HL Deb 17 January 1989 vol 503 cc177-89

7.40 p.m.

The Parliamentary Under-Secretary of State, Department of Energy (Baroness Hooper)

My Lords. I beg to move that this Bill, the Petroleum Royalties (Relief) and Continental Shelf Bill, be now read a second time.

As your Lordships will have noticed, the Bill is very short. It has two specific but nevertheless important purposes. The first of these is to abolish royalities for fields in the southern basin of the North Sea and onshore which received development approval on or after 1st April 1982. The second will enable this country to implement the recent agreement with the Republic of Ireland on the delimitation of the continental shelf.

The Bill is not concerned with safety. However, the Piper Alpha disaster of last July has tragically reminded us of the terrible price we can pay in terms of human lives for the extraction of energy. Safety must remain of paramount importance in the wake of this tragedy, and the Government are determined to do everything possible to prevent such events from ever happening again.

As your Lordships will know, the Department of Energy has already carried out a technical investigation of Piper Alpha. An interim report was published on 29th September last year, and a further report was published on 22nd December. The public inquiry which the Secretary of State for Energy announced immediately after the disaster will start its work in Aberdeen on Thursday of this week under the chairmanship of Lord Cullen.

I make no apology for having referred to Piper Alpha even though the Bill which is before us does not in any way concern safety. Nevertheless, even this tragedy should not be allowed to obscure the fact that the development of the North Sea over the past 25 years has been a great achievement by the international oil industry and a tremendous success for the United Kingdom. This Bill will contribute in two relatively modest but nevertheless significant ways to the continuation of that success.

The first part of the Bill gives relief to the oil industry, in certain circumstances, from the obligation to pay 12½ per cent. royalties to the Government on oil or gas production from new fields. The Government wish to encourage the development of worthwhile new fields in the North Sea. Because the obligation to pay royalty is relatively insensitive to the economics of individual fields there is a danger that it could inhibit such development. For this reason royalty has already been abolished for new fields in most parts of the North Sea but it remains in force in the mainly gas-bearing southern basin and onshore. The Bill provides for the ending of royalties for new fields in these areas also.

This will mean that all new fields, whether onshore or offshore, will have been freed from royalty and a significant disincentive will have been removed. One very substantial new development which would not otherwise have taken place—the Ravenspurn North gas field—has already been secured and the Government believe that there is now a real prospect, if the industry responds positively, that most, if not all, of Britain's gas requirements for the 1990s can be met from our own resources.

The ending of royalties for new fields in the southern basin of the North Sea and onshore is part of a package of North Sea fiscal changes which were announced by my right honourable friend the Chancellor of the Exchequer in his Budget statement last year. The other elements of that package, which mainly concerned petroleum revenue tax, have been implemented through the Finance Act. Taken as a whole and over the lives of the fields concerned, the package is expected to be revenue-neutral to the Exchequer.

The first two clauses of the Bill are concerned with royalties. Clause 1 exempts from royalty all fields in the southern basin of the North Sea or onshore which received their development consent from the Department of Energy on or after 1st April 1982. That is the measure which I have been describing.

Clause 2 is needed to ensure that the exemption from royalties which already applies elsewhere in the North Sea will apply to licences issued in the forthcoming eleventh licensing round and subsequently.

I turn now to the second purpose of this Bill, which is to enable the United Kingdom to implement the agreement which has recently been negotiated with the Irish Republic on the delimitation of the continental shelf. This is dealt with in Clause 3.

It is very much to be welcomed that it has proved possible to resolve issues concerning conflicting claims to the continental shelf which have been outstanding for 25 years. The Republic of Ireland has agreed to give up some of its original claim and so have we. Copies of the detailed agreement have been available in the Library since 8th November, when my right honourable friend the Foreign Secretary announced his signature to the agreement. Agreeing boundaries will open up new opportunities for the oil industry and, potentially, for the offshore supplies industry.

