§ 5.27 p.m.
§ The Earl of LAUDERDALE rose to call attention to the collapse of exploration drilling on the United Kingdom Continental Shelf; and to move for Papers. The noble Earl said: My Lords, I beg to move the Motion standing in my name on the Order Paper, and at the start I should like to say how happy I am personally to see that the noble Lord who is to reply to this short debate is none other than the noble Lord, Lord Strabolgi. Those of us who tease him from time to time on matters of offshore drilling and so on know how invariably courteous and kindly he is in taking all the slings and arrows of outrageous fortune that we send in his direction. He is always courteous, always kindly, goes to great lengths to ascertain the facts and displays a manifest wish all the time to serve the House as well as he possibly can.603
Yesterday he was helping us in this House at Question Time and he made two admissions which are germane to the Motion standing in my name. He said, at column 410 of yesterday's Hansard:
…the companies are adopting a more cautious attitude".
He also said that:
…the Government take this decline in activity very seriously".
Those words occur at column 411 of yesterday's date. But I have to say straight away that I must charge the Government with trying to make the powder of profitable information more palatable with the jam of fiction, because I have observed two lines of argument being used by them to suggest that really all is well. There has been a muddle— I am not going to call it a deliberate one —as between the figures for exploration drilling and those for appraisal drilling; and the Minister of State, Dr. Mabon, in another place confused them two days ago during a debate. He is the last person I would accuse of seeking to mislead anybody about anything. He is a very honourable man, for whom I have affection and respect, but he did in fact confuse those two figures, although the noble Lord, Lord Strabolgi, yesterday separated them in answer to Questions.
§ Then, a second line of Government argument is that, because some 54 groups —as yet unidentified—of 94 companies have applied for some or all of the 46 blocks offered in the sixth round the other day, then that round is a resounding success. Since facts speak louder than statistics, we must get the facts right. In 1978, this current year, there have been 36 wildcat wells drilled in the British sector of the Continental Shelf, as against 75 in the peak year of 1975—a decline of 52 per cent. Comparing this year with last year, 1977, when there were 58 such wells drilled, the decline is 32 per cent. In October this year, not more than nine exploration rigs were at work, as against 26 in the corresponding month last year. In this month of December there are six such exploration rigs at work, as against 21 in the corresponding month of last year. Of the current six exploration rigs now at work, only two are drilling what are called new field wildcats and they are for Chevron in block 14/13, and Shell in 29/3a–2. These figures 604 compare with some three wildcats now being drilled in the Norwegian sector and two more in the Dutch sector, which is generally less attractive than our own. The facts are indisputable and you cannot ask us to take sides against arithmetic.
§ What is surprising—and this goes back to a supplementary which I put yesterday, on which I do not think the noble Lord, Lord Strabolgi, quite got the point, so I am repeating it—is that of more than 40 licences to explore issued 18 months ago in Round 5, only four have wildcat wells now drilling. The question that I put to the noble Lord yesterday, and no doubt he will be able to come back to it when he replies, was: was this slowness in taking up the drilling of exploration wells on Round 5 due to the Government's going slow through their depletion policy, or was it because of delays stemming from the Department of Energy and the British National Oil Corporation combine?
§ The Earl of LAUDERDALE
Yes, my Lords. A wildcat well is a very wild well. You do not know whether or not there is oil, so the purpose is to see whether there is any at all there. It is the utmost in wildness of exploration, as compared with an appraisal well, which is when you have reasonable cause to think that there is something there, and a development well, which is when you follow it up. The point about wildcat wells is that if you do not have enough of them you do not get sufficient exploration generally. The Secretary of State for Energy—and methinks he doth protest too much—has been saying that the proof that the industry is confident and interested is to be found in the response to the sixth round, for which applications closed two or three weeks ago.
§ The Earl of LAUDERDALE
The noble Lord says "Hear, hear", but let us wait and see what are the facts. Except for BP and Occidental, all the major companies have put in severely limited applications. Texaco, I understand, has applied for only one block in the Moray 605 Firth. In this round, Shell and Conoco have adopted a very low profile. Exxon —the original name for Esso—are out of it altogether. Yet those three companies have been in the forefront of development hitherto. At least one other major has told me that if the terms prove too stiff it will quit, and I know of one promising group being put together in the summer which collapsed on news of the Government's intention to raise PRT.
Of the 94 companies that have been listed by name by the Government, bracketed into these 55 groupings, somewhere between one-quarter and one-third may well be judged to be inconsiderable; inconsiderable in terms of previous exploration or development experience; in considerable in terms of having surplus tax rebate dollars available for funding, and inconsiderable in terms of their financial standing. Of course, the companies say, "It is easy enough to apply now. These are only options, anyway, and if you apply for a round it keeps you in the game". The real interest, of course, is to get into the queue, in the hope that within a year from now there will be a drastic change of policy.
The first test of Round 6 is not how many people joined in applying. It is how much tribute the companies that have applied are willing to pay to BNOC —how much equity they are willing to surrender. The real test will come perhaps two years hence, maybe later—1980–81— when the time comes, after successful exploration, for the critical decisions to be taken on investment to develop.
§ Lord WYNNE-JONES
My Lords, I thank the noble Earl for giving way. Will he say whether he thinks that the big companies, such as Shell and Esso, are not already heavily committed to an extent which may make it difficult for them to undertake fresh commitments at the present moment?
§ The Earl of LAUDERDALE
My Lords, I am much obliged to the noble Lord for that intervention. He knows that I hold him in great regard and affection. But that is not the explanation that has come from the majors. That is all I would say. What we have to face is the fact that the Secretary of State has himself suggested, both directly and indirectly through his 606 Department, the welcome which the Government have given, or are giving, to the large number of smaller companies that have applied in this round. Indeed, his Department have put the word about in the oil business that this time the smaller companies may expect to have a better break.
The fact is that the majors are "browned off". The minors are much more likely to surrender anything from 75 to more than 90 per cent. of the equity in the business as tribute to BNOC. And most of the minor—anyhow, many of them—if they get exploration licences, will be forced to farm out the work, which in turn will give BNOC the chance to squeeze yet more equity out of each opportunity. I think I am right in saying that, recently, BNOC has exacted from 7 to 15 per cent. equity as the price for consenting to a farm-out. So boasting of Round 6 at this stage is already counting chickens before they are hatched.
I have a number of questions to put, and I can imagine the Government saying, "Plunge not the finger of inquiry into the pie of impertience. "But why are the Government so coy about naming the 55 groups into which these 95 are gathered for their applications? They have refused to disclose the names of the final groupings applying. They say that this is confidential. But the Dutch Government, when they have a round of applications, immediately publish the names of the applicants, the names of the groupings and the blocks for which they have applied. With the Dutch there is no hole in the corner business or secrecy about it. It may well be that until now one of the conditions of the rounds has always been that the composition of applications shall be treated as wholly confidential. If that has been a condition hitherto, one can only respect it; but perhaps this is a condition which need not pertain in the future. In any case, there is surely no reason why the names of the groupings and the constituent companies in the groupings should not be made known.
