HL Deb 31 January 1978 vol 388 cc724-38

6.12 p.m.


My Lords, I beg to move that this Bill be now read a second time. Your Lordships will know that the purpose of the Bill concerns a doubt relating to the status of North Sea oil participation agreements under the restrictive trade practices legislation. This doubt could jeopardise the implementation of the Government's policy for majority State participation in petroleum finds in United Kingdom waters and cause uncertainty in the industry. We need to remove it.

In order to give effect to the Government's participation policy, agreements have been negotiated over the last three years with companies with commerical discoveries made under licences issued in the first four rounds of licensing. During the negotiations the Government have worked on three principles: that companies should be left financially neither better nor worse off as a result of participation; that the British National Oil Corporation should have secure access to up to 51 per cent. of petroleum produced; and that the BNOC should have an effective voice and vote in how fields are managed. Companies have, in general, accepted these principles. We now have participation agreements with 44 companies; agreements with 29 companies are in final form, though some are still subject to technical clearances. Negotiations continue with a further 15 companies which have not yet reached agreement in either outline or final form.

Real progress has been made in gaining a public involvement in commercial finds through the introduction of the BNOC as a partner in existing licences. The BNOC itself deserves a tribute, I think, since, although established scarcely two years ago, it is now a vigorous and expanding oil company with a major presence on the United Kingdom continental shelf, including the capacity to act as operator at all stages of development. As licences being issued in the fifth round of licensing are on terms which provide for the BNOC to be a 51 per cent. partner, the Government's participation policy is well on the way to completion.

I should also like to pay a tribute to private enterprise, whose rôle in this success story we fully acknowledge. However, we have been advised that there is a possibility that some aspects of negotiated participation agreements might be held to be restrictions under the terms of the Restrictive Trade Practices Acts of 1976 and 1956. That would mean that they ought to be registered with the Director General of Fair Trading.

The chief aspect of agreements which might necessitate registration is the fact that the BNOC gains access to petroleum from the companies by means of options to take it at market price. Although it could be argued that the Crown is a party to the agreements and the doctrine of Crown immunity applies, we are advised that this is not by any means certain, and we think it wise, indeed essential, to remove the existing uncertainty over the agreements. If they were to be registered, the Director General of Fair Trading would have to submit them for examination by the Restrictive Practices Court against the criteria in the Act.

Participation agreements are an essential part of the implementation of the Government's North Sea oil participation policy, which is designed to secure a greater say for the nation in North Sea operations. It is surely inappropriate that such agreements should be judged against criteria intended to apply to agreements entered into by commercial enterprises for purposes not concerned with national policies.

Under Clause 1(1) of the Bill the Secretary of State has power to certify an agreement if it appears to him to be a participation agreement. Under subsection (2) any such certified agreement would be exempt from the Restrictive Trade Practices Acts of 1976 and 1956. Taken together, the effect of the two subsections is that any certified agreements which might otherwise be registrable would not have to be registered, thus avoiding all the difficulties I mentioned earlier.

My Lords, that is the main part of the Bill. The remaining provisions define the limits of the power to certify. Subsection (3) defines a participation agreement as closely as possible. It broadly follows the corresponding definition in the Petroleum and Submarine Pipe-lines Act 1975. I shall repeat here assurances given in another place to the effect that it is not the intention to certify ordinary commercial agreements entered into by BNOC.

Subsection (4) states that the Companies Act definition of "subsidiary" shall apply to any wholly owned subsidiary of the British National Oil Corporation. Subsection (5) provides for a statement to be laid before Parliament in respect of any certificate issued under subsection (1). The statement must give the date of the certificate, the date of the agreement, and the parties to the agreement. Parliament will, therefore, be able to monitor the use to which the Secretary of State puts this power that would be given him under the Bill. Subsection (6) defines "agreement" as having the same meaning as in the Restrictive Trade Practices Act 1976; "petroleum" the same as in the Petroleum and Submarine Pipe-lines Act; and "petroleum products" as in the Energy Act 1976. This last definition was introduced in Committee in another place by way of clarification. Together with the concluding words of subsection (5), it makes clear that participation agreements will not include agreements in any substances other than petroleum and petroleum products.

In addition to the provisions in the Bill, an undertaking has been given in another place on behalf of the Secretary of State that he will consult the Department of Prices and Consumer Protection before certifying an agreement under the provisions of subsection (1). The need for this legislation to remove doubt over the legal position of participation agreements is urgent because without it the Government, BNOC and the North Sea oil companies do not know where they stand. My Lords, I beg to move.

Moved, That the Bill be now read 2a.—(Lord Strabolgi.)