The short clause is needed because, without it, the Government do not have the power to de-designate areas that have once been designated. The clause makes it clear that the power it confers can only be used to implement this particular agreement with the Irish Republic. I can assure noble Lords that there is no possibility of its being used in any other context.

The final clause, Clause 4, is simply concerned with the Bill's short title and extent.

This is not a Bill of far-reaching consequence but it contains two significant and useful measures each of which will help to sustain the vitality of our North Sea industry for the future. I do not think that this is in any way a divisive Bill and hope that it will obtain support from all sides of the House. I commend the Bill to your Lordships. I beg to move.

Moved, That the Bill be now read a second time.—(Baroness Hooper.)

7.49 p.m.

Lord Williams of Elvel

My Lords, the House will be grateful to the noble Baroness for introducing the Bill. It is a short Bill, as she has said, but it contains some important provisions. If I may, I shall take a little more time than she did to discuss some of the provisions and some of the consequential effects of the Bill.

The royalty provision which has previously obtained and which is now, as the noble Baroness pointed out, effectively to be abolished by this Bill constitutes an overt demonstration that the oil and gas in the ground in the United Kingdom and the United Kingdom continental shelf are public property. I should not like the Bill to go through on the nod without reinstating or re-emphasising that particular proposition, which I think has obtained since 1934: that is, that it is public property with which we are dealing, whatever licences may be obtained by various operators to get that oil and gas out of the ground.

In the case of the southern North Sea basin it is, as the noble Baroness said, a question mainly of gas production. There are two points that I wish to start with. First, as I understand it, the existing legislation allows the adjustment of royalties on a field by field basis, so we do not need blanket abolition of royalties here. Why therefore is a blanket abolition now recommended by the Government?

Secondly, British Gas is the monopoly purchaser of gas in the southern North Sea basin. It is, in the words of The Economist, "monopsonist" and as such it fixes the prices. I think we are all aware that the effect of British Gas purchasing prices in the mid to late 1970s and the early 1980s was effectively to dry up exploration in the southern North Sea basin. It now appears that partly as a result of a different gas purchasing policy and partly as a result of a change in the structure of gas prices the southern North Sea basin is for British Gas what is known as a swing producer. In other words British Gas plc, which is a privatised monopoly, purchases its gas then signs a contract with the gas producers in the southern North Sea basin which states that it will purchase so much over a year, and that if it runs into a deficit in its gas supplies in the summer or the winter it will purchase from the producers. British Gas will balance out its supplies by purchases from that basin.

It is my information that were the southern North Sea basin not to be in a position to occupy that role, the alternative would be Norwegian gas. We recognise that the southern North Sea basin is in a difficult position. and that it is crucial to our balance of payments in that we do not want to see Norwegian gas being purchased by British Gas, in periods when the latter is in deficit in its supply, to the detriment of our balance of payments. Given that, it is absolutely clear that British Gas dictates the price of the gas produced in the southern North Sea basin and hence the pace of development, production and indeed secondary recovery.

The first question I have for the Minister is: what constraints are there on British Gas in playing this important role? Are we certain that British Gas will not take the benefit of the public surrender of the royalty right just to increase its own return? There are two related points to this, and both of them give rise to questions. The economics are profoundly affected, not only by gas price or the tax regime or the royalty regime, but also by the residual cost of shutting down the field and removing the physical structures that have serviced it.

As the Minister has said, we know about the Piper Alpha disaster in the northern North Sea. We know from previous Government statements that the Piper Alpha platform is to be toppled, that is to say the platform will simply be pushed down to the bottom of the North Sea. What will happen to the rest, and in particular what will happen to those gas producers, who are covered by this Bill, who from time to time will find that their installations need to be dispensed with because the fields which they service have been exhausted? What will happen to them? A ministerial assurance in another place indicated that the decision to topple Piper Alpha is not in any way a precedent for other installations. But we should like to hear the Government's policy on these matters. Decommissioning anything involves a large cost. Decommissioning any North Sea installation involves a large cost also.

