reply to my points, and I am grateful to him. This is something which I think we can pursue later, in correspondence.

Clause 34 agreed to.

Clauses 35 to 39 agreed to.

Clause 44 [Extension of Mineral Workings (Offshore Installations.) Act 1971]:

Lord LOVELL-DAVIS moved Amendment No. 47B: Page 42, line 17, leave out from ("installation") to end of subsection and insert ("subsection (4) of section 3 of that Act (which includes the concession owner among the persons having the duty to ensure that regulations under that section relating to an installation are complied with) shall have effect as if references to the concession owner were omitted.").

The noble Lord said: With the leave of the Committee, with Amendment No. 47B I should like to speak to Amendments Nos. 47C and 47D. Clause 44 is a technical clause dealing with the boundary between the Mineral Workings (Offshore Installations) Act 1971 and the Bill, and these are all technical Amendments to enable the clause more precisely to achieve its aims. At present, the 1971 Act gives control over the safety of manned installations on pipelines carrying petroleum from the United Kingdom Shelf. The purpose of subsection (1) of Clause 44 is to extend the control of the 1971 Act to such installations on pipelines on United Kingdom-controlled waters but conveying non-United Kingdom petroleum. A small consequential change is necessary, as a result, in the 1971 Act. At present it says that responsibility for meeting the requirements of the Act for any installation is on the concession owner (or Licensee with whose petroleum the installation is connected) as well as on the installation's owner and manager. The responsibility placed on the concession owner makes no sense for the new installations brought in under the 1971 Act. The concession area, apart from being in non-United Kingdom waters, will be some distance, perhaps a considerable distance, away from the installation. The concession owner may have no effective control over the installation. The Amendment therefore removes his responsibility. The responsibility of the owner and manager of the installation will of course remain, and they will be effectively answerable for the observance of safety requirements.

Amendment No. 47C is a small drafting correction. Subsection (2) deals with installations concerned with the transmission of oil from the United Kingdom areas. Because the source is within the United Kingdom areas the 1971 Act already applies, and the installations in question are therefore correctly referred to as "offshore"installations—the term used in the 1971 Act—and not "other" installations like those, hitherto outside the 1971 Act, which are dealt with in subsection (1). Amendment No. 47D is purely a drafting consequential Amendment.

That is all that there is of these Amendments, but in passing I should like to reassure noble Lords that the removal or reduction effected by this clause in the liability placed on the Licensee is a recognition of fact—that the installation concerned may be outside the area of his licence—and does not represent any impairment of our safety controls. It does not mean that no one can be held responsible. In all cases—in subsection (1) as well as subsection (2) cases—the owner of the installation and the manager will continue to be responsible under Section 3(4) of the 1971 Act for seeing that all regulations are complied with. I beg to move Amendment No. 47B.


I have just spoken to this Amendment. I beg to move Amendment No. 47C.

Amendment moved— Page 42, line 21, leave out ("other") and insert ("offshore")—(Lord Lovell-Davis.)


I beg to move Amendment No. 47D.

Amendment moved— Page 42, line 24, leave out from ("persons") to ("shall)") in line 28 and insert ("the said subsection (4)")—(Lord Lovell-Davis.)

Clause 44, as amended, agreed to.

Clause 45 [Amendments of enactments]:

Lord BALOGH moved Amendment No. 48:

Page 43, line 16, at beginning insert— (1) It is hereby declared that the reference to pipe-lines under the high seas in section 8(1) of the Continental Shelf Act 1964 (which among other things relates to the punishment of persons who damage such pipe-lines) includes pipe-lines under the territorial sea adjacent to the United Kingdom.

The noble Lord said: This is a declaratory provision to make it clear beyond a peradventure that the provisions of the Submarine Telegraph Act 1885 apply to pipe-lines in territorial waters. Noble Lords who are learned in these matters may recall that that Act provided for the punishment of those who damaged submarine cables and provided also for the payment of compensation to anyone who could demonstrate that he had suffered loss through sacrificing gear in order to avoid damaging a cable. The 1885 Act applied, however, only to cables which were the subject of the Submarine Telegraphs Convention of 1884, the Convention which the 1885 Act was introduced to give effect to. Section 8 of the Continental Shelf Act 1964 extended these provisions to all submarine cables under the high seas and to pipe-lines under the high seas. The term "high seas" is not defined in the legislation, and this Amendment is designed merely to clarify the scope of the term by confirming that the provisions of the 1964 Act apply in territorial waters. Thus, all concerned can be quite certain of the legal position. I beg to move.