Another question that comes to mind is this: How many applicants, on average, are there per block, or on average how many blocks are there per applicant? That information would give away, surely, nothing that was confidential. Also, what is the density of overlap in applications?
607 That again would disclose nothing confidential to particular companies. And have any companies applied for most or all of the blocks in return for an offering to BNOC of, say, 90 per cent. or more of the final equity?
This is not a time for complacency. There is a fall-off rather than an increase in the estimate of reserves in place as well as in the estimates of production. Dr. Mabon announced in a Written Answer in the other place only a few days ago that the Department had lopped 300 million tonnes off the total Brown Book estimate of reserves in place because of disappointments in the Celtic Sea where nothing has been found. That lops the reserves in place by 6.6 per cent. Operational reports from the Forties Field suggest that the reserves in place there must be estimated downwards from 4,600 million barrels to about 4,000 million barrels, a drop in this case of 13 per cent. Again, operational estimates from the Thistle Field, due to an expected downturn in loading, suggest that this year's production will in fact be about 50,000 barrels a day less than expected, a cut of 25 per cent.
Not only, therefore, is there a downgrading of the reserves in place and a slowdown in the estimates of production that can shortly be expected, but the success rate has changed very considerably, as the best fields were found earlier on. Out of eight major fields, each of them of more than 500 million barrels, only one has been found in the period from 1975 to 1977. Perhaps more serious is the consensus of expert opinion from the oil industry worldwide, that the best fields are always found first—and, therefore, in the later stages of an area's exploration more work has to be done on smaller fields which are harder to find. Hence comes the prediction that if we are to continue our crude oil self-sufficiency from the middle and late 1980s into the middle and late 1990s a very great deal more extra work will have to be done than is at present in prospect. The extrapolation of worldwide experiences argues that between 18 and 32 new fields will have to be found and that between 60 and 95 wildcat wells will have to be drilled every year for the next seven or eight years.
608 If those figures are not in themselves a grim warning, then what about the greatly and sharply rising operating costs which are reported field by field as of now? Operational reports for the Auk Field show that operating expenses are up 100 per cent. on a year ago; those for the Murchison Field are up 130 per cent.; for the Thistle Field 133 per cent.; for the Piper Field 143 per cent.; for the Claymore Field 144 per cent.; for the Fulmar Field 156 per cent.; and for the Heather Field 220 per cent. Whatever else those figures argue, they surely argue that the medicine for the oil industry is tax incentives rather than tax punishment.
The Government will, I am sure, repeat to us tonight, as they have elsewhere, that of course the companies do not have to worry very much: if they run into trouble, the Government will forgo their 12 ½ per cent. royalty. But what nobody knows is which measures of project worth will be used to determine this and at what point the royalties would be refunded. The industry is still waiting to learn the answer to those questions.
The companies are told, "If you run into real trouble, go and talk to your taxman". I can only say that this is about as encouraging as to invite a small boy to choose his school headmaster as his father confessor. The Government's "take" at present is 70 per cent. If that were cut to 60 per cent. it would raise the company's profits from 30 to 40 per cent In other words, it would increase their profits by 33 per cent., which would make a great deal of difference to security of financing.
There is a steady pressure—it was mentioned yesterday by my noble friend Lord Campbell of Croy at Question Time —for lowering the tax threshold on the smaller fields: say, down to 200 million or 150 million barrels. There is the case which is alluded to in the regular briefings put out by BP. I would remind your Lordships that BP is not without receipt of some Government influence. Their briefings point to what is called the staged approvals procedure. By it the development programme of a field is not settled all at once for the next 15 or 20 years, but is settled at intervals—at two or three rather long intervals—and these intervals may be varied. The industry has expressed the fear—and one understands 609 that fears have been expressed in discussions with the Department—that the application of the staged approvals procedure could be used as a delaying device sufficient to nullify what were called the Varley assurances about finds made before 1976.
Another plea is that the squeeze on farm-outs—that is when a company owning an exploration licence hires somebody else to do the drilling—should be eased. At present, a company seeking to farm out part of its obligation to another company with the resources and the skill to do the drilling has to obtain permission, and the price of that permission is invariably a surrender of more equity to BNOC. Finally, there is the request that far more acreage should be made available to the industry at slightly more frequent intervals. The average over the years 1965 to 1976, when exploration really got under way, was 220 or more blocks per annum, whereas the average currently is 43 blocks per annum. This Round 6 ran to 46.
It would be idle to pretend that there is not an atmosphere of, shall I say, imagined malice and suspected distortion hovering over the industry. It has been said that if honour is a luxury for an aristocrat it is a necessity for a hall porter. The Government and BNOC are in fact the hall porters who guard access to the acreage, and therefore when there is the slightest suspicion about their behaviour all kinds of damage to confidence ensue. A wanton and lascivious eye betrays the heart's adultery and clouds of suspicion do hang around BNOC. There is the suspicion that confidential information of a commercial character made available to it through its position as Government adviser is then used to BNOC's own commercial advantage. That charge needs to be refuted and there has been a call in another place for an inquiry into it.
Secondly, there have been completely private allocations of exploration blocks, both to BNOC and to the British Gas Corporation, without the industry as a whole being given a chance to compete. It may well be said—and I am sure it will be said—that the Government have uppermost in their minds the sovereign duty to conserve these precious resources and to make quite sure that they are not run down too quickly. Nobody denies the 610 importance and the value of that requirement—certainly the industry does not— but one cannot expect companies to invest great sums in exploration unless they are going to have the chance of developing the prize when they find it. When we realise that world-wide the average of success in wildcat drilling is about one in 10, and it has been rather better than that in the North Sea although not so much lately, there is a very big gamble involved in drilling at all, and unless there is a real prize at the end of it the drillers will go away. There is a suspicion—which I do not say that I endorse, but it is only fair to report it to your Lordships' House—that the Government and BNOC are a little like a statesman, who out of courtesy to some of my friends on the Liberal Benches I will not identify, of whom it was said that he could not see a belt without hitting below it.
There are particular cases that are widely talked of in the industry and others which I do not propose to mention. There was MESA's Mr. Boon Pickens, and the way he was treated by the Department when he came over here some while back and sought to pay a courtesy call upon the Secretary of State. They tried to make him give all sorts of undertakings about his company's policies before he was even allowed to pay a courtesy call. Then there was the strange disappearance and banishment to Canada of Occidental's Bob MacAllister. Whatever is the inwardness of that story, I can only tell your Lordships that quite a long time ago I mentioned to a member of the Government that this man had been the recipient in negotiations of very odd and unworthy threats.
§ Lord STRABOLGI
My Lords, if I may interrupt the noble Earl, he is implying that Mr. MacAllister was banished to Canada by the Secretary of State. He was not; he was simply transferred back to Canada by his own chairman, Dr. Hammer.
§ The Earl of LAUDERDALE
My Lords, I am grateful to the noble Lord for making that clear. I was in fact going to say that myself. One appreciates that it was of course his own president who transferred him to Canada, but the inwardness of that story has yet to be 611 written and there are those who have raised eyebrows bigger than mine about it.