If anything is going to be toppled, the Government should bear in mind that not very long ago in the course of a NATO exercise a German submarine tried to hide in a platform in the Norwegian section of the North Sea. The submarine did substantial damage both to itself and to the platform in the course of the exercise. That gives rise again to the question of safety of installations and of platforms which are simply pushed to the bottom of the sea. Are the Government aware of that issue?

The related point to that is the matter of safety offshore. The noble Baroness was quite right to draw our attention to the fact that the Piper Alpha public inquiry is to start the day after tomorrow. We hope that it will be a full and fair inquiry into what happened. We very much hope that there will be no compromise on safety in North Sea offshore installations. But, of course, the multiplicity of agencies responsible for safety in the North Sea in our view hampers effective safety action. The Department of Energy, the Department of Trade and Industry and the Health and Safety Executive are all involved. A lot of people have different roles to carry out in the safety field. We believe that some co-ordinated role is necessary.

So much for the royalty question offshore; that question also arises onshore. Here the economics are not good because the lack of transferable PRT relief onshore has made onshore exploration relatively less attractive than offshore. For instance, an onshore well drilling to 6,000 feet will attract a gross cost of £750,000. There will be corporation tax relief on that and the net cost will be £487,500. An offshore well in the central North Sea which is drilled to 12,000 feet, twice as deep as the onshore well, will attract a gross cost of £2,700,000. But, given a full PRT relief of £2,025,000, it will attract a net cost of £675,00 which, after corporation tax relief, gives a net cost of £438,750.

So the offshore central North Sea well drilled to 12,000 feet is cheaper than the onshore well drilled to 6,000 feet. That is a point that the Government must consider. Indeed it was considered by the Select Committee in another place when it studied the problem of the independent sector in the North Sea exploration business.

We accept the need for royalty relief, but we wonder whether this is the right way to go about it. After all onshore the major problem, as the Select Committee of another place pointed out, is not so much the fact that it is less economic to drill but that environmental fears and the difficulty in getting planning permission impede proper exploration and development. I wonder whether the Government are considering the suggestion that was mooted in the report of that Select Committee that royalties should be shared between central government and local government. Nothing encourages a local authority more in giving planning permission than the fact that it may get a slice of the action and benefit from what is going on in its area. I also believe that we ought to try to encourage independent oil companies in the exploration sector. I believe that that point was made by the Select Committee.

I am afraid that I have taken up a certain amount of your Lordships' time because I think that there are some important points upon which the House may wish to ponder before giving the Bill a Second Reading. I shall spend no time at all on the question of the continental shelf between the United Kingdom and Ireland. I shall simply say that any agreement between ourselves and the Republic of Ireland must be welcomed at this time. Goodness knows, there are so many points of difference. We certainly support that development.

I hope that the noble Baroness in her reply—I gave notice of some of the points that I have raised—will be able to satisfy us that the Government have taken into consideration the questions I have raised. In the meantime, I am happy to be able to say that we certainly shall not oppose the Second Reading of this Bill.

8.1 p.m.

Lord Ezra

My Lords, as has been pointed out by the noble Baroness in introducing the Motion, the Bill is limited in its extent but it deals with a very important subject. Over recent years the North Sea has, through its provision of oil and gas due to the exertions of the companies involved, transformed the economy of Britain. Therefore anything that is done in that connection has to he very closely examined.

Oil presently contributes some 32 per cent. of the total energy consumed in this country and gas 25 per cent., both coming from the North Sea. In addition, there are exports of oil. I am glad to say, in view of my past affiliations, that coal still leads, providing 34 per cent.

The noble Baroness and the noble Lord, Lord Williams of Elvel, have both pointed out that that great success story of the North Sea is not without its risks. We have seen that dramatically exposed by the Piper Alpha disaster last year. I have myself been through similar but not such large-scale experiences in the coal industry in my time, and I know how terrible that is not only for those directly affected and their families but also for the management of the companies concerned. Let us all hope that as a result of the inquiry being conducted into that disaster such dire events will be avoided in the future.

