HL Deb 26 July 1979 vol 401 cc2057-69

3.59 p.m.


My Lords, with the leave of the House, it might be for the convenience of the House if at this juncture I made a Statement. I should like to make a Statement which is being made in another place by my right honourable friend the Secretary of State for Energy. These are my right honourable friend's words:

"With permission, Mr. Speaker, I will make a Statement about the Govern- ment's oil policy and the British National Oil Corporation.

"The Government have reviewed the full range of the BNOC's activities. They have also had much in mind the serious decline in offshore activity.

"After discussions with the chairman and the BNOC board, the Government have concluded that BNOC can best serve the nation's interests in a continuing but much more limited role than at present. and that the pattern of ownership of the Corporation's assets, at present exclusively in State hands, should be changed.

"The House will be aware that the BNOC is engaged in two main activities. It is an oil trader on a large scale, mainly by virtue of its right through participation agreements with other oil companies to purchase 51 per cent. of most of the oil produced on the United Kingdom Continental Shelf. And it has a substantial enterprise in the North Sea, engaged in exploration, development and production.

"As far as the trading activity is concerned, the Government have decided that the Corporation's access to oil through the participation options should be retained. Although in conditions of major shortage I can take powers under the Energy Act 1976 to control and direct oil movements, in conditions of limited shortage, such as we are now experiencing, BNOC's direct access to 'participation ' oil, together with royalty oil, strengthens our position. Of course, quantity and thereby security of supply also depends on economic pricing, and that is why we have removed the price controls which we inherited.

"As to BNOC's offshore assets and interests, the Government believe that those should be more widely owned. This objective can best be achieved through the disposal of assets from State hands or by the introduction of private capital into the operation. I will be making a further announcement in due course.

"Furthermore, the Government have decided on a number of steps in the area of BNOC's exploration, development and production activities. The Corporation has too many licence obligations and commitments, along with a number of privileges vis-àci-vis other oil companies. These features are themselves a source of the instability and lack of confidence that have come to characterise the offshore oil exploration scene—which it is essential for us to change. The Government have decided, therefore, that BNOC's preferential position in future licensing rounds should be ended, and that its present over-extended exploration commitments should be reduced.

"The Government also intend to end BNOC's special access to Government finance though the national oil account. These changes follow the Chancellor's announcement that BNOC will be liable to petrol revenue tax in common with other oil companies, and my announcement ending the previous policy of giving BNOC a first refusal whenever an interest was assigned between companies. I have also decided that the Corporation's statutory role as adviser to the Government should be removed, and that the Corporation should no longer sit on every committee operating the North Sea fields where it has no equity stake. I shall be strengthening my department's resources so as to ensure that the Government, in the exercise of their regulatory role, are fully able to protect vital national interests.

"Some of the changes I have outlined will require legislation, which will be introduced later in the Session.

"The moves announced today will in themselves encourage companies to explore more widely and to invest more confidently in development. We must encourage more investment both in drilling on already licensed territory and in deeper waters on the United Kingdom Continental Shelf. Our decision to examine with the industry the problems of the so-called marginal fields should also be of positive help.

"In addition, I am today confirming the first batch of awards of licences under the sixth round (and the announcement of further awards will follow shortly). I am also well advanced with the preparation of a seventh round of licensing.

"I believe that all this will make a major contribution to restoring a high level of exploration activity on the United Kingdom Continental Shelf after the recent very serious slowdown ".

My Lords, that ends my right honourable friend's Statement.

4.6 p.m.


My Lords, we on this side of the House are grateful to the noble Earl for repeating so clearly the Statement which is being made by his right honourable friend in another place. It is certainly not as sweeping as it might have been, if one remembers the Conservative election Manifesto, but no doubt the Government have had second thoughts as they begin to know more about the subject.

The most surprising part of the Statement is that there is no tribute at all to BNOC's achievements—none at all. In just three years, BNOC, since we set it up, has become a major operator in drilling and exploration, and it has brought on stream the Thistle Field which produced 2½ million tonnes of oil last year. Through the participation agreements, which again the Labour Government arranged, BNOC is an active partner in every North Sea oilfield, either through this participation or through equity.

I am glad that the Government say that so far as the trading activity of BNOC is concerned they have decided that the Corporation's access to oil through the participation options should be retained. That we welcome. Then they say that although in conditions of major shortage they can take powers under the Energy Act 1976—again an Act which was passed by the Labour Government—to control and direct oil movements in conditions of limited shortage, BNOC's direct access to " participation " oil strengthens their position. With that, of course, I agree.