The keys of the Government's policy are surely to be found in the Queen's Speech at the opening of Parliament. The critical reference appears at column 3 of Hansard of 2nd November:using the benefits of North Sea oil".That was the sum total in the gracious Speech of the Government's reference to policy in this critical sector. There was nothing about depletion control, let alone about energy policy in general. It is only fair to conclude, both from that and from subsequent experience, that the declared aim is to squeeze the lemon dry. One can only hope that they do not kill the goose which lays the golden eggs. I would remind the Government that the citizens of Mexico would have had 40 years of oil had the Government there not driven private enterprise away 40 years ago. Prudence is the first thing to desert the wretched and one observer wrote, "I do not make jokes, I just watch the Government and report the facts". My Lords, I beg to move for Papers.
§ 5.55 p.m.
§ Lord ENERGLYN
My Lords, I should like to thank the noble Earl, Lord Lauderdale, for bringing this subject to the attention of your Lordships' House. At first sight, it would appear to be a subject of highly professional and specialised interest but I shall try to convince your Lordships that it is a subject which has a profound effect upon the future of this country. We have listened to the noble Earl and I think his remarks alone would underline the theme which I propose to follow—namely, that the economy of this country will be seriously affected by the products of the earth that lies beneath the sea.
Some six or seven years ago, Professor Hubert King and I, looking to the future, established for the first time in British universities a degree in Exploration Sciences at Nottingham University. The object of that degree course was to provide young men and women with a basic training in mathematics, physics, chemistry, mining and geology so that they would have a basis upon which to go out into the world of exploration to utilise the many techniques that are required before one 612 can site even a wildcat borehole. I was also privileged to be associated with probably one of the greatest oil geologists in the world, the late Dr. G. M. Lees, who was the chief geologist of a great petroleum company. It was that man who had the foresight and the drive and the genius to believe that Britain contained oil and amid great opposition he pressed forward and collected around him a number of young, brilliant men. Among these was Dr. Jack Birks, who, not surprisingly, is now the managing director of the British Petroleum Company.
Against great odds, this group of men dramatically found the Eakring oilfield of Nottinghamshire at the outset of war. It made a profound contribution to our defence. That oilfield still produces oil. Had it not been for the foresight of Lees and his colleagues, Britain would not have had any exploration at all, but, with taxation relief on the products of the Eakring oilfield—an extremely wise and prudent attitude of the Government which was lately rescinded—exploration went forward in Britain, putting down deep boreholes of the category referred to by the noble Earl as "wildcat". Without those boreholes, it would have been impossible to extrapolate geological structures out into the North Sea. It is not surprising that the British Petroleum Company who possess this knowledge and expertise were among the successful prospectors of the sea floor.
May I perhaps remind your Lordships that what an oil geologist is looking for is a capricious fold in rocks; it is an upfold called an anticline and in this fold you have intercommunicating cracks. When you are talking about an oilfield, you are not talking about a mighty big hole in the ground full of oil; you are talking about intercommunicating cracks which contain oil, and, if one of these cracks seals up, the oil ceases to flow. That is the hazard that faces the prospector of oil on land and, even worse, beneath the sea. I think perhaps enough has been said about exploration of the sea floor for oil, and particularly of this thing called the Continental Shelf. I should like to convince your Lordships that the exploration of the shelf goes further than this. Every borehole put below the sea floor provides the geologist with information which he can extrapolate, 613 and it is this extrapolation that is so vital for the exploitation of that great area of the world which lies hidden beneath the sea. After all, looking into the far future, mankind will be dependent upon that hidden world beneath the ocean for its raw materials. So it is high time that we took this matter seriously.
It is also important to remind ourselves of the fortunate position that Britain has on the surface of the earth. It happens to be poised over and to have been created by great movements of rock strata throughout the past 1,000 million years. Into those have been pumped every conceivable type of molten material from the earth's interior, and out of this molten material mineral matter has segregated. It is to this that I should like to draw your Lordships' attention. Because of the accident of history we developed a great Empire and even in the 'thirties owned about 30 per cent. of the known mineral resources of the world, so we had no need to exploit our own mineral resources. They are still there. But what we did do was to develop in this country the expertise of smelting metals. We therefore have a backcloth of metallurgical knowledge in this country which is probably not possessed by any other country in the world, and it is this aspect of the picture that I would like to draw to your Lordships' attention at this moment.
Let us for a moment think of what might happen if we forgot oil and said it was urgently required that this country should again make itself self-sufficient in the production of tin. Any geologist will tell you that extending out from Cornwall are probably the most famous deposits of tin in the world, and we know absolutely nothing about the extension of those deposits below the sea floor. I know that many noble Lords will say, "Yes, they are there, but they are inaccessible", and I should like to come to that in a moment. It can be easily understood by anybody who examines the geological picture that between the Channel Islands and Cornwall there are some incredible possibilities of metalliferous deposits, of metal, chrome, and maybe even uranium. You move into the Celtic Sea and there you have a fascinating picture. Extending out from Pembrokeshire you have a buried canyon as deep as that of Colorado, full of sediment, and it is in that canyon that the 614 oil men hope to find oil. But its sides are quite different from the sides of the Colorado canyon. They are composed of rocks over 1,000 million years old; they are part of the original crust of the earth. These rocks contain minerals of considerable value. We know from the evidence of geophysics that there is a big deposit of iron ore lying off the coast of Pembrokeshire, as big as the Karonavara deposits of Sweden, and the development of these could make Britain independent for the next century of any other country in the world for rich iron ore.
One of the spin-offs of this exploration of the North Sea for oil has been again a typically British development of oil platforms. You build a platform, sail it horizontally across the North Sea, tip it up on end and put it with precision over a borehole about a yard in diameter; that is the picture I present to you. There you have a platform which can become the head of a mineshaft. Our knowledge of reinforced plastics makes it quite realistic to say that we could tube our way out of that platform and there you have the pithead and the haulage roadway to a submarine mine, with practically no ventilation problems. Taking that as the potential picture, what could it mean? It could mean that we should be developing in this country a whole group of non-ferrous metals for which at the moment we are utterly and completely dependent upon the rest of the world, because we have owned the countries that produce them and got so used to using them since the 'thirties.
I can quote one example at the moment. We hear the phrase "strategic minerals". There is one that is super-strategic at the moment and that is cobalt. Cobalt is a metal which occurs as a minor constituent of different types of ore and it is difficult to extract, but it is of vital importance in the chemical and metallurgical industries. Throughout the world, the output is probably round about 24,000 tons. Of this, about 14,000 tons comes from Zaire; a little comes from Uganda; a similar amount comes from Zambia, and there is some in Angola. That is why that central area of Africa is suddenly vital. What man has done is to draw geographical boundaries of countries which transect the geological complex that carries these cobalt-bearing minerals. Due 615 to the disturbance in Zaire, there is now a shortfall of some 10,000 tons. Your Lordships may think that I am just talking about peanuts, but 24,000 tons of cobalt controls the man-made fibre industry, controls petroleum refining, controls the magnet industry, controls the machine tool industry, and if countries are denied this small quantity of cobalt that can bring large areas of industry to a halt more effectively even than a trade union. The situation at the moment is something like this. I give it to you in terms of hard cash. The price of cobalt at the beginning of May this year was between £6,000 and £6,500 a ton. On 22nd May, it was up to £7,000. Today you would be a very fortunate person indeed if you could buy a ton of cobalt for £25,000. That puts it into its strategic picture.