6.21 p.m.


My Lords, I find the name of this Bill rather quaint; I think it should be called the "Participation Disagreements Bill". Clearly we must be grateful to the noble Lord, Lord Strabolgi, for his clear explanation of what it is all about. It seems to me that it is really designed to remove an unforeseen legal loophole which might otherwise have been exploited by the reluctant suiters among the oil companies who will be raped upon the bed of participation, as I would see it.

This is not an activity which we think BNOC and the Department of Energy should be engaged upon, for the reasons which we gave ad nauseam in the debates on the Petroleum and Submarine Pipe-lines Act. But, alas, however much we may think that, we cannot oppose the Bill because, however unworthy the purpose and intent and however incompetent the Government may have been in rushing through legislation which we believe to be largely unnecessary anyway, no responsible Opposition could refuse a Second Reading of a Bill which is designed to eliminate uncertainty and to establish a clear and unequivocal basis for the exploitation of our offshore energy resources.

However, before letting the Bill go we should have a look at the purposes and practices it is designed to protect; that is really to have a look at the nature of the birth of BNOC and its conduct and manners during its adolescence. As the noble Lord said, it has grown up extremely fast. I am bound to say that I do not find the picture, as I understand it, very reassuring. Many of the worst fears which we voiced seem to us to have been realised in practice.

I should say right away that we have always recognised the need for some kind of regulatory agency to direct, control and co-ordinate the overall pattern of offshore oil and gas activity. We do not think BNOC is probably the right vehicle to do that, but I would not want to give the impression that a Conservative Government would want to turn BNOC into a kind of Party political football by eliminating or suppressing it root and branch. A more statesmanlike and pragmatic approach would be to encourage BNOC to continue where it is manifestly carrying out useful and successful functions within the normal constraints of fair trading. But I think we should have to examine carefully and identify those areas where it is performing contradictory functions or where its activities are impeding progress and damaging the good name of this country. In these areas its wings should be clipped and its worst excesses restrained.

The fundamental problem is that BNOC combines within one organisation the function of a regulating agency with that of a holding company participating in all the operating companies in the North Sea. It is an interesting fact that even the Government's own consultant, that not uncontentious figure Professor Peter Odell, is reported to have objected to this arrangement whereby there are two conflicting functions within the one organisation. It is this ambivalence which makes nonsense of the oft-repeated assertion that participation negotiations are voluntary. This has been exacerbated by the retrospective element in the Petroleum and Submarine Pipe-lines Act which really smacks, as was said so many times, of changing the rules of the game halfway through.

Time and again the noble Lord, Lord Balogh, from the Government Benches asserted that negotiations would be voluntary. I suggest that they are voluntary only in what one might call the Orwellian sense of that word. Is it voluntary if, without granting participation on existing licences, one is not considered for future licences? Can the Government deny that that is the situation? That is merely one example.

Great powers were given to the Minister and to BNOC in the Energy Acts. Very complex permissions were required for many aspects of our oilfield and pipeline operations and we believe that those permissions can be and are being exploited to put pressure on companies to accept participation agreements which they regard as onerous and discriminatory and which, incidentally, expose the public purse to unnecessary risks and calls on scarce financial resources. I will not particularise on these because I am not seeking specific answers to them from the noble Lord. Indeed, I am sorry to tell the House that the atmosphere of mistrust in the industry between the companies and BNOC is such that they would not wish to be quoted because they would genuinely believe that any public airing of their misgivings would be likely to be prejudicial to the negotiations which are currently going on; that is an exceedingly unhappy atmosphere in which to be pursuing the exciting developments which are taking place off our coasts today.

I wish to make it clear that, in saying that, I am not suggesting that we are the mouthpiece or creatures of the oil companies. I am not going to suggest that they are benevolent international saints; equally, we are not paranoic about them either, as some Governments tend to be. We simply believe that you are likely to achieve more if you have forthright and fair, though nevertheless tough, negotiations, rather than the appalling atmosphere of mutual suspicion and distrust which pervades the reports passing between BNOC, the Ministry of Energy and the companies that I have seen. So it is hardly surprising if we are reluctant to hand over still more power and give a kind of retrospective amnesty to the Government and their creature, BNOC. I rather think they are really asking to be put in the position of President Nixon, who said: It is not wrong if the President does it". As I understood it, that was virtually what the noble Lord was saying this Bill enables the Minister to say.