Amendment No. 49 was spoken to with Amendment No. 44. I beg to move.

Amendment moved— Page 43, line 37, after ("44") insert ("(1)")—(Lord Lovell-Davis.)

Clause 45, as amended, agreed to.

Clauses 46 and 47 agreed to.

Clause 48 [Interpretation etc.— general]:

7.18 p.m.

Lord STRATHCONA and MOUNT ROYAL moved Amendment No. 50:

Page 45, line 13, at end insert— (d) permits the Secretary of State to exercise or not to exercise any power or authority or to withhold any consent, approval or authorisation or to make provisions terms or conditions pursuant to this Act or a licence for the time being in force by virtue of the Petroleum (Production) Act 1934 with a view to securing participation by the Government of the United Kingdom, or by the Corporation or any other body on behalf of the Government, in activities connected with petroleum beneath controlled waters.

The noble Lord said: This rather long Amendment could be shortened if one simply read it, in the context of the Bill, to say, Nothing in this Act permits the Secretary of State to exercise his powers with a view to securing participation". I feel confident that the noble Lord, Lord Balogh, on behalf of the Government, will at least accept the spirit which lies behind this Amendment. This gives the Government an opportunity to repeat on oath, as it were, what they have said many times in your Lordships' House and Committee, and to confirm their credibility, their good faith, their honesty and their honour when they declare that all negotiations about participation are truly voluntary.

We have to say that we on this side of the Committee doubt the virtue of majority participation. We are opposed to imposing it—and we believe that this is happening. We think that the onus of proof for participation must lie on the Government. We have to bear in mind that the number of people concerned in the top echelon of the oil industry and the financial institutions which back them is small. Many times in this House we have heard it said that the number of people with real expertise at the top level of this industry is limited. There is no doubt that a great deal of the time of a great many people with many other (I think) better things to do is currently being spent negotiating and discussing terms for participation. I dare say that the noble Lord himself and many of his staff are able to say that they have burned much midnight oil on this subject; so that they, at least, will have sympathy with the people on whom they are imposing this extra burden at a time of rapid expansion of the industry—an expansion we want to see going forward as fast as possible.

I do not propose once again to indulge in the sort of semantic arguments we got into with the noble Lord as to the difference between participation and nationalisation. We feel that 51 per cent. Government participation with the express purpose of securing control is, for all practical purposes, indistinguishable from nationalisation so far as this argument is concerned. We do not believe, in any case, that this method of securing control is needed, and I should have thought that this was confirmed by many of the discussions during the Committee stage of this Bill today and previously.

We have raised a number of questions about the concept of participation and the way in which BNOC will play its part in it. A great many of these questions remain unanswered. We have further stages of this Bill yet to come. I do not believe that we have ever been told whether BNOC intends to contribute its share when it takes participation, or where the money for it in the early stages is to come from. Would it not be an advantage if at least some model terms for participation could be published as a basis for discussion? Our doubts on these issues underline and emphasise the importance we attach to the issue of "voluntariness"—I do not know whether such a word exists but at least its meaning is quite clear.

The noble Lord, Lord Balogh, in previous debates used such expressions as: "Every ounce of strength …", and "We must use our strongest cards …". He even, I regret to say, went so far as to say: "We have been gentlemen too long", and referred to "weapons of last resort".


I hope that that was in my unregenerate days.


If the noble Lord is saying that he is a reformed character, then "Welcome to the fold!" But he also said that the most important part of participation is that we should get physical control over the oil. He went on to say that we might pay dearly for our neglect. I do not think that the noble Lord, after having used language like that, can complain if the listeners suggest that his interpretation of the word "voluntary" might be described as somewhat Orwellian.

Some of these discussions have been rather more voluntary than others. Is it not curious that all the agreements in principle that have been announced seem to have come at about the same time as some changes in the licensing have been required by the companies? The circumstantial evidence is extremely compelling. We know of cases where there have been changes of partners in the various consortia—what the oil industry calls "farm-outs". It is important that we should accept and encourage the fact that it is an extremely volatile and evolutionary industry where the situation is changing all the time. If we make it more difficult for these changes to take place we will inevitably slow up the progress. This is the nature of an industry of this sort.