When we look to the future, are we to be dependent upon Malaya for our tin when, potentially, we have tin supplies off the shore of Cornwall? Are we to be dependent upon copper belts for our copper when we have the Parys copper mountain, which is alleged to be worked out but which is unquestionably connected with similar deposits between Anglesey and the Isle of Man? One could go right round the coast of Britain, particularly the West Coast, and draw out facts of that kind. However, the point I want to make is that, if we take yesterday's debate seriously, we are looking for areas of vocation which will enthuse young people and give them a sense of purpose in life and some colour. What could be more colourful than to go under the sea and develop the mineral resources of this Island? In my humble opinion, I think that, if any Prime Minister looked at the situation seriously, he or she would be bound to come to the conclusion that here is an area of adventure and stimulus for the young people of this country.
In our small way, Professor King and I have made a contribution by training people specially for exploration. However, let us not underestimate the quality of our young people. They all have the sort of background that could make them super-explorers in this marvellous new field that lies ahead. I plead with the Government to look a little more closely than they perhaps are at present at the apparently somewhat romantic 616 suggestions which I am making, because inside them, I think with all respect, they will find a core of realism and of purpose. Indeed, we could quite reasonably expect in the next decade to find outselves in possession of strategic materials coupled with strategic expertise which will again make us as dominant a force in the material world as we were in the 1930s when we owned 35 per cent. of the known mineral resources of the earth.
§ 6.13 p.m.
§ Lord STRATHCONA and MOUNT ROYAL
My Lords, I think that the importance of the debate introduced by my noble friend Lord Lauderdale in fact deserves more support than it has gathered. The noble Lord, Lord Energlyn, not unexpectedly, has not disappointed us by his speech. He always seems to be able to beguile us with some exciting flight of technical imagination. I do not know where he gets all these concepts from, but he seems to have a new one every time he makes a speech in the House. I am bound to say to him that I am not wholly certain how directly related his speech was to the question of the collapse of the offshore drilling programme which was the point which my noble friend was trying to make. However, I must say that I was fascinated by what he said and I am very glad that he took the opportunity to make some comments. It is clear enough, is it not? that there will be added reasons for increasing the offshore exploratory effort in the years to come.
§ Lord ENERGLYN
My Lords, I should like to correct a point. I read the title of the debate as concerning the "exploration drilling on the United Kingdom Continental Shelf." I was dealing with the Shelf and its contents, and not oil.
§ Lord STRATHCONA and MOUNT ROYAL
My Lords, I am sure that the noble Lord, Lord Energlyn, led us into much wider horizons than I was thinking of when we started the debate but I, personally, am not in the slightest bit sorry. My noble friend Lord Lauderdale was on top form today and took full advantage of the fact that, although this is a short debate, he had ample time at his disposal. Of course, the difficulty in which he has put us is that he regaled 617 us with so much information that very little was left for any of us to pick up without repeating what he had already said.
The essential point is that the level of exploratory drilling must be seen as a sensitive indicator of the interest and activity in—I was going to say the North Sea, but I shall now say the Continental Shelf around this country. If there were a falling off in that activity, then it would be confirmation of the fears that many of us have expressed over the last four or five years that the Government's behaviour was in danger of discouraging the international oil companies. It is important to recognise that even if that were true, it would take quite a long time for it to show up, because the time-scales of the oil business are more in the order of 10 years ahead, or something like that, whereas unfortunately the horizons of Governments tend to be 18 months ahead. Indeed, we can say positively that the horizon of this Government cannot now conceivably be more than towards the end of next year and we may be looking for changes at that time.
The Report of the United Kingdom Offshore Operators Association (UKOOA) —one must be careful not to drop into the jargon of initials—emphasises, as my noble friend has already said, the importance of keeping up the level of exploratory drilling if we are continuously to replace and replenish the supply of oil as the fields which are being found are developed and begin to decline in an uncomfortably short time scale. As my noble friend has said, it estimates that if we are to achieve a continuous replacement programme we need to be drilling something of the order of 60 to 90 exploratory wells every year.
We have already gone into the exact meaning of the splendid Texan term for exploratory drilling—namely, "wildcat wells". As I understand it, that is the process of the initial exploration of what appear from seismic surveys to be potentially attractive areas. It is worth repeating again, because there has been some confusion—and I shall refer to this in a moment—that it is very important that we should all distinguish between that activity and the next stage which is known in the industry as "appraisal drilling" where one has made a discovery and wants to know how extensive it is, the quality and the pressure.
618 Of course, if the appraisal drilling is successful one goes on to the final stage which is the development of the field with production wells. In this connection it is also worth pointing out that there is the rather complicating factor of some of the terminology which is tossed around as regards reserves. We talk of "proven reserves", meaning what we have discovered. We then go on to use the expression "recoverable reserves;"which means the reserves which are worthy of commercial exploitation. It is clear that a recoverable reserve is influenced both by the cost of production and by the selling price. The unfortunate fact, of course, is that if the cost of production rises, it has the effect of reducing the recoverable reserves as the smaller fields fall below the threshold of commercial viability. The effect of this on the medium-term future of this country is to decrease the period for which we might expect energy independence, which I think is the generally accepted objective of people of all Parties.
As my noble friend said, costs in the North Sea have risen explosively through technical factors. He gave impressive details to support that contention. I think that that in itself would be enough to discourage anybody but the most resolute and bold of enterpreneurs. However, we fear that on top of that the Government—or, if you like, politicians generally—have created an inhospitable climate by a combination of tax, imposts and controls which have started to make the gamble of oil exploration simply not worth the candle, because the small fields which are likely to be discovered are now no longer commercially attractive.
If one looks back, since this Government were elected we have had the Oil Taxation Act in 1974, which gave rise to petroleum revenue tax—PRT, as the noble Lord mentioned—and recently the Minister has issued what one might call either warnings or threats that there is an intention to increase the rate of PRT. Then, under the Petroleum and Submarine Pipe-lines Act there was retroactive and unilateral alteration of the terms upon which some of the licences had been issued. Of course, it was that same Act which introduced this hydra-headed monster, the British National Oil Corporation—BNOC. In its capacity as Government adviser, BNOC has been influential 619 in changing Government policy and whittling away the rights of companies. At the same time the Government are now introducing this concept of stage consent; in other words, one has to go back and acquire new Government approvals for the different stages of one's operation, which will almost inevitably create delay. Then, as we have already heard, there is the need to obtain agreement to every farm-in deal; that is to say, if one requires a new partner or drops an old partner.