What I think should be made clear is that this is very much the result of the policy of the previous Labour Government. The Conservatives are very fond of saying that they nationalised the North Sea. In fact they did nothing of the kind. What they did was to vest the rights in the North Sea in the Crown. But the oil was required to be landed. There was no control over it being taken out again, except by order in council which could have been signed only by Her Majesty under an emergency. It is due to the previous Government that we now have these arrangements, many of which I am glad to see are to be continued.

We must also object very strongly to that part of the Statement where the Government say that BNOC's offshore assets and interests should be more widely owned and that this can best be achieved through the disposal of assets or by the introduction of private capital. This very valuable national resource of Britain is much too important to be made the subject of asset stripping.

The Government say, too, that BNOC's preferential position in future licensing rounds should be ended and over-extended exploration commitments reduced. I do not think that the Government yet appreciate the importance of having a British presence in the North Sea. We set up BNOC as a State corporation to advise the Government on their regulatory powers and to provide a national stake in the North Sea, since the private sector is mainly operated by foreign owned multinational groups.

There is also the question of depletion. How do the Government intend to control depletion and how do they intend to control future development programmes, which are so important? With regard to depletion, there was a very important paragraph relating to this subject in the Labour Government's Green Paper, which said on page 36: One possible way of acquiring knowledge of oil potential without being subjected to commercial pressures is for BNOC to be licensed to explore in some areas in advance of the need for production from them ". In other words, you discover an oil well but you do not necessarily have to drain it on the spot—as, of course, would be the commercial inclination of the oil companies. How are the Government going to control their depletion policy without the national corporation?

I am also very perturbed to see that the corporation's role as adviser will be removed. Who is to advise the Government from direct experience? They talk about strengthening the department's resources, but of course the advantage of BNOC's role as adviser and also as an oil operator was that they were able to advise the Government through direct experience and three new sole licences were granted last year, covering 11 blocks. Therefore, I must ask the Government who they intend is to advise them, not as an independent adviser or perhaps by setting up a new QUANGO or by increasing the number of civil servants, but as a direct operator in the North Sea.

This Statement does not go as far as it might have done—and that we welcome —but nevertheless it is very disappointing. Almost every other major oil producing country in the world has State participation in some form or another, and I must ask the Government, who is going to control the huge multinational oil companies? Are they going back to the arrangements for the fourth round, where there was no control over depletion, no control over gas flaring, no control over development programmes, no ring fence and no PRT? We have always recognised the importance of the private sector and I have said so myself many times from this Box, but we on this side of the House believe strongly that Britain's oil must be controlled by the nation.

4.12 p.m.


My Lords, from these Benches we thank the noble Earl for his Statement and we arc grateful, too, that the Government have had some second thoughts about cutting BNOC right back to the bone. There is perhaps one false assumption which the noble Earl may be able to clear up. The implication in the Statement is that the serious decline in offshore activity is primarily due to the embryo State oil company, BNOC, but what about low prices? Not so long ago there were low prices and there was an excess of oil in the world, before the troubles in Iran, and exploration declined because it was not worth the candle for the oil companies to explore the high cost North Sea. From these Benches we, too, welcome the fact that BNOC is to continue its trading activities, and I feel that this would be the appropriate place in the Statement to indicate some form of congratulations on the success of those activities up to now.

As to Her Majesty's Government's stockbroking operations, to which reference is made here, I just ask the noble Earl whether this is the right time to sell oil stocks. I am not sure that it is. Finally, I should just like to say that support from these Benches for BNOC had nothing whatsoever to do with nationalisation; it was entirely related to the creation of a Government agency with expertise and experience to act as an adviser to the Government to protect the oil interests of this nation, and I find it incredibly depressing that this particular role has been taken away from BNOC and not much has been put in its place.

I should like to follow the noble Lord, Lord Strabolgi, when he refers to the American oil companies. One has only to look across the Atlantic to see the power they have compared to the President of the United States, to the elected Congress, the people's elected representatives—they still manage to be powered by the oil companies. They have the same names as those operating in the North Sea, and I do not want to see them get the same power and strength here as they have across the Atlantic. I think that the noble Earl should be able to explain a little more clearly than he has done in this Statement, that we in Britain are not going to be threatened in the same way as the United States of America has been by these very same oil companies.

The Earl of GOWRIE

My Lords, I should like to deal first with the points made by the spokesman for the Opposition and the spokesman for the Liberal Party, if I may. I think the noble Lord, Lord Strabolgi, was a little extreme in making a political point about the Manifesto. The Manifesto only committed the Government to submitting BNOC to a very searching review, and that we have done. We also felt, and we still feel—and that is the motive behind these actions—that it must have a much more limited role than it has had so far.