Turning to the Bill, I should like first to deal with the agreement with the Government of the Republic of Ireland on the respective rights in relation to the continental shelf adjacent to both countries. I welcome that agreement. I think that it is highly desirable that that question is sorted out and I therefore give my full support to the proposition contained in the Bill.

Dealing next with the other issue considered in the Bill—namely, that of royalties—I should like to say that there has always been a degree of anomaly about that impost. As the noble Baroness has pointed out, its impact is insensitive to economics. It is related to the total production of the product irrespective of whether it is sold at a profit or not. That is an undesirable form of tax.

In the Finance Act 1983 royalties in the northern and central basins of the North Sea were abolished for future fields but were retained in the southern basin. The present Bill proposes to abolish royalties for oil and gas fields in the southern basin and onshore subsequent to 1982. So it would appear that the whole of the North Sea and onshore exploration would be put on the same basis in relation to the abolition of royalties. That would appear to be eminently desirable.

However, the abolition of the royalties in the southern basin has to be looked at in conjunction with the provision introduced in last year's Finance Act, to which the noble Baroness referred. That provision was brought in by the Government to achieve what they call bringing about revenue neutrality. They achieved that by, at the same time as the abolition of the royalty was introduced, reducing the oil tax allowance from 250,000 tonnes per chargeable period to 100,000 tonnes so that on the one hand the royalty impost was removed but on the other hand the tax allowance was reduced. The question is whether those two things balance out.

The oil companies contended that the Government's original proposition went too far. On the basis of very detailed calculations which they carried out they suggested that revenue neutrality would not be achieved below a tax allowance of 160,000 tonnes. The Government looked at the question again and eventually compromised at 125,000 tonnes. I have looked into the matter and I feel that the oil companies have a case.

What worries me is that the Government have apparently set out to stimulate exploration and development in the southern basin by removing the royalty charge, but what they have given on the one hand they appear to have more than taken away with the other. I think that it would be reasonable to invite the noble Baroness to explain the real motives of the Government. Is this a device for raising more tax revenue, by removing a smaller impost on the one hand and replacing it with a larger one on the other, or is it really intended to stimulate activity in the southern basin?

If the Government are not prepared to increase the tonnage qualifying for tax allowance, because that has already been passed in another place, would they at least consider bringing forward the date of application of the measures from 1982 to the date when the Bill is passed? That would enable companies, when planning future operations, to take account of the new tax regime and would therefore he much fairer. I do not personally believe that retrospective tax changes are in any circumstances desirable.

8.9 p.m.

Lord Shaughnessy

My Lords, having spent the greater part of my business life in the oil and gas sectors I have experienced a variety of royalty regimes. Despite the noble Baroness's view that this is an uncontroversial Bill, I think that there are some important implications which could have far reaching effects, as has been suggested by the noble Lord, Lord Williams, and the noble Lord, Lord Ezra.

Petroleum royalty has traditionally been seen as a form of economic rent, a levy paid in return for the right to exploit a natural resource, as the noble Lord, Lord Williams. pointed out. Any change in the level of royalty alters the terms of the licences under which a particular field has been developed and thus has a direct effect upon its economic profile. As proposed in this Bill, the effect is beneficial. However, once the concept is established that the negotiated terms of a licence can be altered by legislation at the will of a government, there is nothing to prevent, a government from reimposing a royalty or in fact increasing royalty rates ex post facto.

One of the objectives of the Bill presumably is to create incentives to explore and develop both offshore on the continental shelf and onshore. However, as has been mentioned. in effect it penalises the more mature fields developed before the specific date of, I think, March 1982. It is those fields which have suffered most from the continuing depressed prices that have been experienced in the past few years since the newer fields already enjoy a substantial advantage with a lower rate of petroleum revenue tax.