There have been various tightenings of the terms laid down for the new round of bidding for the blocks in the North Sea. Therefore, it would indeed appear that Mr. Benn has borrowed from his colleague, Mr. Healey, the policy of squeezing the oil companies until the pips squeak. What we fear is that they will no longer be planting any orchards.
Therefore, I do not think it would be surprising if there was a decline in exploratory drilling. Indeed, it is what one would expect to find. But, I derive no pleasure from finding that that is what is happening. However I do believe that my noble friend has made out a formidable case to answer. As he said, the Government seem to respond to this with two voices. On the one hand, we have Dr. Mabon in another place agreeing that he is "analysing the reasons for reduction" in exploratory drilling. The noble Lord himself yesterday was saying that he was somewhat perturbed by some of the figures that he was producing. Against this we have the euphoric announcements about the confidence demonstrated by the results of the sixth round from which the Government, apparently, derive comfort and self-assurance. However, I suggest that they have been extremely coy about letting us into the details which give them so much joy. I think that I would go even further and say that I am not at all sure they are not going beyond suppressio veri to the stage of actually being guilty of suggestio falsi at times.
If we are to be persuaded by the Government, then the first thing they have to do is to clear up the muddle in the figures which was created at columns 72 and 73 in the Official Report of the Commons debate on 11th December, when Dr. Mabon appeared to be saying 620 that instead of three exploratory wells being drilled, it was 39, and then the number went up to 58, all in a matter of a few minutes. Figures of that kind make a nonsense of any argument at all, if there is any doubt about them. Here again, one suspects that at least some people have got into a muddle as between exploratory wells and appraisal wells.
I do not for a moment suppose that on past form the noble Lord, Lord Strabolgi, will let us into very many more of the secrets of the sixth round. I think that my noble friend has already asked how many blocks had more than one bidder in this round. I should like to add one more question, confident that the noble Lord will not reply to it, but it is worth a try anyway. I should like to ask for how many blocks did BNOC bid or in how many bids did BNOC participate. My noble friend has already pointed out that the significance of the results of this round is really the absentees. Exxon has not bid at all; Conoco, which is one of the most experienced drilling companies, is not bidding as an operator this time; then we have the very restricted interest by Chevron, Shell and Texaco. I should like to suggest that, unless these questions can be convincingly and honestly answered, we cannot be blamed for continuing to be alarmed that the indicators point to a potentially disastrous downturn, and that either the Government are refusing to face the results of their policy or else are deliberately trying to cover up the unpalatable warning clouds which seem to us to be gathering on the horizon.
§ 6.28 p.m.
§ Lord STRABOLGI
My Lords, I should like to say at the outset that I fully agree with the noble Lord, Lord Strathcona and Mount Royal, that the noble Earl, Lord Lauderdale, was in top form this afternoon and I thought made the best of the case as he saw it. I am very glad that other noble Lords took part, particularly the noble Lord, Lord Energlyn, although I again agree with the noble Lord, Lord Strathcona, that the ground he covered was rather outside the debate. Nevertheless, I am sure that, with his great knowledge and experience, what he said will be very carefully noted by all concerned. I am grateful to the noble Earl for his kind remarks about 621 me. I am very glad once again to be taking part in a debate on this important subject, which I find as interesting and fascinating as he does. I should like to congratulate him on his foresight in providing us with this opportunity to discuss the matter.
The Government's basic objective is to secure the full and early exploration of the oil and gas resources of the United Kingdom Continental Shelf. On any assessment of our oil reserves, a large number of prospects remains to be explored, and it is only exploration which will show whether or not they contain oil or gas in economically recoverable quantities. I think that was recognised by both noble Lords.
Obviously, this objective of full exploration does not in itself decide the pace at which exploration is to proceed. First, experience has taught us that the rate should be a steady one and that, as the consequences of the fourth licensing round, which was of course the round instituted by the Conservative Government, show, licensing in a series of hectic bursts can be disruptive. Applications were invited for that round in June 1971, and, in the end no fewer than 282 blocks were licensed. Despite the enormous benefits to the economy as a whole from the many discoveries made in that round, which I readily concede, the sudden burst of development which resulted has not been free from difficulties, since it overstrained the capacity of the offshore supply industry so that some orders had to be diverted overseas and contributed to the severe escalation of costs in 1974–5, and then formed one of the causes of the hiatus in platform orders in 1975–6. More recently, licensees' need to decide which part of fourth round blocks to relinquish in March 1978 under the terms of their agreements led to a burst of exploratory drilling in 1977 followed by a sharp fall-off in drilling activity this year, as the noble Earl has said.
I repeat, my Lords, that we can scarcely over-estimate the importance of a steady rate of exploration. This consideration alone must cast some doubt on the wisdom of the policy—which I note Lord Strathcona supports—recently advocated by the United Kingdom Offshore Operators Association, of the most rapid exploration possible; a viewpoint that is, I may say, 622 not shared by the National Consumer Council which, in its report to the Energy Commission, reached very different conclusions.
The exact rate of licensing to be chosen will depend on a number of factors. Early exploration and early knowledge of the extent of reserves available to us will help us to choose the wisest policy for the future. The Government must also consider the need for a stable flow of orders to the offshore supplies industry. Above all, the rate of licensing cannot be independent of the Government's policy on the depletion of our reserves. The Government set out in the Green Paper on Energy Policy, which was published this spring, a statement of the factors affecting depletion policy. The Energy Commission recently devoted a full discussion to our offshore oil policy. Depletion policy was naturally discussed at that meeting and the Energy Commission intends to discuss it again in the context of a review of the prospects for other fuels.
As I said yesterday in answer to a Starred Question by the noble Earl, the Government are well aware that this years level of offshore drilling for the purposes of exploration and appraisal is lower than last year's. Indeed, it will be lower than the level of 1976. Obviously, the Government must take such a decline seriously and the Department of Energy is presently engaged in a joint study with the industry in an attempt to throw further light on its causes. I may say here that it is not correct to claim, as the noble Earl, Lord Lauderdale, did in one of his supple-mentaries yesterday, that the number of mobile drilling rigs engaged in exploration drilling has declined from 26 in October 1977 to 9 this October. As I explained to the House yesterday, the figure of 26 refers to the total number of mobile rigs engaged in offshore drilling in October 1977. The comparable figure for 1978 is 19. Out of the 26 rigs active in October 1977, 19 were engaged in exploration drilling and the remainder in appraisal drilling. The comparable figures therefore are 19 and 9, not 26 and 9. But I agree that the key question is whether this year's lower figures, which are, I admit, still much lower than last year's are symptomatic of a continuing trend, and how far they are due to special factors 623 affecting this year and last which may not recur.
Some of these special factors can be identified. Last year's high level of activity may well have been due to a wish by licensees to decide which parts of their fourth round blocks they should surrender in accordance with the terms of their licences in March of this year. It would be reasonable to assume that, in the year following such a burst of activity, fourth round licensees had relatively little exploration work which they wish to undertake immediately. Fifth round licences were issued later than expected, as the noble Earl said, so that relatively little exploration work has been carried out this year on fifth round blocks.