I would say to the noble Lord, Lord Tanlaw, that in our view the company was greatly over-extended in its operations and that had disincentive effects on the private sector. I think the worry that both noble Lords have, that we might in some way be losing control over our North Sea assets, is the product of a confusion, if I may say so. The Government, unlike the Opposition, do not confuse State ownership of North Sea oil with State control of its benefits. As I said, we have retained the participation option as it gives the Government an additional influence in securing, adequate supply as against adequate revenue. So we must not confuse revenue questions, which have not in any sense been changed by this, with questions of the security of supply.

The noble Lord, Lord Strabolgi, asked me how the Government would control the depletion without BNOC. Surely depletion control has always been, and will in future be, secured by means of the Secretary of State's regulatory powers and by the licensing round system which obtained under the Government of which the noble Lord was a member. Nothing in the Statement alters that at all. The noble Lord, Lord Strabolgi, asked me about advisers. The principal advisers to the Secretary of State for Energy have always been specialists in the Department of Energy. That was the case when the noble Lord was in Government, and we are simply strengthening their role and strengthening the resources available to them.


My Lords, before the noble Earl sits down, the point I was trying to make was this: I concede immediately that the officials of the department are very valuable advisers, who gave me a great deal of advice, but we thought it was important that the Government should be advised by oil men with direct experience, who are actually working in the North Sea.

The Earl of GOWRIE

My Lords, if noble Lords will look at the fiscal réegime in the North Sea, if they will look at the licensing arrangements, if they will look at the present continuing but more limited role of BNOC itself, I think they will find that the Government have more than enough powers at their disposal to obtain all the information they need.


My Lords, what the noble Earl has said fills me with disgust. This country has been reduced to the status of a banana republic or a sheikhdom in the 19th century. The only way in which one can supervise these very powerful and extremely skilled companies is by people who are themselves working there. This has now been given up. Moreover, the Government behave as though the BNOC is an enemy country. If we succeed in getting for the State preferential treatment by the oil companies, preferential arrangements for the exploitation—how can we give that up without getting anything in return? This is a valuable asset. I think that Her Majesty's Government have behaved like a bunch of traitors.

The Earl of GOWRIE

My Lords, perhaps I may answer that—if I may say so to the noble Lord—rather unworthy intervention. I think we have to excuse him on the grounds that we have just heard the growls of the tigress protecting her young. We know that the noble Lord had a very distinguished part in the setting up of the BNOC. I think he is much too extreme because the participation option retention is surely the important thing. I would refer him back to the answer which I gave to his noble friend Lord Strabolgi, that we believe, with great respect, that the noble Lord is confusing issues of Government steps to ensure supply with the revenue take. There is no evidence whatsoever that the Government have lost any control over our benefits from North Sea oil by this step. What they have done is to remove a great deal of uncertainty and ambiguity from the exploration and development of the Continental Shelf.


My Lords, may I ask the noble Earl to come clean about this. This is a return to private enterprise, what is described as " private enterprise ". That may be in accord with the Conservative Party's Manifesto, with their promises and assurances, and the electors accepted it. But one thing is obvious. Stripped of all the verbiage that the noble Earl is compelled to indulge in—we understand that; he really has no responsibility; he has got to do what he is told—the fact remains that the Government, apart from licensing, have no control whatever over the operations. There is the situation.

I want to introduce a political note here if I may. If anything is likely to create a Left-Wing policy in this country, this is going to do it; there is no question about it. The Government have already embarked on certain devices and expedients which will have that effect. This will help. This should please the supporters of Mr. Wedgwood Benn and Mr. Eric Heller and members of the national executive of the Labour Party, who are beginning to show their strength. Many of us dislike what is happening. If this is what the Conservative Party want, if they want confrontation, if the consensus of opinion is that agreement on any national issue is no longer possible, all right. So far as I am concerned, I do not mind a free-for-all—not at all. I have seen many free-for-alls in this country, collective bargaining for one, which I never accepted because I knew it would achieve nothing.

The same thing will apply to the Government's policy; it will achieve nothing. Who will it satisfy? The multinational companies, very largely controlled by foreigners, by American finance. It may please them, but who else will it please—the employees in the industry, the consumers of fuel? Not at all. Will it help to keep down prices, prevent inflation? Not at all. It simply is a manoeuvre which cannot be avoided in the political circumstances of the recent general election.

All right, we accept it. If that is the road we are going to take, if that is the path we prefer, very well, we accept it. But the Government and the country will have to accept the consequences. This is a blunder. Being something of a politician myself, and having had some experience of this business, I can understand modifying one's attitude turning the clock back—and I could use a number of other platitudes, but I think your Lordships will understand what I mean —I can understand that. I can understand the Government playing up to the Right-Wing interests in the Conservative Party, those who think of nothing but profitability, but profitability is the God Almighty. I can understand all that, but it is not going to help this country; it is not going to develop the kind of future some of us have envisaged. But if that is what noble Lords opposite want, all right we accept it. But do not squeal when the consequences begin to reveal themselves.