In addition I think it is fair to say that it is precisely the mature fields that have produced the revenues to fund further exploration and development both onshore and offshore. Having embarked on this course of what might be termed royalty adjustment. the Government should very seriously consider taking the definitive decision to remove Crown royalties altogether from both comparatively new and mature fields. I believe that that would reduce the total marginal government take in taxes altogether, including the whole regime, from 86 per cent. to 84 per cent.—a matter of two percentage points—and would have an immediate effect on cash flow benefit where it is most needed.

Furthermore, it would ease the administrative burden that the present cumbersome system imposes on both the producer and the Government. I refer in particular to the complications of reporting, the auditing and the reviewing that have to be done on royalty returns which are filed twice a year. At the same time it would create considerable added incentives. Thus investment decisions would be put on a comparable basis between new and old fields, since production from neither would attract Crown royalty.

8.13 p.m.

Baroness Hooper

My Lords, I am most grateful to all noble Lords who have participated in the debate, so enabling us to benefit from their knowledge and expertise. I shall endeavour to reply to as many as possible of the questions raised and no doubt I shall be reminded should I omit any point.

I turn first to the series of questions raised by the noble Lord, Lord Williams of Elvel. First and foremost there is the question of oil and gas being public property. And, of course, oil and gas in the North Sea are vested in the Crown. That will remain the case. There is no dispute on that. That is why we have royalties in the first place, if I may say so to the noble Lord, Lord Shaughnessy. I do not see any immediate prospect of abolishing royalties altogether, as he suggests. Indeed, the reason for dealing with this matter other than on a field by field basis is to have consistency overall in the area of new exploration.

The noble Lord, Lord Williams, also referred to the monopsony powers of British Gas. Your Lordships will know that the Monopolies and Mergers Commission published its report on British Gas on 19th October last year. It made a number of recommendations intended to promote competition in the supply of gas. These included a requirement for British Gas to publish a price schedule for the supply of firm and interruptible gas to contract customers and a requirement on British Gas to contract initially for no more than 90 per cent. of any new gas fields.

My noble friend the Secretary of State for Trade and Industry has asked the Director General of Gas Supply to seek agreement with British Gas to modifications to its authorisation so as to effect remedies on British Gas pricing and contract policies. He has asked the Director General of Fair Trading to consult interested parties on the basis of the Monopolies and Mergers Commission's 90 per cent. recommendation with a view to proposing by the 31st January—the end of this month—a scheme which will make it easier for organisations other than British Gas to buy gas from the developers of gas fields.

We very much welcome these developments. We believe that they will promote competition and that they should he welcome to British Gas contract gas customers and potential competitors. In fact we are already seeing the first signs of a growing market in gas that is sold direct by producers to consumers. A contract for the sale of gas from the Miller field to the North of Scotland Hydro-electric Board for power generation at Peterhead power station has already been announced, and the issues that have been raised about the market power of British Gas are being addressed in a comprehensive fashion. We believe that the Bill will encourage new developments in the North Sea, as in the example of the Ravenspurn North field to which I referred and therefore will tend to reduce any future need, for example, for Norwegian gas.

On the question of abandonment to which the noble Lord, Lord Williams, and indeed the noble Lord, Lord Ezra, referred, the Act governing abandonment is the Petroleum Act 1987 which was introduced after considerable consultation with interested parties. The objective underlying the Petroleum Act was to institute an effective abandonment regime which, while taking account of the requirements of international law, the safety of navigation, fishing and environmental interests, would aim to minimise the costs of abandonment in each case. It enables the Secretary of State to require the submission of costed abandonment programmes for all offshore installations and pipelines and, where a programme is approved, makes it the joint and several duty of the companies which submitted it to secure that it is carried out.

It is the Government's intention when calling for abandonment programmes to require the companies concerned to consult the fishing organisations about their proposals and to submit a report on those consultations with their programme. I recognise of course that costs are involved in abandonment, as indeed in safety, but the principle is not new and companies have indeed been making provision for abandonment over the course of a number of years.