We know of cases where there has been a need to get extension of the time to carry out drilling operations. Agreement by the Government to all of these changes required in licences seems to have come at a time when there has been agreement in principle by the company concerned to participate. To suggest that there is no connection between those two puts me in mind of Lady Bracknell in The Importance of Being Earnest, who said: To lose one parent is unfortunate; but to lose both parents shows a certain lack of consideration for the manners of good society. —or words to that effect.

The Government have never given an answer to the question of whether there has ever been an instance, since their policy on participation was announced, where a "farm-out" has been agreed to without the principle of participation at the same time. In these circumstances it is small wonder, I suggest, that the industry labours under the belief that a request for any substantial permission connected with their North Sea operations from the Department of Energy will be unsuccessful unless the principle of participation is first accepted. With the possible exception of BP which, in any case, is in rather an unusual situation, in the case of every company one looks at which has publicly stated that it has accepted participation, the belief will be substantiated that some form of Departmental consent or co-operation was given simultaneously with the acceptance of participation.

Throughout our discussions of the Bill we have had reference to the fears, many of which have appeared to be rather unreasonable, about some of the powers which the Secretary of State proposes to take under the Bill. These fears arise from the fact that the relations between the industry and the Government have come to such a sorry pass that the industry seriously believes that a number of these, to them, onerous provisions have been put into the Bill with the express purpose—or if not the express purpose, the very convenient purpose—of coming in handy when it came to discussing the possibility of participation.

We should like to feel that these fears are groundless. To put such unworthy fears at rest we are in this Amendment inviting the Minister to demonstrate his genuineness, forthrightness and integrity by binding himself in law to behave in the way he has always so blandly declared to be his wish, his intention and his practice. I beg to move.

7.30 p.m.


I shall not follow the noble Lord, Lord Strathcona and Mount Royal, in making either a Second Reading or a Third Reading speech, though I have some barbed remarks well prepared for such an occasion. However, the atmosphere of today's debate has been so sympathetic that I will not use them.

We wish to develop the oil business, not for fun, not for making a record output from an exhaustible source of supply, but for making money. This is a delicate subject and it is very vulgar to talk about it. We are in this for money but not for the world as a whole. I once said in those debates that we ought to cultivate a little sacro-egoismo around here; we have not done so in the past 25 years; we imposed on ourselves restrictions which proved terribly onerous. Everything which noble Lords opposite have done, if it were successful, would diminish the net "take" of Britain. Through mistakes we must admit a large part of the oil industry (which I am not going to outline at this hour of the night) has passed into foreign hands. I am sure noble Lords opposite, were they in power, with exactly the same problems as we have, would take the same view, and would come to remarkably similar solutions.

The British conditions have been exceedingly generous. The British oilfield is one of the most risk less, though it is very expensive. The ratio of dry wells was at a minimum—I know there are very good statistical explanations for that, but it is the truth—and the discovery rate was colossal. Not only was it colossal, but it opened up, but only opened up, opportunities to back the ailing British economy. The balance of payments can be strengthened by the oil revenue. This Government have introduced, and Parliament has approved in principle, this Bill which, for two reasons, is based on participation: for getting information and knowledge, which we do not have, and for having a physical possession.

Participation is being negotiated. Each side in the negotiation has stronger and weaker cards in his hand. I am not ashamed to use the word "cards". Noble Lords opposite are mostly engaged in large-scale business, or advising large-scale business, and they know very well that in a commercial bargaining position one does not give away all one's best arguments and force. There is a great deal at stake, an enormous amount of money at stake for Britain, and this Government, at any rate, are not going to risk it. None of this means the Government are putting undue or illegitimate pressure on the companies. We are now in negotiation with several companies. Some of them would surprise noble Lords opposite, but I am not going to make any further revelations. We expect to use to the full the arguments and bargaining power that we have; but we are not going beyond what is fair and supportable, because obviously we want to encourage the exploitation of the North Sea, subject to the profits accruing mainly to the nation, the people and helping Britain to get on its feet.

