§ Mr. Dempsey
asked the Secretary of State for Energy whether he will give the British National Oil Corporation a notice specifying financial duties under section 5 of the Petroleum and Submarine Pipelines Act 1975.
§ Mr. Benn
I intend to formulate a long-term financial objective for BNOC as soon as practicable. However, any financial regime must be carefully tailored to reflect the rapid development of BNOC's operations. The past two years have seen the acquisition by BNOC of interests in five oil fields already under development, the first of which is only now about to produce revenue. These investments have involved the Corporation in massive continuing capital expenditure which will only be fully revenue-producing in the early 1980's. Meanwhile further new developments involving similar large outlays are expected in the next five years.
BNOC's financial performance over the next few years is therefore heavily dependent on the success in bringing on stream fields in which BNOC has a minority interest and nearly all of whose development decisions were taken before BNOC's creation. Profitability in the short-term will also depend on the timing of start up of these new fields, the rate at which production is built up to peak levels and the price of oil; factors over which BNOC has very limited if any control.
During this period, therefore, BNOC's efforts will be directed to ensuring by its presence on operating committees and its audit of joint venture operations that its existing commitments in joint ventures are progressed as efficiently and quickly as possible, and to making sure that any new commitments provide the prospect of a satisfactory return. Against this background I have decided that the formulation of a long-term comprehensive objective should be deferred until BNOC's current investment programme is more mature, and the scope of its operations in the 1980s is clearer. As the Government have made clear on a number of occasions in the past, BNOC will behave commercially when in partnership, and in setting BNOC's financial objective, I am sure that commercial considerations 551W should be paramount. Accordingly BNOC's investment decisions will be aimed at securing a commercial rate of return.
In addition, I think it is desirable that the Corporation should be set a short-term financial target consistent with its existing commitments and plans. Following consultation with the corporation and with the approval of the Treasury I am therefore planning to give to it shortly a notice pursuant to Section 5 of the Act which will require the Corporation to perform the duty of pursuing initial financial objectives of obtaining a commercial rate of return from its investment projects, consistent with the risks involved, and achieving a net profit for its fourth year of activity—(1979)—reckoned according to its present accounting principles and assuming that its activities remain the same in that year, namely offshore petroleum exploration, development and production, and trading, with no substantial change by extension into refining or otherwise.
I plan to formulate financial objectives for 1980 onwards by the summer of 1979, taking account of the activities then foreseen for BNOC, and to include as an objective the satisfactory remuneration of the moneys made available to the Corporation from the national oil account under Section 40 of the Petroleum and Submarine Pipelines Act 1975.