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Clause 89

Part of Finance Bill – in a Public Bill Committee at 4:00 pm on 18th June 2009.

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Photo of Greg Hands Greg Hands Shadow Minister (Treasury) 4:00 pm, 18th June 2009

I see the Economic Secretary nodding. The limits are open to adjustment by statutory instrument. In fact, any of the definitions of small oil field, ultra heavy oil field or ultra high-pressure, high-temperature field set out in paragraphs 20 to 23, and also the total field allowance levels specified by paragraph 24, can be amended by statutory order. That is made clear in paragraph 17.

It is worth pointing out that no costs are incurred either by our amendment, or by lowering the limits. There is some difficulty in trying to understand the fiscal implications. There is just an unquantifiable loss of revenue from fields that may have been developed anyway to be balanced against an unquantifiable increase in revenue from fields where exploration and development would not have occurred without it. We are looking at hypothetical revenue and allowances against it. I will listen with interest to the Minister’s view of this balance and where it lies. At the moment the proposals seem far too restrictive.

As I said when opening my remarks, when it comes to providing new incentives for fresh investment, schedule 44 is the Government’s only current answer. Hence it is worth noting the two policy areas it has left untouched. The first is also a geographical area—the west of Shetland area. In our debate on an earlier clause, I said that we would be returning to that geographical area later.

As I mentioned earlier, the UKCS is far more extensive than the North sea. There is also the Atlantic, where there is oil too. Even old North sea hands seem to become rather white at the knuckles when they describe the weather conditions west of Shetland and some of the other difficulties involved in working in that environment, with its deep water and atrocious weather. However, the rewards would be substantial and the Government have failed to do anything in the Bill that would make the exploitation of that area more likely.

The Government have established a joint west of Shetland taskforce with industry representatives and I would be grateful for news of any progress that that taskforce has made when the Minister—whichever Minister it is—responds to the debate.

There is a second, wider problem. The Government are only talking about providing incentives for new fields. There are no incentives for existing fields and no such incentives appear to be under consideration. Where fields are still going strong, by definition no incentives are required. However, fields nearing the end of their life are a different matter and a significant and increasing number of fields are in that category. I return to my earlier point that we are now just under two thirds of the way through the proven oil and gas reserves that are under the North sea.

Encouraged by the Government, smaller companies have already come in and are specialising in the different operating challenges that such fields—the ones nearing the end of their lives—present. Those companies possess  a readiness and willingness to invest at that end-life stage. To take just one example, Talisman Energy now operates in 23 different fields, which is a higher number than for any other group on the UKCS. Therefore, although it is a relatively smaller and newer entrant to the sector, Talisman Energy operates in more fields than any of the existing big players.

However, the changed financial background against which companies have to operate will make it difficult to mop up all the remaining oil and gas. I would appreciate it if the Minister explained the Government’s approach to encouraging companies to invest in existing fields, as there is nothing in the clause—in fact, there is nothing in the entire Bill—to help those companies.

To conclude, clause 89 is the most important clause in the Bill in terms of the considerations about North sea oil. The industry welcomes the existence of the new field allowance, which is designed to help the exploitation of small fields and fields that are difficult to reach. Schedule 44, in so far as it goes, is also welcomed by the industry, but nobody thinks that it goes very far. Our amendment to schedule 44 would take it a little bit further by removing one of the lottery elements, in other words the fact that a field has to qualify for both “high pressure” and “high temperature” to qualify for the relief. Our amendment would remove that lottery element.

I hope that the Minister, in responding to the debate, will explore the possibility of going further still in this area, or at least offer some better explanations as to why the Government are unwilling to do so. While the days of plenty in the North sea are starting to fade, there is the prospect of more adventurous and still more profitable activity for decades to come. Whatever that may entail, what we know for certain is that one new field, which is what we are talking about here with schedule 44, simply will not cut the mustard. Unless we hear some convincing arguments from the Minister, we will therefore seek to put amendment 267 to the vote.