The noble Earl suggested, and it is often suggested by the Opposition, that the delay incurred in the granting of fifth round licences has been the responsibility of BNOC. I would remind the House that the settlement of joint operating agreements requires careful consideration by all parties concerned and by its very nature cannot be a hurried process. The Government recognised that this would take time, and indeed the process did take longer than we originally envisaged, but there was no undue delay. The matters under discussion have been of considerable importance and both sides had legitimate interests which they had to seek to protect in agreements which may last for nearly 40 years.
§ The Earl of LAUDERDALE
My Lords, will the noble Lord allow me to intervene? He is always so kind and courteous in these matters. Can he tell us how the speed of agreeing exploration programmes under round five compares with the speed under previous rounds? Does he happen to have that information at hand?
§ Lord STRABOLGI
My Lords, I cannot tell the noble Earl exactly, but I can tell him that Round 4 was entered into in a very hasty and, indeed, impetuous way by the previous Conservative Government, and we are reaping some of the consequences of that now. I do not want to go into some of the follies of the previous Administration's handling of North Sea oil, for I am feeling in a rather benign mood and Christmas is 624 approaching, but I think that caution is really the better policy.
As these fifth round licences were issued later than we had expected, there has not been time for as much drilling on blocks licensed under the fifth round as originally planned. A further reason is that some rigs normally active on our Continental Shelf have spent the high summer working in the Atlantic off South West Ireland, where the weather window is narrower: they returned in the autumn. There is also some evidence that certain licensees are operating under tighter financial constraints than usual, and I shall have something to say on PRT later.
Against this, one can discern some longer term factors which would make it natural to expect drilling activity to continue at a lower level than in the peak years of 1975 and 1977. First, the large relinquishments of Fourth Round blocks have substantially reduced the total acreage open for drilling. Under the Government's present policy of smaller, even if more frequent rounds, the total amount of territory under licence is unlikely to reach the peak achieved immediately after the fourth round. Secondly, the North Sea proper has now been fairly thoroughly explored. It is reasonable to assume that licensees began with the most promising prospects and will, as time goes on, be more selective about exploration. I think Lord Strathcona recognised that. Thirdly, it is a well known fact that any oil province "matures", in other words, there comes a time when its geology is fairly well understood and exploration and discovery continue, but at a steadier pace.
Besides the factors I have mentioned, different aspects of Government policy have been blamed for the reduction in exploration activity. In a series of questions which the noble Earl asked during the debate on the Address on 2nd November, he singled out, inter alia, the proposed changes in PRT announced in another place on 2nd August, the existence and character of BNOC, the Government's policy on assignments, and the Governments policy of awarding "sole licences" to BNOC and BGC.
I must, first deny the suggestion that BNOC has abused its advisory role by exploiting confidential information for 625 its own commercial purposes. Nothing could be further from the truth or potentially more damaging to BNOC's reputation. At the Government's request, the Corporation has seen to it that its employees are aware of their duty to observe any limitations on the commercial use of confidential information, and the Government are satisfied that BNOC fulfils its advisory as well as its commercial role successfully and with propriety. Rather, however, than debate individual allegations, I should like to call your Lordships' attention to the underlying theme of the noble Earl's complaint. Each facet of Government policy to which he takes exception is intended either to secure a fairer share of profits for the nation and to maximise the gain to the balance of payments, or to assert great public control over the development and use of this unique and irreplaceable resource so as to enable successive Governments to see that the national interest is served. These are the key objectives which the incoming Labour Government set themselves in 1974.
I need not repeat what I said earlier about how inadequate we found the situation when we first took over. I should like, instead, to comment on BNOC's achievements. BNOC was created to help ensure that the nation shares fully in the benefits of oil from the United Kingdom Continental Shelf, to increase the information about oil developments available to the Government and to reduce the country's dependence on the private sector, mainly of course the multinational oil companies. The Corporation has had a most impressive start. As an adviser, it has helped to improve the Government's appreciation of the issues involved in the exercise of regulating powers over offshore activities. The decisions on such powers of course remain with the Government. BNOC is, accordingly, not a regulatory agency, as is often said and as has been said in this House, although not, I am glad to say, today. As a commercial enterprise, its professionalism and dynamism stand to be admired.
In three short years it has not only built up its staff from nil to over 1,000 today, but it has also become a major North Sea operator, contributing to over a quarter of all UK/CS exploration and appraisal 626 drilling undertaken in this period and bringing on stream as operator the Thistle oil field in the North Sea, which has already produced 2½ million tons of oil in 1978. It has successfully concluded complex participation and operating agreements with over 100 companies and this year has become active as an oil trader. By the early 1980s, the Corporation will have access to over one-third of United Kingdom Continental Shelf production. The Government regard this as an excellent achievement.
On the question of sole licences to BNOC and BCG, we wish to enhance the national interest in offshore activities and to reduce the country's dependence on the multinational oil companies, as I said. However—I wish to stress this—there will be continuing opportunities for the private sector on the United Kingdom Continental Shelf. The response to the sixth round was proof of that. Both noble Lords opposite made great play about the sixth round. I do not want to be accused of suppressing the truth by Lord Strathcona, but I am afraid I cannot tell him which companies have combined into which groups. As is known—it was published in Hansard of the other place—there were 94 companies applying in 55 groups, but I am afraid I cannot tell him which they were because that is commercially confidential.
I can, however, tell him that BNOC applied for all blocks on offer, as did companies in the private sector. I can confirm that the applications will be treated as commercially confidential to the Department of Energy and the applicant concerned. BNOC has provided my right honourable friend the Secretary of State for Energy with advice, but advice only, about how offers made by applicants under the optional criteria might be assessed.
I was asked about Shell, Conoco and Chevron and whether they had applied for very few blocks, and again I must say that the nature and content of the individual applications is treated as confidential. I can say, however, that the only large company that has not applied is Esso, but the chairman has confirmed, as my honourable friend Dr. Dickson Mabon said in another place on Monday, that they are interested in applying for future rounds.
§ Lord STRATHCONA and MOUNT ROYAL
My Lords, the Minister is being very helpful. When he was talking about BNOC's application, I understood him to say that BNOC had applied for all the blocks. He also said that BNOC would advise the Government on the allocation of the blocks for which other companies had bid. Does that mean—it surely must— that BNOC will have to be told the full details of all the other applications while they themselves are presumably competing for those blocks? Is that not precisely the kind of problem about which we have always been concerned?
§ Lord STRABOLGI
My Lords, I can confirm that BNOC has applied for all the blocks because, under the participation agreements, where they have a 51 per cent. interest, they are associated with all the blocks. They have provided advice about how offers made by applicants under the optional criteria might be assessed. I think that is a very different matter from actually seeing the applications themselves; they provide overall advice but they do not see the actual applications.
§ The Earl of LAUDERDALE
My Lords, the noble Lord said BNOC was involved in applications for all the blocks, but may I ask him to say whether BNOC is involved in competitive applications for any of the blocks?
