Exploration and Appraisal Drilling

Amber Rudd Excerpts

Tuesday 24th February 2015 Commons Chamber

[The Parliamentary Under-Secretary of State for Energy and Climate Change (Amber Rudd)]

I congratulate the hon. Member for North Tyneside (Mrs Glindon) on securing this debate. We know each other from our shared time on the Environment, Food and Rural Affairs Committee, and I was particularly grateful when she came to Hastings with a group of us and sampled some of the fantastic fish in my constituency. I am now aware of her long-standing commitment to the oil and gas sector, and I am delighted to discuss that with her today.

There is no doubt that oil and gas will remain central to the UK’s energy mix as we make the transition to a lower-carbon economy. Investing in domestic oil and gas production is essential. It helps to reduce our reliance on energy imports and provides a significant input to our economy. The Government’s policies therefore aim to maximise the economic recovery of our resources.

This debate is timely given the current challenges that lower oil prices bring to those companies operating in the North sea, and all those who work in the sector. The UK industry is widely acknowledged for overcoming some of the toughest operating conditions anywhere in the world, and renowned for spearheading revolutionary technological solutions in offshore exploration and production. It is due to this determination and creativity that we have seen about 42 billion barrels of oil and gas produced so far, and there could be up to 20 billion barrels still to be produced. Getting at these, however, has its challenges.

We have a mature province. Therefore, most of the hydrocarbons that are easier to get at have already been exploited. We have ageing infrastructure, most of which is in place much longer than was originally envisaged. It requires careful stewardship and the necessary maintenance and investment to keep it functioning effectively. We have different types of technological challenges, including deepwater fields, high-pressure high-temperature fields and existing brownfields, whose full potential we need to realise. We also need to ensure that, when fields do come to the end of their economic life, they can be decommissioned economically and with minimum impact to the environment. Of course, there is the challenge of maintaining the competitiveness of the UK continental shelf and the UK industry, including the supply chain.

The Government are absolutely committed to the long-term future of the sector, which supports 375,000 jobs across the UK, contributes £3 billion a year to Government revenue and still supplies half the oil and gas we consume. We recognise that the sustained fall in oil price presents real challenges for the sector. Operators are having to implement substantial savings to maintain financial viability. Of course, job losses like those we have heard about in the past few weeks are a real concern and will have an impact across the UK.

The north-east of England, where the hon. Lady’s constituency is located, has significant expertise across the spectrum of offshore engineering and manufacturing. It supports many thousands of quality jobs, providing families with a good standard of living and contributing to the local economy. I would particularly cite the offshore fabrication capability, which has been rebuilt in the region after a decade of decline. This capability once more supports 2,000 jobs on the Tyne. Continued investments and new projects are therefore vital. Any further cutbacks on exploration, which is the lifeblood of the basin’s future prosperity, are a real concern. We are therefore committed to working in partnership with industry, the work force and other stakeholders to provide all the support we can. Indeed, my right hon. Friend the Minister for Business and Enterprise recently engaged with key players in Aberdeen, and plans to visit other key oil and gas hubs, including the north-east of England, very soon.

Industry must address rising operating costs and reverse recent declines in operating efficiency. The work force, whose dedication to working in the North sea’s challenging environment I much admire, must work with industry to avoid any industrial action, the timing of which could compromise the future success of North sea operations. For their part, the Government must continue to pursue their efforts in finding solutions that preserve jobs and maximise economic recovery. We have already taken action.

In 2013, we commissioned Sir Ian Wood, a leading oil industry expert, to examine how we could maximise the North sea’s full potential. In his response, published a year ago, Sir Ian recommended a need for a tripartite partnership between the Treasury, industry and a new purpose-built regulator. The Government have moved fast to implement this. We are setting up the regulator in the form of the Oil and Gas Authority under the expert stewardship of Andy Samuel. He is working to ensure that it will be up and running come April. Dr Samuel has been asked to accelerate work with the industry to identify the key risks to UK oil and gas production and to establish what further measures might be taken to mitigate them. He will be sharing his conclusions with us at the end of this month.

At last month’s meeting with industry in London, the Government heard industry’s concerns about falling oil prices. Since then, senior officials have participated at both the Aberdeen oil and gas emergency summit and the oil and gas jobs taskforce to ensure that we fully understand the breadth of issues. Furthermore, we continue to ensure that we have a tax regime that encourages investment while providing a fair return to the taxpayer. A number of positive initiatives, such as brownfield allowances and new field allowances, have been introduced, and, most recently, from the start of this year, the Chancellor reduced the rate of the supplementary charge on oil and gas production profits by 2%. With the Budget approaching, he has also signalled that the Treasury is looking at what more can be done to support investment in the North sea, and the hon. Lady and the hon. Member for Strangford (Jim Shannon) will have to wait for the details from him.

The hon. Lady referred to the results published today on reduced activity. As she rightly said, it was stated that the inability to access capital was one of the leading factors. This reinforces our commitment to supporting the industry, which is undoubtedly facing particularly testing times not just in the UK but globally. I can assure hon. Members that the Government will continue to work closely with the industry to ensure that it can ride out these choppy waters and emerge stronger on the other side. We will continue to support new exploration and investment, encouraging a collaborative approach to protect jobs and to realise the full potential of the UK’s oil and gas resources.

Question put and agreed to.