Clause 68

Energy Bill – in a Public Bill Committee at 10:00 am on 6 March 2008.

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Financial resources etc

Question proposed, That the clause stand part of the Bill.

Photo of Malcolm Wicks Malcolm Wicks Minister of State (Energy), Department for Business, Enterprise & Regulatory Reform

I am sure that my civil servants, who are looking at hundreds of licences now, are grateful that we have had that useful discussion.

I shall move on to clause 68, which concerns financial resources. It clarifies the information that may be required to satisfy the Secretary of State of a person’s ability to fund their decommissioning obligations. It also brings forward the time when the Secretary of State can require a person to take relevant action, such as providing the security of a bank’s letter of credit when the risk of default is deemed by the Secretary of State to be unacceptable on the basis of a published assessment process. The provisions in this clause therefore help to ensure that the taxpayer is protected from the risk of a person being unable to meet their decommissioning obligations.

To assess a person’s ability to carry out decommissioning obligations, the Secretary of State may require information such as financial accounts to compare with the potential costs of the work. This is achieved by amending section 38 of the Petroleum Act 1998, which sets out the existing information requirements. Under this provision, the Secretary of State can require information such as a detailed estimate of the costs of the abandonment, predictions of future revenue, the costs and benefits of any plans for further development, and up-to-date management accounts.

Clause 68 enables the Secretary of State to obtain some of this information prior to serving a notice requiring a decommissioning programme. This will enable the Secretary of State to assess the potential  impact of the decommissioning liability on what may be a small company. Later, more detailed information may also be required before the approval of an abandonment programme, in order to assess whether financial security is required. This information allows the Secretary of State to assess the financial resources of a person earlier than under the existing regime to further ensure that the risk of default on a future decommissioning obligation is minimised.

After considering the information obtained and consulting the Treasury, this clause allows the Secretary of State to require a person to take action, such as providing financial security, to satisfy the Secretary of State that the decommissioning duty can be discharged. By enabling the Secretary of State to require action before an abandonment programme is approved, he will be able to ensure that proper taxpayer protections are in place at whichever point in time the assessment process indicates a higher risk.

It is standard practice to draw up programmes at the end of the life of a field when there is greater certainty of available technologies. Given the nature of oil and gas reservoirs, the levels of risk can vary across the life of a field, and therefore we need to be able to adjust the security requirement to match the risk. The flexibility in this clause will reduce the costs of security to the companies, compared to a catch-all approach to financial security.

Officials will not be able to disclose the information unless required by law or with the consent of the person who provided it. It will be an offence to disclose information if it does not fall within the exemptions set out in this clause. The penalty for such an offence will be a criminal sanction. The same offence for disclosure of information is being proposed in the Bill in the decommissioning provisions for nuclear and offshore renewable installations. It is also important that the Secretary of State has the power to obtain information so that he can fulfil his functions under this chapter of the Bill. The industry will benefit if the Secretary of State’s actions to protect the taxpayer and the environment are based on up-to-date and accurate information.

Question put and agreed to.

Clause 68 ordered to stand part of the Bill.