Generally, I have no evidence that the industry feels it has been badly treated in the participation negotiations, or the consultations on the Bill. Some of the companies have indeed positively welcomed the help and co-operation from the Government which participation will bring. It is obviously impossible to have a model participation submitted before Parliament because each case differs so much from any other case. We have some large fields which are situated very near the shore in low water and are easily exploited. We have small fields situated in areas where there are torrential rains and snow, such as in the Northern Passage.

In these circumstances, I do not think we can put a complete menu before the Committee; I can only assure noble Lords that we arc doing our best to secure the maximum benefit to this country of the discovery of oil in the North Sea and, hopefully, in the coastal shelf. I cannot recommend this Amendment, which would seriously weaken the power of the Secretary of State to negotiate favourably with the companies.

7.38 p.m.


I should like to support my noble friend in this Amendment and take up what the noble Lord opposite has said. He referred to getting knowledge which we do not have. Whether by "we" he means the Government and the BNOC, I do not know, but obviously he means the BNOC at least. But it is clear that if one wants to get this knowledge one does not need 51 per cent. participation. One per cent. or half of 1 per cent. participation would do in any field in order to have access to knowledge and information.

I should like to develop my theme along the following lines. First, in the fact sheet which the noble Lord's Department produces from time to time, and particularly in June 1975, reference is made to the Offshore Supplies Office. It says that the Office is there to secure full and fair opportunity for British firms to compete in the market and to help establish new British ventures in the offshore supply field. Surely engineering companies are interested in anything the Offshore Supplies Office can do; and surely the oil companies are looking for full and fair opportunity to compete in the market as well. I suggest that 51 per cent. participation does not give them full and fair opportunity to compete in worldwide markets while Big Brother is overlooking everything they do—in fact, one might say, completely controlling the whole oil industry from life to death. In this Bill we see that pipe-lines may belong to the oil company to start with, but when they come to the end of their working life, so far as I can see, the property reverts to the Government. So what the noble Lord has said does not give me much confidence that he is striving to do his best for the country, for the oil industry and for industry in general.

Regarding participation, I should like to revert to a statement he made in Hansard on 23rd September concerning next year's applications for licences. Very good. We all want to see the momentum of oil discoveries being kept up; I am sure we all agree with him there. But at the end of the statement we see the sting in the tail, when he said: The terms and conditions governing the licensing, which will he announced when applications are formally invited, will be designed to entrench and safeguard our legitimate national interests including, as the Government have already declared"—


Does the noble Lord think there is something shameful in safeguarding the interests of the nation?


If I may say so, I have not quite finished: … a provision for majority State participation in commercial finds."—[Official Report, 23/9/75; col. 288.] So we have participation coming into this statement, which I do not believe is compatible with the idea of keeping up the momentum of discoveries. It is most important that participation should not affect what we try to do in the future, both in the oil industry and in industry as a whole. I hope that the Government will be able to accept this Amendment.

7.42 p.m.


The noble Lord, Lord Balogh, said a little earlier that the atmosphere had been, as he put it, so sympathetic, that he did not want to be more controversial than was necessary. It might be that we have had up to now what used to be called a "pleasant Sunday afternoon" but I want to say that there was once a saw which went like this: I want to go home: the party's getting rough. My patience and, I might almost say, my anger have now been tested severely. I do not want to prolong the debate. We have had a lot of talk about dry wells and about how few there were and about how many discoveries of wells there were. Yes, but how many are not commercial? I ask your Lordships to look at the Government's list. We had the reference by the noble Lord, Lord Lovell-Davis, earlier to all the oil companies being in these participation agreements—and if that is not a contradiction of voluntary negotiation, I do not know what is.

The object of this Amendment is to put into legal form, statutory form, constitutional form, clear form, a test of the Government's integrity—and the integrity issue is not something to be lightly brushed aside by reference to this person's or that person's judgment of British interests. The simple question—and I use the term quite bluntly—is whether or not in these negotiations for participation there is an element of blackmail.

As far back as 7th August, during the Second Reading debate, I asked the Government a question. They were silent, and so I repeat the question: will the Government guarantee publicly that any company or consortium not accepting the terms of participation will not be the victim of discrimination in the future: for example, in the next licensing round? That is shown in the Official Report of 7th August. I had no answer. It may be that my voice does not carry well enough. Tonight it will carry a long way. I repeated that question during Committee stage on 24th September. I asked that question but I had no answer. I have repeated the question again and, since we have been so polite to one another so far, I am willing to give way this instant if the noble Lord would care to rise and answer my question on that point. Will he?


