North Sea Oil (Rate of Production) (Hansard, 6 December 1974)

§ Mr. Varley

In my statement to Parliament on 11th July on United Kingdom offshore policy I said that the Government proposed to take powers to control the rate of depletion of oil. I already have power to decide on the timing, nature and extent of future licensing rounds, and in the forthcoming petroleum legislation I shall be proposing powers to control the rate of production.

How or when such powers may be used in the 1980s and 1990s will depend on the extent of the total finds, on the world oil market and on the demand for energy. On all these points great uncertainty prevails. Policy will also be influenced by our general economic situation and in particular the outlook for our balance of payments. The Government cannot, therefore, be expected to define, before any oil has come ashore, and when large parts of the sea remain unexplored, a long-term production pattern.

On the other hand, these powers may be needed in the future to safeguard national interests. However much oil we find, it is limited and can only be used once. This and future Governments must, therefore, ensure that this vital national resource will be used at a rate which secures the greatest long-term benefit to the nation's economy, and in particular to Scotland, Wales and other parts of the United Kingdom in need of development.

We propose, therefore, to take powers of control for use in the future, but it remains the Government's aim to ensure that oil production from the United Kingdom Continental Shelf builds up as quickly as possible over the next few years to the level set out in paragraph 4 of the White Paper (Cmnd. 5696). This will help our balance of payments, contribute to Government revenues, stimulate our industries and make our energy supplies more secure. It will also be an important British contribution to the development of the indigenous energy resources of the industrial world.

I wish, therefore, to assure the oil companies, and the banks to which they will look for finance, that our depletion policy and its implementation will not 650W undermine the basis on which they have made plans and entered into commitments. Our future policy will be based on the following guidelines;

(a) No delays will be imposed on the development of finds already made or on any new finds made up to the end of 1975 under existing licences. If it should prove necessary to delay the development of finds made in 1976 or later, there will be full consultation with the companies so that premature investment is avoided.
(b) No cuts will be made in production from finds already made, or from new finds made before the end of 1975 under existing licences, until 1982 at the earliest, or until four years after the start of production, whichever is the later.
(c) No cuts will be made in production from any field found after 1975 under an existing licence until 150 per cent. of the capital investment in the field has been recovered.
(d) If we later need to use these powers we will have full regard to the technical and commercial aspects of the fields in question; and this would generally limit cuts to 20 per cent. at most. We shall be consulting the industry on the period of notice to be given before any reduction in production comes into effect.
(e) In deciding on action to postpone development or limit production, the Government will also take into account the needs of the offshore supply industry in Scotland, Wales and other parts of the United Kingdom for a continuing and stable market.

Longer-term conservation strategy is being and will be formulated as progressively more information becomes available. At this stage, the régime for depletion of any finds made in the Celtic Sea should not be regarded as settled. The British National Oil Corporation, to be established by the Petroleum Bill next year, could have an important role to play in exploring areas yet to be licensed and in establishing potential fields whose reserves could be husbanded or developed quickly in accordance with the widest national interest. This is for the future, and does not affect present licences; but I think it right to state our more immediate intentions now.