As to what will happen to disused installations in the southern basin, these platforms are in relatively shallow water and the current recommendations of the International Maritime Organisation require that they be entirely removed. The Government have made clear that they intend that the domestic abandonment arrangements under the Petroleum Act 1987 will meet the IMO requirements.

Lord Williams of Elvel

My Lords, before the noble Baroness leaves the question of abandonment, can she very kindly give us some indication of the guidelines that the Government will he adopting and recommending to companies when they seek the permission of the Government to adopt certain abandonment provisions'? As the noble Baroness will know, very important sums of money are involved. It is a matter of concern in the industry that, under the Petroleum Act 1987, we are all up in the air. The Piper Alpha precedent is not regarded as being a precedent. What is the policy that the Government will try to urge on companies when they submit their abandonment plans?

Baroness Hooper

My Lords, the Piper Alpha incident was unexpected and action had to be taken quickly. I am not in a position to say whether or when the Government will be issuing guidelines. However, as I have said, the arrangements that have been made so far have been made as a result of considerable and wide consultation. That consultation process will obviously not be stopped out of hand at this stage. I believe that the overall estimated costs of abandonment—which in the majority of cases will not be taking place or occurring until the turn of the century—are in the region of £4 million. Those are the figures that I have been given.

Lord Williams of Elvel

My Lords, is the sum £4 billion or £4 million?

Baroness Hooper

My Lords, it is £4 million.

Perhaps I may return to the question of PRT relief for onshore exploration. We have carefully considered all representations on this issue in the past. We have not been persuaded that restoration of Section 5A relief for onshore drilling is the right way to promote new onshore activity. Many small companies which do not pay PRT would have been unable to take advantage of the relief. It is even more appropriate to introduce a measure from which all companies involved onshore could benefit. Hence the measure announced by the Chancellor in his Budget to abolish all royalties for post-1982 onshore fields which is now the subject of this Bill.

Removing the one element of the fiscal regime that was not profit-related should be of significant benefit to companies involved onshore. The revised oil allowance enacted in this year's Finance Act should still protect virtually all onshore fields from PRT. We shall of course consider all aspects of the recent Select Committee report which I understand welcomes the introduction of the royalty provisions of this Bill.

I must stand corrected. The figure was £4 billion, not £4 million. I misread my notes.

On the question of the multiplicity of offshore safety agencies, as a result of Piper Alpha, the present arrangements for offshore safety are in line with the recommendations of the Burgoyne Report of 1980. My right honourable friend the Secretary of State for Energy has said that if the noble Lord, Lord Cullen, can suggest improvements to the current safety regime, his recommendations will be accepted. I am sure that this is welcomed on all fronts.

The noble Lord, Lord Ezra, and the noble Lord, Lord Shaughnessy, referred to the question of fiscal neutrality. In formulating the Budget proposals originally, the Government looked carefully at the impact that these proposals would have on the industry. In making the tax regime more profits-related, and by opting for an overall fiscally neutral package, it was inevitable that there would be both winners and losers. The main criticism of the package came, naturally enough, from the companies which stood to lose most. Companies' perceptions of the Budget's impact were sensitive to the precise assumptions used in particular in relation to the falling price of oil.

The department held numerous discussions with the industry to obtain a clear picture of the industry's view of the proposed changes. The strong reaction of industry which concentrated on the PRT change, as the noble Lord, Lord Ezra, has already pointed out, resulted in the Government announcing the concession on petroleum revenue tax oil allowance which was accepted during the Committee stage of the Finance Bill in another place. This concession took full account of the discussions with the industry and was the maximum that could be justified in all the circumstances.

I can assure the noble Lord that the overall package was most certainly intended to stimulate the industry, and furthermore that the Government intend to keep the North Sea tax system under review. Inevitably fields already in production will sometimes be affected but the nature of the southern basin tax changes was to make the system more sensitive to field economics. Generally speaking therefore the fields that were losing under these changes were fields that were highly profitable and will remain so.

