North Sea: Deferred Development Proposals (Hansard, 13 May 1982)

§ The Earl of Lauderdale
My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.

§ Lord Skelmersdale
My Lords, the House will be aware that Shell and Esso have recently announced their decision to defer further design and development work on the Tern oilfield. This proposal has not been formally submitted to the Department of Energy. No proposal which has been formally submitted has been deferred recently.

§ The Earl of Lauderdale
My Lords, I thank the noble Lord for that reply. May I ask him whether he is aware that both Philips and BP have recently deferred proposals for developing their oil and gas fields? These together mean that we are losing more than £3½, billion worth of investment in the North Sea. Perhaps my noble friend would care to give some explanation as to how this has come about.

§ Lord Skelmersdale
My Lords, it is inevitable that in the light of lower oil prices licensees will be more cautious in appraising the current generation of smaller, more complex reservoirs before reaching development decisions. I ask your Lordships to keep this matter in proportion, because there are three things which affect the decisions of the oil companies. First, the 307 price of oil; secondly, the cost of development; and thirdly, taxation. The Government accept that this enormous pressure which is coming from the oil companies is under the third of these reasons because it is the only one that the Government can realistically do anything about.

§ Lord Strabolgi
My Lords, are the Government aware that the Tern oilfield to which the noble Lord refers contains 140 million barrels of reserves? Esso and Shell informed the department on this matter and one of the reasons that they gave for not being able to go on with this project was the onerous tax regime. Will the Government consider this and do something about it because the whole of our production from the North Sea, as the noble Earl has said, is beginning to become in jeopardy?

§ Lord Skelmersdale
My Lords, the UKOOA organisation is currently in correspondence with my right honourable and learned friend the Chancellor of the Exchequer on exactly this matter. The Government are looking into this. I repeat what I have said several times in your Lordships' House: the last Budget Statement of my right honourable and learned friend said that the position of taxes is now stable.

§ Lord Strabolgi
My Lords, is the Minister aware that UKOOA are on record as saying that they are very disappointed with the Budget since it contained absolutely nothing for them? They put up a very strong case last autumn to the Chancellor, which I have seen, and very little action seems to have been taken on it.

§ Lord Skelmersdale
My Lords, it is not true that very little action has been taken. There has been correspondence in the past six weeks and this correspondence is still going on. I admit that the ball is currently in my right honourable and learned friend's court, but I do not think that the House can draw any allusions from that at this stage.

§ Lord Balogh
My Lords, does not the Minister realise that the vacillations of Her Majesty's Government's policies, which can no longer be monitored by BNOC, have caused a great deal of uncertainty and that is reflected in the figures for profits?

§ Lord Skelmersdale
My Lords, again referring to the Budget Statement, we realise that a constant "yoyoing" of forms of tax is neither necessary nor desirable. My right honourable and learned friend has said that the new regime would be stable, and I cannot take it any further than that.

§ The Earl of Lauderdale
My Lords, would not my noble friend agree that the stability to which he refers is the stability of death? Is it not the case that some 4,000 construction jobs are now in jeopardy in the North of England and in Scotland as a result of these deferments? Is he also aware that these deferments mean the loss for many years now of some 30 million tonnes of oil a year, which is a very serious slow-down in our production programme?

§ Lord Skelmersdale
My Lords, the stability I was referring to was not the stability of death at all but the stability of types of tax. There is an argument on the rate of tax and I accept that; this is what the correspondence is all about. So far as the offshore construction industry is concerned, to which my noble friend was referring, I think, I admit that in the absence of further major orders this industry is likely to suffer redundancies. Few major orders are expected from the United Kingdom sector of the North Sea in the next 18 months. United Kingdom companies, however, may be able to compete for other sectors of the North Sea if they are prepared to accept that final assembly takes place elsewhere. I would expect other export opportunities to offer additional employment, but I must tell the House that I would expect this to be only at the fully skilled engineering level.

§ Lord Bishopston
My Lords, does the Minister not agree that his reply and the comments of his noble friend indicate a great amount of uncertainty in this area? Is this not the wrong time to be adding to the uncertainty by proceeding with the Oil and Gas (Enterprise) Bill?

§ Lord Skelmersdale
No, my Lords, I do not think that the two things are in the slightest bit connected. Noble Lords will know that the offshore production part of BNOC is shortly to become a private company and I would expect the new company, Britoil, to be part of UKOOA at comparatively short notice.

§ The Earl of Lauderdale
My Lords, can my noble friend enlarge on one remark? He seemed to suggest just now that the rate of tax is under discussion at the present time. Can he confirm that I understood him aright? Can he also say whether the question of setting off advance PRT as a cost against corporation tax may also be under consideration?

§ Lord Skelmersdale
My Lords, at this moment I am afraid I cannot help my noble friend any further, except to say that the rates of taxation are always under discussion.