I hope and believe that the situation in which companies refuse participation will not arise. If it did, the Government would need to consider it at the time and would naturally look at all the options open to them.


I must say that is better language than we have had hitherto. The noble Lord, when he was earlier twitted with the phrase about the strongest cards being a last resort, did say that that was in his unregenerate days—in fact, one of those unregenerate days was 24th September! But what he has said now is an improvement. It is vague and leaves a great deal open to guess-work—to hope as well as to fear—but I thank him for what he has said and I think it is probably a passage which we shall want to look at again at a later stage of the Bill.

I wonder whether I can go a little further, because back in February Mr. Harold Lever said this: It is very possible if they"— that is, the oil companies— … did not agree to State participation, that the Cabinet could feel free, and indeed might feel obliged, to nationalise that portion of the licence that they thought right. There is a threat. It may well be that it occurred in Mr. Lever's unregenerate days, but I want to make it quite clear to the noble Lord, who is always so patient when listening to what I say, that we shall want to probe at later stages what he has just said rather sharply and severely. I think that when he said that negotiation is to be voluntary, it was a slight over-simplification.

It rather reminds me of Lewis Carroll: 'The question is'", said Humpty-Dumpty, "'which is to be master? That's all.' I am not sure it is not the case that in this regard the Government would like the oil companies to be rather like what Sydney Smith said of the bishops rather more than 150 years ago: What the bishops like best in their clergy is a drooping down headedness of manner. That is what they are looking for. May I just remind the noble Lord, Lord Balogh, that a great Parliamentarian, Edmund Burke, once said: If it is not right to hurt, it is neither right nor wise to menace. There have been rumours of menaces. There has been language used by the noble Lord in his unregenerate days—that is, up to 24th September!—which carries with it a tone of menace. There have been copies floating about with, of course, the letterhead, or rather the name of the addressee, carefully removed, purporting to come from the Department to oil companies not among the "Seven Sisters" making it clear that unless they agreed to participation a farm-out would not be approved. The theme, the atmosphere, the mood, the style, the character, the whole context of what the Government have put before us in their arguments in support of this Bill have been simply this: "voluntary" means that all that is not compulsory is forbidden.

The noble Lord, Lord Balogh, pleaded—and I share his plea—for a little bit of sacro-egoismo so far as British industry and interests are concerned. He wants the maximum benefit for Britain. So do I. Whatever the other side may say, in what I believe to be distortion of the facts, the simple fact is that exploration activity in the North Sea is slowing down. At this moment there are two idle semi-submersibles—or one is a jack-up; the other is a semi-submersible—in the Firth of Forth waiting for jobs to do. The whole effect of the Government's proposals and policy reminds me of Tacitus' words in Agricola: When they make a wilderness they call it peace.

7.50 p.m.


May I add to the noble Earl's remarks and may I take one by one the arguments of the noble Lord, Lord Balogh, in objection to this Amendment. To quote: "We are in this for money." I agree with him, but the point is that the moment an oil drill hits oil one has hit a wasting asset. That is point number one. The noble Lord then went on to describe this North Sea as—and I quote: "A riskless field". If there was anything far from the truth, it is that. I follow here the point made by the noble Lord, Lord Ironside, that knowledge is something you gain and use. We would not have found the North Sea oil as rapidly as we have so done had it not been for the primary research which was carried out in this country by wise Governments which allowed the oil obtained from the Akering oil field to pay for exploration which we geologists with this information could extrapolate out into the North Sea. We can now see the mechanism of the geological events which created these concentrations of oil in the deposits below the sea floor.

The third point I want to clear up is this—and I have sat through these debates trying to restrain myself because, frankly, the ministerial concept or the economist's look at this model is so terribly nave. Nature is not so naïve as to suggest, as the economists do, that you drive an oil well into great big tanks of oil; one of them may be dry; one may be half full, the other full. It is nothing like that at all. That oil has been preserved in those sediments and concentrated in anticlines affected by capricious geological events which have caused this oil to be disseminated through myriads and myriads of intercommunicating—and I underline "intercommunicating"—cracks. If the noble Lord, Lord Balogh, takes even a look at a photograph of any oilfield he will find that it is festooned with pumps. They are not put there for fun. We are in this for money, they say. The reason for those pumps is that when those cracks seal up you have to sink another well. What we are looking at in the North Sea is the embryonic development of oil under pressure. You are getting it cheaply, but it will not go on like that. Therefore, in participation you must look far ahead.

