Contracting Out (Functions in Relation to Petroleum Royalty Payments) Order 2000

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Mr. Andrew Stunell (Hazel Grove): Thank you, Mr. Winterton. I, too, thank the Minister for her clear and crisp presentation of the issue. The matter before us concerns a comparatively small administrative change that ought to be widely welcomed. It should certainly be welcomed by the industry, and by those of us who want to see efficient and effective government. It should also be welcomed in relation to the long-term aim of ensuring that our North sea assets are exploited fully and efficiently.

Therefore I support the instrument. I believe that we should do what we can to ameliorate our regulatory regime to make the exploitation of the North sea easier and--dare one say--more profitable as well. If on the way we can make the administration more efficient and effective, so much the better.

Some broader issues were raised in the debate, and I too will listen hard to the Minister's response. Although she may feel that some of the issues raised are well beyond the remit of the statutory instrument, they are an intrinsic part of the platform on which success and profitability for North sea oil and gas companies depend. The questions raised by the hon. Member for Bognor Regis and Littlehampton (Mr. Gibb) are relevant and valid, and I hope that the Minister will answer them. She may say that she cannot do so here; if so, I hope that she will take the matter back to her colleagues, and ensure that there is a response.

Having been a guest of one of the companies operating in the North sea, I have had the opportunity to visit one of the platforms. I have seen the way in which new technology is exploited, and how reserves that are inevitably diminishing are more and more efficiently reached and brought ashore. That experience convinced me that those companies are keen to do their part to ensure that a unique United Kingdom asset is put to good use. I am pleased that we are debating the statutory instrument today, because it will play a small part in making that easier. However, I agree with my Conservative colleagues that there are other issues of concern to the industry, and--I hope--to the Government as well.

4.48 pm

Mrs. Liddell: I shall take up some of the points raised by Opposition Members. The hon. Member for Bognor Regis and Littlehampton asked why the Inland Revenue was not mentioned in the draft order. According to the transparent way in which the House operates, we must work through a two-stage approach to the process of merger. The first stage is to authorise the functions that are to be transferred, and the draft order does that. The next stage is administrative authorisation of a particular body--in this case the Revenue. You are a much more experienced Member of the House than I, Mr. Winterton, so you will understand why the two-stage approach is needed to comply with the requirements of the House, and to ensure that the House is fully consulted and is comfortable with the measures.

Both the hon. Gentlemen who have spoken have ranged widely in speaking about the fiscal regime that affects the North sea. The hon. Member for Bognor Regis and Littlehampton and I both mentioned the oil and gas industry task force, which has moved into a new phase, and, due to modern industry's enthusiasm for acronyms, is now known as PILOT. I am not totally certain what PILOT stands for, but that is what those involved wanted the task force to be called. I should mention that I am the chairman of PILOT, which perhaps makes me a pilot--something that I have always wanted to be, not least when I am flying north back to my constituency.

The oil and gas industry task force has made possible much freer discussion of the difficulties that confront the industry. There were difficulties last year, when the oil price was not 26, as it is today. Indeed, the price sank to an historic low, which caused the oil industry considerable difficulty, not least in marginal fields.

The oil and gas industry is intensely competitive. Perhaps because of that competitive environment, companies have not been ready in the past to share information or discuss difficulties with one another, for fear of divulging commercially relevant information. The oil and gas industry task force has managed to overcome that problem. The industry has seen that there are benefits to considering best practice and sharing common problems. That has allowed for discussion of the fiscal regime in the North sea, which was not possible hitherto--notwithstanding the excellent work of the United Kingdom Offshore Operators Association.

One great advantage of the oil and gas industry task force, to which the hon. Member for Bognor Regis and Littlehampton alluded, is that the Treasury is involved in it at a senior level. That has allowed the task force to exchange views with the Treasury and the Chancellor about the nature of the regime.

Inevitably, with any industry, there is always pressure for tax cuts--that is human nature. I have yet to meet anyone--other, perhaps, than Liberal Democrat Members--who argued for tax increases. Conservative Members are, indeed, enthusiastic about tax cuts. Last year, the Government carefully examined the industry's proposals for the fiscal regime. The industry wanted to abolish royalty and to target petroleum revenue measures at specific investments. At the time, however, the Government did not believe that a sufficiently convincing case had been made for the industry's suggestions. However, we pledged to keep the issue under review. As I mentioned, one great benefit of the task force, and now of PILOT, is to allow a continuing review to take place.

There is also the issue of royalty remission, which relates directly to the difficulties that the hon. Member for Bognor Regis and Littlehampton mentioned in relation to marginal fields. Royalty remission is available if royalty causes problems in essential cases. Although the industry has yet to demonstrate the damaging impact of royalty in practice, officials are discussing the industry's specific concerns with several companies. The DTI and the industry would like to work together to develop a more transparent practice in relation to remission. The DTI hopes that progress can be made in order to deal with the issues that both hon. Gentlemen raised.

We have been talking about marginal fields. There is particular anxiety about one issue, especially on the part of hon. Members who represent constituencies where there is substantial oil industry contracting activity, much of which is in decline because of the state of development in the North sea. The issue relates to the opportunity to exploit more marginal fields that have perhaps been licensed out, but which are not attractive enough for oil companies to develop.

Arising out of the work of the oil and gas industry task force, a new website has been set up under the acronym LIFT--I hope that no one asks me to say what that stands for. The website is designed to facilitate trading, and it occurs to me that perhaps the initials F and T stand for Facilitating Trading. I cannot work out what L and I stand for.

LIFT's role is to ensure that there is an opportunity for licences to be traded--[Interruption.] My memory has suddenly come back, and I realise that the acronym stands for Licence Information For Trading. Why should that be so difficult to grasp?-- but I must not make light of the issue, because LIFT provides a valuable opportunity for licences that have not been developed to be traded, so that they can be bought by companies that see a synergy with their other work.

The order before us is but one small part of the overall work that the Government are doing to assist the oil industry. There are other much wider--ranging issues, and we seek to help the industry, which has had a difficult time. I believe that the order will be warmly welcomed by the oil companies that pay royalty on their North sea production. The established success of the province owes a great deal to the pragmatic partnership that the Government have forged with producers, and the modest proposal before us is made in the spirit of that practicality and that pragmatism.

No doubt we shall return to some of the broader issues at other stages of our deliberations on the subject in the House, and I shall welcome that opportunity, because the development of the United Kingdom continental shelf is at a critical stage. We now have the opportunity to maximise our international activities, as well as those within the UK continental shelf, to ensure that the industry that was born out of the North sea development goes on to become a major global player in international oil and gas markets.

In the meantime, this modest proposal is intended to make life easier for the companies, and I hope that the Committee will support it.

Question put and agreed to.

Resolved,

    That the Committee has considered the draft Contracting Out (Functions in Relation to Petroleum Royalty Payments) Order 2000.

        Committee rose at three minutes to Five o'clock.

The following Members attended the Committee:
Winterton, Mr. Nicholas (Chairman)
Blackman, Liz
Cox, Mr.
Gibb, Mr.
Laing, Mrs.
Liddell, Mrs.
Mudie, Mr.
Organ, Mrs.
Plaskitt, Mr.
Pope, Mr.
Ruddock, Joan
Sayeed, Mr.
Stunell, Mr.
Twigg, Mr. Derek

 
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