§ Lord STRABOLGI
I am not sure about that, my Lords. I think that might run into confidential territory. I know they have applied for all the blocks. Of course, they have the sole licences in some blocks. They are shown as applying in the list of companies given in Hansard of the other place for 1st December, but I cannot say more than that at the moment.
§ The Earl of LAUDERDALE
My Lords, perhaps I may put the question in a slightly different way. Would the noble Lord agree that all applicants must have some BNOC tie to make an application worthy of consideration? If that is the case, can the noble Lord say whether there are any competitive applicants for blocks, because if there are, BNOC must then be involved in competitive applications?
§ Baroness GAITSKELL
My Lords, may I ask a small question? I am totally ignorant of this matter, but can there be applications which are not competitive? What is the purpose of having a number of applications if they do not compete with one another?
§ The Earl of LAUDERDALE
My Lords, if I may follow up that point, I should say that there may well be two or three blocks which one company wants and another company does not want. Those would be non-competitive applications. I hope that that answers the point.
§ Lord STRABOLGI
My Lords, my noble friend may be referring to the sole licences for BNOC and British Gas. I now wish to say a few words about PRT. The Government's proposals to increase petroleum revenue tax are necessary to ensure that a fair share of the profits from the national resource which North Sea oil represents accrue to the public. The proposals were not made without a careful study of their likely impact on the future development of the Continental Shelf. We do not believe that they will endanger the future exploitation of our oil resources. Even after the changes, there are generous tax reliefs for less profitable fields. Capital costs are written off immediately for both PRT and corporation tax. The oil allowance still gives valuable benefit to smaller fields. There is an automatic safeguard which eliminates PRT if the pre-corporation tax return on historic capital costs in any year drops below 30 per cent. If, nevertheless, there are any worthwhile developments which prove to be uneconomic, the Government have powers to repay royalties which we stand ready to use where it is in the national interest, and we are very happy to talk to the oil companies about the effect of our proposals on their future exploration and development plans. However, on the evidence so far available, we believe than an adequate incentive for the future remains. My Lords——
§ The Earl of LAUDERDALE
My Lords, I am much obliged to the noble 629 Lord for giving way, as it is most helpful to pick up these points as we go along. On the question of the Government's willingness to forego royalties, can he tell us what measures of project worth will be used, and at what point royalties will be refunded, because this is a matter of some obscurity in the industry, I understand?
§ Lord STRABOLGI
I am afraid that I cannot, my Lords. These are really matters for my right honourable friends the Secretary of State and the Chancellor. I should like to say a few words about assignment policy. The objective of the current assignment policy is to improve the relatively small share of equity held by the State corporations in first to fourth round licences. However, provision is made for the private sector companies to play a continuing role in farm-in activity, and this is proving to be the case in practice. Details of individual transactions are commercially confidential, but I can say that, in a third of the cases where BNOC has been approached, the corporation has declined to negotiate for any part of the interest on offer, thereby leaving the private sector companies free to conclude agreements without a measure of State equity involvement.
In other cases, BNOC has sought to acquire only a share of the interest on offer, and agreements are being reached between the private sector parties and the corporation. Furthermore, while it is too early to assess the effect of the current policy on farm-in activity, the fact that 10 new proposals have been put forward since the policy was announced on 5th April suggests that the flow has not dried up.
The noble Earl also spoke about Mesa Petroleum, and said that it is smarting from the unfriendly treatment it has received. Were the Government, though, wrong to encourage Mesa to change its development plans after advice from independent consultants so as to minimise the risk of oil pollution from a field hardly a dozen miles from the nearest coastline? Perhaps the noble Earl would care to note the presence of Mesa Petroleum among the applicants for the sixth round licences.
With regard to the sixth round, I notice that the noble Lord, Lord Strathcona 630 and Mount Royal, made great play of the fact that several of the smaller companies were taking part in applications. This of course is true. I am sure that it will please the other Opposition Front Bench spokesman on energy, the noble Earl, Lord Gowrie, because in the last debate on the matter he chided the Government for not encouraging the smaller companies more.
The picture which the Opposition paint is overdrawn. The Government have acted to adjust the balance between the public and the private sectors. The noble Earl may not approve of this, but I hope that he will accept that the Government envisage a continuing and a major role for the private sector oil companies in the development of the Continental Shelf. For their part, the Government are confident that an enhanced role for the public sector need not mean the exclusion of the private sector and that, even with the changes which have been announced, there will remain adequate incentive for continuing private sector involvement in the development of our Continental Shelf; and I should like to stress that.
It may be, as the noble Earl suggests, that not every company will wish to take an active part in exploration all the time, and there is no point in denying that some holders of licences have not applied for licences in the present sixth round. But, my Lords, does it necessarily matter that licences are not awarded to the same firms in each successive round, provided that we secure sufficient expertise and commitment to undertake the exploration which is required? It is natural, surely, that some licensees should drop off the list, perhaps temporarily—I hope so— and that some should be added to it. Indeed, is there not a gain in a diversity of approach to the uncertain business of exploring for oil?
In the last resort the Government's success in attracting exploration efforts to the Continental Shelf will be determined by the facts of geology and by the attractiveness of the terms offered. Geology is of course outside Government control—a matter which I did not think was quite recognised by the noble Lord, Lord Strathcona and Mount Royal, although I think that he meant the point kindly. As for the terms and environment offered, the Government have continuously 631 sought to strike a balance which will give companies adequate incentive to seek licences and to participate in the development of our Continental Shelf. I suggest that the number of applicants for the sixth round shows that the Government have succeeded in this task, and gives ground to look forward not to the "collapse" which the noble Earl mentione—and which he included in his Motion—but to a continuing, lively interest in the exploration and development of our offshore oil and gas resources.
§ 6.58 p.m.
§ The Earl of LAUDERDALE
My Lords, first I must express my thanks to the noble Lord, Lord Energlyn, who I am sorry is not in his place at this moment, and to the noble Lord, Lord Strathcona and Mount Royal, for their part in the debate. I should be the last to suggest that the contribution of the noble Lord, Lord Energlyn, was not germane. I believe that it was very germane indeed in that the drilling for oil has in more than one quarter of the North Sea led to the discovery of other deposits, notably coal and gas, for which—as yet—there are no exploitation plans. I believe that the noble Lord, Lord Energlyn, in his romantic speech was none the less realistic and his contribution was, as we would expect, sophisticated and elegant. We are much in his debt, as always.
The noble Lord, Lord Strathcona and Mount Royal, dotted i's and crossed t's in his own inimitable fashion, and drew attention to a particular point which perhaps was not taken on board as thoroughly as it might have been by the noble Lord, Lord Strabolgi; namely, the question of lowering the tax threshold on the smaller fields. But without wishing to press any allegations of suggestio falsi, to which Lord Strathcona alluded with such delicacy, I believe we have to say that the answer we have had from the Government might be described as a classic restatement of the Government's Socialist policy. However, we are all grateful to the noble Lord, Lord Strabolgi, for the invariably moderate and friendly way in which he replies to criticisms which, however friendily directed, are none the less sharp from time to time.