When one considers the delays which all this kind of negotiation is causing, I do not think one really ought to be surprised. It is now said that it is taking two years to achieve what was done in two months in the heady days, four or five years ago, before all this legislation was produced—when, incidentally, the Government already had all the taxing powers they needed to protect the public interest. I do not think you can expect anything else when you consider that there are, I think, although I did not write down the numbers as the noble Lord was speaking, 44 licences in which BNOC participates, whereas I do not believe it has yet succeeded in agreeing more than 15 complete operating plans. It would be a mammoth task when you consider that the oil companies are, on the whole, dealing with one operation while BNOC has to deal with them all.

I doubt whether BNOC will in fact be able to do very much to increase its capacity to deal with these situations, judging from some of the advertisements which one has recently seen. They are a little alarming, because there is a whole page of advertisements here and in some of them they are talking about opportunities for people who have not been in the industry before. This rather suggests that they are intending to recruit a whole lot of people who have no experience whatever of the industry, and if ever there was an industry in which experience counts, I would suggest that it is this one.

So I should like to challenge the Minister to show where any participation agreement, whether or not it was contrary to the Restrictive Trade Practices Act 1956 or the Act enacted by his own Government in 1976, has really helped in the production of oil and gas, or where it has been voluntary in any sense of the word other than Orwellian "newspeak". Would any ordinary person consider it voluntary if someone agreed to sell a £500 car for £50 when the alternative was to get kicked in the teeth or have a bomb put in the car? This is what most of us would call arm-twisting or a protection racket.

These are strong words, but I believe that this is the attitude that the oil companies have; and, in commercial terms, that is what the imposed participation agreements represent. I suggest that in these circumstances it ill-behoves the Minister in another place to disguise a threat in the form of exhortation, saying that it is in the best interests of companies as well as of the Government to get on and get their participation agreements finalised.

That is the negative side, but we always try to look for something good. As the Minister said, the Government have, in one or two instances, bowed to pressure, and some small but valuable improvements have been made in another place, particularly regarding information to the House about the agreements which are to be laid, and about BNOC's dealing in non-petroleum products and the exclusion of chemical feedstocks. As usual, my Lords, I have gone on too long. I can only say that this is still a Bill which should never have been needed, and I am reminded of the Welshman in a remote area who, when asked how to get somewhere, said, "If I was going there, boy, I wouldn't start from 'ere".

6.35 p.m.


My Lords, I am grateful to the noble Lord, Lord Strabolgi, for his clear description of this Bill. What he said has clarified a number of the points I had intended to raise in the course of this debate, When a Bill comes before this House and is said to be retrospective and to grant exemption from the Restrictive Trade Practices Act, it is not surprising to find somebody from these Benches making at least a few observations about it; but, as the speech of the noble Lord has made matters quite clear about the retrospective necessity for this Bill, I will not deal further with that aspect of it.

There are one or two points that I should like to mention, and they arise out of the definition of a participation agreement. I notice from the Explanatory Memorandum that it is said that the main purpose of the Bill, is to exempt from registration under the Restrictive Trade Practices Act 1976 agreements providing for majority state participation…". The Explanatory Memorandum refers to "agreements providing for majority state participation", whereas the definition in Clause 1(3) refers only to "participation agreement". I wondered whether there was any significance in that. Obviously, no legal significance can be attached to an Explanatory Memorandum—at any rate, that is an arguable matter—but the Explanatory Memorandum refers to "majority state participation", and I wondered whether that was a definition which should be included in the definition of "participation agreement" in the Bill itself.

There is perhaps another, minor point arising out of Clause 1(3)(c), where powers are given in relation to any other body on behalf of the Government". Will the noble Lord be in a position this evening to indicate what other bodies the Government have in mind in this connection? I suppose I should know what other bodies they have in mind from my own limited experience in this matter, but, if the noble Lord can give any examples at this stage, I shall be grateful. Also—and this is a point which, unfortunately, I have not raised with the noble Lord—can he give any assurances that the retrospective provisions of this small Bill will not affect the ownership of any inventions, patented or otherwise, which may arise in relation to contracts and associated matters before the date on which this Bill becomes an Act?

I have some sympathy for many of the observations which were made by the noble Lord, Lord Strathcona, but I do not propose to develop them at this late hour. I was not quite clear what he meant by "the contradictory activities" of the BNOC, but, as he did not develop that aspect of his speech, I shall not dwell on it any longer.

6.39 p.m.


My Lords, I am grateful to both noble Lords for the interest they have taken in this Bill, and I am also glad to know from the Opposition, from the noble Lord, Lord Strathcona, that they will not be opposing it. The noble Lord, Lord Strathcona, of course, turned back the clock a certain amount and reviewed what was the Conservative Party policy, what might have been their policy, and what is, in his view, the Government's policy; so that perhaps I, too, might be able briefly to spell out the Government policy and why we took the steps that we did.