If I may change tack, had it not been for the fact that the British Petroleum Company had exploration finance at its disposal we would not own, as we do own, the substantial part of the Alaskan oil field. Let it be said and put on the record that it was the British geologists who had the foresight and skill to determine the existence of oil in that Alaskan plate. Do not forget also that what we are looking at in the North Sea is part of a plate and the pattern is now clear. The gaseous zone is around Holland; you move Northwards into the Shetland area: you arc moving towards the hot spot of Iceland which is the temperature zone from which the oil is being forced southwards. So there is a great zonal area; not a tank, but oil capriciously held in anticline.

What will happen in the North Sea will happen in parts of the Celtic Sea, so-called. What will happen in the Celtic Sea will happen on the western seaboard of Eire, and we have to look that far ahead. Here I go along 100 per cent. with the noble Lord, Lord Ironside. We have to look and pay for knowledge. So I do not support, or even understand, the arguments of the noble Lord, Lord Balogh, when he uses this kind of naïve picture of an oil field with all its hazards. My word! a mining company sinking a shaft would not accept these conditions. The hazard of putting down a shaft is enormous, and the same hazards pertain in the North Sea and will become more and more difficult. So I support this Amendment because I feel that the future of British interests would be better served in releasing capital to go out into the world to serve, as sterling has always served, as an international currency.


The noble Lord, Lord Balogh, started by saying that he would not be making a Second Reading speech, but it almost developed into that, and I fear that in the course of it he did not reply to many of the points raised by my noble friend Lord Strathcona. I intend to be brief because I caused a debate on the general question of participation on the Question, Whether Clause 2 shall stand part? When we were considering that some time ago. I drew attention at that time to this Amendment and how this would give the reassurance necessary to all those working on these activities in the North Sea and other parts of our Continental Shelf. It would be wrong for the Government to adopt a policy of not giving approval without the applicants having entered into a participation agreement. This is approval for many of the things in the Bill. The Amendment is aimed at putting into the Bill the Government assurances—that participation will be achieved by voluntary agreement—which have been given in the past. There cannot be any harm in putting that into the Bill, and it would do a great deal of good because it would reassure those outside.

My noble friends Lord Ironside and Lord Lauderdale have dealt with some of the points the noble Lord, Lord Balogh, has made in his first reply, and we have just had the benefit of the geological expertise of the noble Lord, Lord Energlyn, who has pointed out some of the technical problems involved. He also reminded us about the BP interest in Alaska. Let us remember—and I hope the Government will—that the way in which we treat companies in our own waters may well affect the way they treat British interests abroad. An example of the difficulty an operator would face if the Government chose to wield the sanctions which they can use is in new model Clause 15 that we discussed earlier today. There, a Licensee may be unable to develop a field unless the Minister has approved a development programme. There is no way in which the Licensee can force a development programme to be accepted by the Minister. If he chose to refuse a development programme unless the company entered into a participation agreement the company concerned would obviously be unable to carry on its operation in the North Sea or other parts of our Continental Shelf. Then there is another example under model Clause 38. These are restrictions on assignment. The effect here is that a Licensee cannot assign his interest without the consent of the Minister. Assignments will probably form an essential part of financing, particularly in the case of small companies. It is likely that such a company in seeking to finance an operation would be unable to do so without accepting participation if the Government chose to abuse their power in relation to that model clause.

I should like to ask the Government this question, because we are worried by what has been happening so far. The participation discussions are going on behind closed doors. Can the Government tell us whether there have yet been any instances where companies have applied for rearrangement of interests in a licence and obtained permission from the Minister without also agreeing to participation in principle? Has that happened since the Government first announced their policy of participation? This Amendment will give reassurance to the industries which are operating in these difficult waters and having to tackle the technical problems which the noble Lord, Lord Energlyn, mentioned. We feel strongly that it is a provision which should be in the Bill.

Clause 48, as amended, agreed to.

Clause 49 agreed to.

House resumed: Bill reported with the Amendments.