The noble Lord referred, as one felt sure he must, to the whole question of 632 depletion policy. Nobody denies that that is necessary. On the other hand, you cannot expect private enterprise to invest heavily in exploration unless it is going to have a reasonable chance to enjoy the fruits. One is aware that the Government are afraid that too high a private enterprise investment in exploration could build up pressures that may be difficult for a Government to resist for immediate development—and by "immediate development" I mean development against the Government's judgment of what is in the country's long-term interest. As a matter of fact, it is interesting to note that there is declining pressure by the exploration companies to proceed to early development. Half of the fields that have been found in the last four years are either still being examined by the companies that found them—notably, Brae, Hutton and North-West Hutton—or have only just been proposed to the Government for precise development plans, notably Maureen and Magnus. On the whole, the performance of private enterprise has not been to rush in hastily and propose precipitate exploitation. On the contrary, the companies have become more conservative as they have gone along.
Then the noble Lord was good enough to offer the assurance to the House that the Government of course still foresee an ample role for private enterprise. I am bound to remind him of a celebrated remark early in the days when the noble Lord, Lord George-Brown, was a Government Minister. He said that the Government at that time pictured a long period of co-operation between the public and private sectors, but the boundaries of the private sector would become narrower and narrower as time went on. This, of course, is the fear that many of us have about the way in which the Government are proceeding now. Their treatment of the multinational companies, the increasing erosion of the situation by BNOC——
§ Lord STRABOLGI
My Lords, I am sorry to interrupt the noble Earl, but would he not agree that all other oil-producing countries in the world control their own oil, either by State control or by nationalisation, and that some of them have much stricter controls than we have?
§ The Earl of LAUDERDALE
Yes, my Lords, I would not deny that for a 633 moment; and I would have thought that in many cases—and Mexico is a classic example—that very fact should be a warning about our own future. But it is suggested to us that if the multinationals choose to depart then BNOC can do it all themselves. My Lords, of all the pieces of imaginative oratory that I have ever heard in this House in some 10 years, that is quite the most imaginative; because private enterprise engaged in the North Sea is just about one half of the oil industry of the entire free world. To imagine that BNOC, with its staff of only 1,000 (the best of whom come from the Burmah Oil Company anyway), can ever match the resources of half the world's oil industry is, I believe, a pure flight of fancy. At any rate, we have the noble Lord's assurance that the Government's intention is to give private enterprise, including the multinationals, a fair crack of the whip. Although that was not his exact phrase, I hope I am not distorting what he said.
The noble Lord was good enough to refer to the statement put in to the Energy Commission by the 'United Kingdom Offshore Operators' Association, and remarked how it has been countered by another paper, I have to say rather slenderer, that had been prepared by the chairmen of the energy consumers' councils. Neither the noble Lord, I think, nor I, certainly, were present at that meeting of the Energy Commission, but the story I hear is that the latter paper was not very well received and did not arouse very much interest. This is not the time to go into it in any depth, but it was not a great effort of draughtsmanship, of statistical analysis or of controversy. It was a feeble proposition. Anyway, the noble Lord of course made to us the familiar points about the kindliness of heart of the tax people and the gentleness of their imprint upon the industry.
My Lords, we will take that as it is, but I think it is important to go back to the points that he was making about Round 4 —the "impetuous Round 4" —and all the high-tension pressure for exploration and discovery that followed it. It did not happen today, but it did happen in the debate in the other place two days ago, that the Government virtually claimed credit for the eight fields that are now operating. The noble Lord will know very well how many of those were found 634 before and how many after the present Government laid their hands upon the affair.
My Lords, the noble Lord assured us that the role of BNOC is not regulatory. We shall judge by results. I am sure the industry will read what he says, and no doubt they will try and hold BNOC to that principle. But the noble Lord mentioned one point that it may well be important to come back to at a later date, and that is his categorical denial that there has been any improper use by BNOC of information of an exploratory character that had derived from other companies' work in the preparation of their own applications. If there is nothing to hide, then I take it that the Government would not object to a perfectly independent inquiry if that were pressed for.
§ Lord STRABOLGI
My Lords, I am sorry to interrupt the noble Earl again but he interrupted me a few times. Is he referring to Block 30/17? He did not refer to this in his speech. If he is, I wholly reject this allegation. I suggest that the truth of the matter is that BNOC acquired commercially whatever data was commercially obtainable in this area and, using its own expert technical analysis, came to the view that it contained an attractive prospect. I mentioned that because it has been in the Press, and I think it should be denied, and denied strenuously.
§ Lord ENERGLYN
My Lords, would the noble Earl allow me to correct the situation? I was talking about the collapse of drilling for minerals in the Continental Shelf, but let me come in context with the noble Earl's remarks. I think that on assessment the geologist whose attitude has to be taken very seriously in assessing the value of the block is very conscious of the fact that all these oil fields are intercommunicating. I tried to make this point. Therefore, in the assessment of a block such as that to which the Minister has just referred, one has to assess whether the potential for the extraction of oil from that block is going to affect the extraction of oil from the neighbouring block. It is a geographical 635 break up of geological structure which may or may not be realistic. I think that in many ways the possibility of a cessation of drilling is due to the fact that we now know so much about the structure of oil fields that companies are able to say, "This is not worth drilling at this moment in time."
§ The Earl of LAUDERDALE
My Lords, I am sure we are all grateful to the noble Lord, Lord Energlyn, for his contribution just now. He will be aware that I earlier expressed my thanks to him for his most interesting, elegant and instructive speech earlier in the debate. I think that all that remains for me to say now is that there have been several questions which were put to the noble Lord in the course of this debate that he was not equipped to deal with on the spot—and nobody will blame him for that. But perhaps at some suitable time he can go into the questions which stay unanswered. The decline in activity is something that we on this side of the House have consistently forecast. We forecast it throughout the debates on the oil and pipelines Bill—just as we said there would be a decline in confidence if the Government proceeded with their declared policy retroactively to change the ground rules.
Since Christmas is coming, and the noble Lord is in a benign mood, I do not want to be more controversial at this stage, particularly as we have had the assurance yesterday and today that the Government are discussing with the industry the causes of the present decline in activity. We all hope that those discussions will proceed fruitfully, without rancour, without any sort of threats or hints of arm-twisting, that they will be undertaken frankly and honourably.
I look back on the noble Lord's ingenious reply to the case that I tried to put forward in my own ignorant kind of way. Doing so I think that if one were going to write an epitaph for the noble Lord—and I hope that many years go by before that is needed—one might say that he had the gift of making chaos cosmic. Whether or not that is so, the House is greatly indebted to him for much of the information that he has given, for some of the ideas he has confessed to, as well as for his kind and gentle treatment 636 of those with whom he disagrees from the sole of his feet upwards. In view of the reply that we have had and the noble Lord's very real endeavours to meet, at any rate, some of the points that have been put before him, I beg leave to withdraw my Motion.
Motion for Papers, by leave, withdrawn.