When the present Government took office in March 1974, they instigated a review of Government policy towards the oil and gas resources of the United Kingdom Continental Shelf. This review was prompted by the widespread belief that the nation would not derive sufficient benefit from these important resources, a view, I may say, that was endorsed by the all-Party Public Accounts Committee in another place and, in view of some of the remarks of the noble Lord, Lord Strathcona, I would commend this report, which was dated 1972–73, to noble Lords who might care to refresh their memories. A lot of it is pretty devastating about the then-Government's policy and lack of control.

I should like to remind noble Lords that without the efforts of the present Government we should not have had an effective tax régime for North Sea profits, effective development and production control, including control over depletion and control over gas flaring, which is controlled in the United States, or any say by the Government on behalf of the nation in the disposal of the oil. The Opposition apparently are content to allow the oil companies to exploit the nation's resources as they think best, somehow trusting to their benevolence to ensure that the nation gets the maximum benefit from this priceless resource.

I understood from the speech of the noble Lord, Lord Strathcona, that the Opposition would now agree with a great deal of what we have done; and I congratulate them on their conversion. Nevertheless, had they remained in office, it is surely inconceivable that the British people would have had such an opportunity as they have today to reap the benefits of United Kingdom Continental Shelf development. When BNOC was set up, deliberate steps were taken to ensure that its relationship with the Government should be a close and intimate one. This was because it was going to have a major rôle in the development of an absolutely vital national resource. That is why, for instance, two civil servants were included, one from the Treasury, on the Board of BNOC and why the Secretary of State has power to give the Corporation specific instructions. In line with that philosophy, relations between the Government and the Corporation are very close indeed.

It is not accurate to suggest, as the official spokesman for the Opposition in another place said in his constituency last week, that the Corporation raised 825-million dollars from a syndicate of the world's leading banks on the basis of a forward sale of oil without consulting the Treasury. This is what was said and I have a transcript of the speech. I cannot imagine how anyone can believe that a reasonable State corporation would engage in so important an undertaking without consulting the Treasury. I would remind noble Lords, as I have said just now, that there is a Treasury representative on the Board of BNOC.

We have heard also some hard words from the noble Lord about BNOC's behaviour in the negotiations. Of course, I can understand that the oil companies do not want a newcomer in their industry and particularly not a newcomer which has a special relationship with the Government. Nevertheless, State oil companies are a feature of the oil scene in many countries throughout the world and I cannot see what is wrong with the United Kingdom having one as well. As for the conduct of negotiations—and we have heard more today about the old cry about arm twisting—let no one imagine that the oil companies are a pushover and do not know how to look after their interests. Probably, it is the toughest industry in the world. Sometimes the going gets tough and the occasional heated word may be exchanged, but that, surely, is part of negotiations, too. The oil companies do not have a divine right, however much one may believe in private enterprise, to dispose of the nation's resources. The nation surely must have its say. That is what the participation negotiations are all about. I am sure that the majority of reasonable companies accept this and behave accordingly so that good sense prevails and an amicable solution is obtained.


My Lords, may I interrupt the noble Lord at this point. Would he define that, as he described it, as voluntary? I do not think that many people would do so.


My Lords, I was coming to the voluntary agreements a little later. I would remind the House that the participation negotiations are being conducted on behalf of the Government and, in all cases, with civil servants taking part. Any company which believes it has a legitimate complaint—and I hope that the noble Lord will transmit this to his friends in the oil companies—should bring it to the attention of my right honourable friend the Secretary of State.

The noble Lord, Lord Lloyd of Kilgerran, asked me for a definition of a participation agreement. Each agreement is negotiated on a voluntary basis which I shall define in a moment. As will be clear to the House, participation agreements vary greatly to take account of the peculiarities of the various oil fields of the individual oil companies. It is the case that no company is obliged to enter into participation negotiations. It is entirely legitimate for the Government to include, among many other criteria, the extent to which companies are prepared to comply with a policy to which the Government attach importance. It is the British way to seek to influence people by persuasion rather than by the legally-orientated regulatory approach in the United States. But I repeat that no company is obliged to agree to participation. Those who do not must, however, expect the Government to form their own view about the willingness of those companies to co-operate with the Government.

The Opposition have also said—and this, too, was said over the weekend—that BNOC is scrutinising every word in every operating agreement. As noble Lords will know, although the Continental Shelf operating agreements have a number of common features, they vary considerably according to the number of participants in the relevant block and the diverse interests of those participants. No one has ever had to do before what BNOC has had to do: namely, to work out an operating agreement harmonising its own interests with those of its very numerous commercial partners. It is not surprising that this complex task should have taken quite a while to complete. I would remind noble Lords that the licences in question can last for 37 years; so that, surely, a few months taken to get them right is well spent.