4.24 p.m.


My Lords, with great respect to noble Lords opposite, I hope I can assure the noble Earl who made the Statement that this show of indignation from the other side of the House is not typical of the reception that this announcement will receive either in your Lordships' House or in the country. The noble Lord, Lord Strabolgi, made a great show of indignation that no tribute has been paid to the British National Oil Corporation. I was not aware that he and his colleagues paid many tributes to the work of the private oil companies in pioneering the development of the North Sea, and indeed in bequeathing to the BNOC the very skilled and experienced team who have enabled them to carry out some very fine work.

I am not against the BNOC; I believe they have done a fine job and they have a fine continuing role. But now that they are established, is there any need for them to have these special privileges any longer? And is their role as adviser to the Government compatible with their commercial role alongside the international companies? I was very sad to hear the ritual cries of indignation at the mention of international and multinational companies, because the power of those companies is strictly circumscribed. As soon as they were mentioned there were the usual noises. But the power of those companies is very much circumscribed by the political circumstances in the different countries in which they operate. We should be grateful to them for having pioneered the North Sea. The BNOC has a great role to fulfil. We have a Department of Energy now with the experience to advise the Government on the political and other aspects of this. So I hope your Lordships will welcome the Statement.


My Lords, before the noble Lord sits down, I must say that I have frequently paid tribute to the private sector and its important role in the North Sea, which we on this side of the House recognise. I have said that frequently in our debates on this subject. Unfortunately, we did not have the advantage of the noble Lord's presence at the time.


My Lords, is the noble Earl aware that this is descending into a raggle-taggle debate rather than questions? First, are we going to have an opportunity to debate this issue thoroughly before decisions are finally made by the Government? Secondly, is the noble Earl aware that the intervention of my noble friend Lord Shinwell, whether we think it was just a party point or not, was full of wisdom and understanding that this situation could cause great confrontations. Thirdly, and lastly, does not the party opposite, noted for its understanding of defence, realise the massive weakness in the nation's defence which will result from giving such power to private individuals, by socialising losses and privatising profits in the oil fields?


My Lords, I am not sure whether what I want to say should be preceded by the words, " Is the Minister aware ", but whether or not that is so, I would like to say that many years ago it fell to my lot to have close relations with almost all the major oil companies in the world. This was because of my responsibilities, as an official of the exchange control at the Bank of England, to seek to control their operations in so far as they impinged on our exchange control. In the course of that work, which lasted for several years, I came to have very great admiration for the calibre of the people who run these oil companies, be they British, American or other nationalities. I also came to the conclusion that it was extremely difficult to know what these oil companies were doing and even more difficult to control what they were doing. At a time when the British are at last on the threshold of having enough of their own oil to satisfy all their needs, I hope that the desire of the international oil companies to service their international markets as they wish will not prejudice the right of the British to enjoy their own oil.

The Earl of GOWRIE

My Lords, if I may respond to those interventions, I think noble Lords perhaps came prepared for a Statement abolishing the British National Oil Corporation or selling it to Exxon or whatever. I have never heard such a chorus of anxiety over such a relatively modest adjustment. I am delighted to pay tribute to the work of the British National Oil Corporation and its chairman. I am not sure that a parliamentary Statement about structure is the right place to formalise a tribute, but if noble Lords would like tributes I am delighted to pay them. The BNOC is, as I have said, continuing as an active oil company, and we wish it well. We shall continue to seek its advice as we seek the advice of other companies. We are ending the exceptional and privileged position which it has and which in our judgment has had a profoundly disincentive effect on exploration.

However, as I said earlier, I think that noble Lords opposite are generally confusing—and I am grateful for the intervention on my side of my noble friend Lord Polwarth—questions of control of revenue and questions of control of supply. It is important for the Government to be able to tax oil wealth. They can tax it at any level they like—90 per cent., if they so choose. Moreover, they must be able to ensure that there is a sufficient supply of crude oil, the raw material itself, for the people of this country and—I say this in reply to what the noble Lord, Lord Davies of Leek, said—for defence purposes.

Nothing that my right honourable friend has said this afternoon in any way alters that situation. With great respect to the House, I should like to suggest that the Statement be digested and analysed for what it really is rather than for what the noble Lord, Lord Balogh and the noble Lord, Lord Shinwell, have interpreted it as being. Then, although that is not a matter for me, we can, through the usual channels, return to the matter and debate it after the Recess.

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