The noble Lord, Lord Ezra, has also suggested that this change was retrospective. I should say that technically that is not the case. The change did not come into effect until 1st July last year.

Lord Ezra

My Lords, is it not a fact that it will affect all committed future fields from 1983? The suggestion I made was that it would be much better if it were to affect all future fields as from now so that the companies could take into account the new regime in assessing the economics of those fields.

Baroness Hooper

My Lords, I appreciate the point of the noble Lord. However, I can say only that it is not unusual for tax changes to affect revenue from existing assets and existing production. Unfortunately we are all subject to the effect of tax changes.

Lord Williams of Elvel

My Lords, I am sorry to interrupt the noble Baroness. It is wholly unusual for tax changes to be retroactive in the way that the noble Lord, Lord Ezra, has specified. This is something that I do not think has ever occurred in tax law.

Baroness Hooper

My Lords, as I understand it, the tax changes are effective from July of last year as a result of the Finance Act although they may apply to operations which have been in existence since 1982. Therefore they are not retrospective.

Lord Ezra

My Lords, I am very sorry but I must say that I am totally confused by this situation. What would be wrong, in introducing a new regime of taxation, in saying that it should apply from now, as is normally done in any budget? It is the retrospective element over which there is some doubt.

As the noble Baroness rightly said, there are winners and losers. We do not know what the balance is. Why not say that from the time this Bill is passed this new tax regime will apply? Then all oil companies operating in the southern basin will be able to take account of it in judging the economics of their operations.

Baroness Hooper

My Lords, I fear that I have not succeeded in explaining the position as I understand it. The tax changes are effective—that is, the additional tax, if any—from July last year on all operations that have started in 1982. However, the tax will not be backdated to apply as from 1982. I hope that that clarifies the position slightly more.

Finally, to wind up, we have referred to the tragic events of Piper Alpha and to safety in general in these types of operations, but in doing so we should not forget the tremendous achievements of the oil industry in the North Sea over the past 25 years and the immense benefits which they have brought to the United Kingdom. In that period the industry has produced more than 1 billion tonnes of crude oil and 700 billion cubic metres of gas worth over £140 billion in the money of the day. The taxpayer has benefited from tax and royalty payments to the Government of over £65 billion and some £25 billion worth of orders for goods and services have been placed with United Kingdom suppliers. By any standards this must be regarded as a major success and one that is largely due to the technical and managerial skills of the international oil industry.

We have now reached a stage in the life of the North Sea where almost certainly the largest discoveries are behind us and where the outlook for oil prices is uncertain. It is a great tribute to the industry in these challenging circumstances that it has shown great ingenuity and technical skill in adapting its operations to the new economic reality. As a result we continue to have an active and vigorous North Sea industry. In some respects, and taking account of the current economic climate, it is more vigorous than it has ever been.

In 1988 the Department of Energy gave the largest number of project approvals that has ever been made in a single year. The 24 projects concerned involved total new investment of over £3 billion, and 11 more projects are still under discussion. We are aware that several further development plans may come forward for consideration this year. That is the picture in the development of new fields. Exploration and appraisal activity is required to identify new fields in the future and the picture here is similarly bright. Last year 175 exploration and appraisal wells were drilled, the second highest total since offshore drilling began in 1964 and far outstripping the 1987 total. A total of eight discoveries were announced last year, including one onshore.

It is against this very encouraging background that the Government have brought forward the Bill, which will help to create the right fiscal environment for new developments in the southern basin and onshore which will make available for licensing in the future certain areas that have been disputed with the Irish Republic. I am most grateful to your Lordship for the welcome that you all unreservedly gave to those provisions in relation to the agreement with the Irish Republic. I commend the Bill to your Lordships.

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

[The Sitting was suspended from 8.33 to 8.40 p.m.]