The Opposition have also complained that the role of BNOC is confused. BNOC's position is perfectly clear at the present time. First, it is a commercial oil company running operations on the United Kingdom Continental Shelf, in the Thistle Field, for example, where BNOC is the operator. Secondly, it takes part in operating committees even when it does not have an equity stake through participation. BNOC's other role is that of adviser. The Government have their own staff of petroleum engineers to study development plans. However, it is immensely valuable to have the advice of people who are actually involved in the development and who know about it from the inside. BNOC will be trading considerable volumes of oil and will be able to provide valuable advice on that aspect of the industry, too, so the balance of payments and the general benefit to our economy can be safeguarded.

I must also repeat—because this has again been alluded to by the noble Lord, Lord Strathcona and Mount Royal, and also by his honourable friend over the weekend—that the Secretary of State continues to be the regulatory authority, and BNOC advises him. It is a perfectly straightforward situation. The Secretary of State has regulatory powers, not BNOC. The Secretary of State has powers to issue licences, to control the rate of production, to consent to the drilling of wells, and also of course to consent to gas flaring.

The noble Lord, Lord Strathcona, complained that Government policy had lost time and impeded progress in the North Sea development programme. But he did not produce any evidence of this. Progress on those fields, which had been declared commercial when the Government took office, has been uneven. The demands of new technology, considerable cost escalation and the hazards of operating in deep waters in a hostile environment all meant that the very ambitious development programme took longer to carry out than many had thought. None of this was, however, in any way due to Government activity.

The Opposition have also said that the Government have delayed awarding fifth round licences. The present Government have scrutinised applicants for licences rather more closely than was done in earlier rounds. It is important, in the light of high costs and the advanced technology now required for operations on the United Kingdom Continental Shelf, to ensure that applicants for licences have the requisite technical and financial capability; and, naturally, all this takes time.

The Opposition also charge that no drilling in fifth round blocks was done during 1977. This is true, but it has not damaged the progress of development of the resources, and companies' drilling programmes were already sufficiently full for the year to prevent them from taking on any more exploration work. Drilling continued extensively throughout the year. The Opposition have claimed that there has been a slowing down of the rate of new discoveries and this has been due to Government policy. Although new finds are still being made, one can expect the rate of discovery being made under existing licences to decline now that companies have held their blocks for some years and have probably investigated the more promising structures. It is for this very reason that the Government decided to hold a fifth round of licences which, as noble Lords will know, is at present in progress.

The noble Lord, Lord Lloyd of Kilgerran, asked about majority participation. In some cases, the participation is less than 51 per cent. to take account of an existing interest held by the British Gas Corporation and the National Coal Board. The other words to which he drew attention in the Bill—"any other body"—are a reference to the British Gas Corporation or a corporation replacing BNOC. However, it is not at present intended to replace BNOC. That is the reason for that wording.

It was also implied by both noble Lords that the Government had been remiss in not legislating before, and that this kind of legislation could have been included either under the Petroleum and Submarine Pipe-lines Act 1975 or the Restrictive Trade Practices Act 1976. The reason for this is that this is new ground for all of us; a lot of it is unknown territory. The precise legal form of participation agreements was not clear at the time when the 1975 Act was going through Parliament. The doubt that we are seeking to remove had not come to light at the time of the 1976 Act which was, in any case, as your Lordships know, a consolidation measure, and hence not the proper place for legislation of this kind.

In conclusion, the Bill will bring certainty to a situation which is at present clouded by doubt. The Government, BNOC and the companies have devoted much time and effort to the negotiation of agreements settling the participation issue. It is clearly most undesirable for the status of these agreements to be in doubt. I should like to stress that the Bill does not effect BNOC's purely commercial activities. It removes the doubt and lifts an uncertainty from the industry's relationship with the Government and with the Corporation.


My Lords, before the noble Lord sits down, may I ask him whether he is now in a position to deal with another point that I raised: whether the retrospective effect of this Bill would in any way affect ownership of inventions, patented or otherwise, that may have arisen in the course of participation or other negotiation? I am sorry that I have not given the noble Lord notice of this question. If the noble Lord can reply either now or later, I shall be much obliged.


My Lords, the noble Lord is a great expert in this field. He has bowled me rather a fast ball. I shall go into the question and let him know the answer before the next stage of the Bill.

On Question, Bill read 2a, and committed to a Committee of the Whole House.