North Sea Oil and Gas (Employment)

Debate between David Mundell and Robert Smith

Tuesday 20th January 2015 Westminster Hall

[David Mundell]

I certainly take that point on board; it reinforces the fact that this issue is resonant not only in the immediate area of Aberdeen, but in the whole of Scotland and the rest of our United Kingdom.

At the PILOT meeting in London last Tuesday, industry leaders expressed real concern, but recognised the need and opportunity to work collectively with Government to introduce a range of efficiency measures that would help them through the downturn and ensure that the industry was stronger in the longer term. The right hon. Member for Gordon (Sir Malcolm Bruce) made the point strongly that the industry could emerge fitter from this time, without the necessity for sustained job losses.

The sector is a vital economic asset—one that supports growth and investment and one that we will do all we can to support. There are other events in Parliament today, one of which was the Chancellor’s appearance before the Treasury Committee. Given the signal that was asked for, he has made it very clear that he will take further steps in the Budget. As we heard in the debate, Sir Ian Wood and others in the industry have indicated that they think the Budget is the right time to take such steps. I do not think that that message could be clearer. I will undertake to convey the comments and thoughts of everybody who took part in today’s debate directly to the Chancellor, and I am sure that he and the Prime Minister will continue to engage directly with the industry.

The Government have already taken action in a number of areas. Our recent headline cut of the supplementary charge from 32% to 30% sent an important signal, as some contributors have mentioned, that the North sea is open for business. Last year, we commissioned Sir Ian Wood, one of the world’s foremost industry experts, to examine how we could maximise the North sea oil and gas industry economic recovery. Without being unduly partisan, I am very pleased to hear Sir Ian being lauded again for his contribution to the oil industry; only a few months ago, some people—I do not think they are in this room—were deriding him because he said he did not feel independence for Scotland was in the industry’s best interests.

On this matter, Sir Ian’s response is twofold: get the right regulator in place and get the right fiscal regime. The Government have moved fast to implement his recommendations. We have set up the regulator in the form of the Oil and Gas Authority. It will be up and running this year and based in Aberdeen, under the expert stewardship of Andy Samuel. Since starting in his role as chief executive at the beginning of the year, Mr Samuel has been working at pace to ensure that the authority will be ready to start operating effectively by the beginning of April.

Last week, in light of the recent falls in global oil prices, the Secretary of State for Energy and Climate Change asked Andy Samuel to accelerate work with industry to identify key risks to oil and gas production in the UK continental shelf and what further measures might be taken by Government and industry to mitigate them. In addition, we have carried out the oil and gas fiscal review to examine how we can build on the success of our existing field allowances and put in place a regime that is internationally competitive.

The oil and gas industry has acknowledged that our system of allowances has been transformational in incentivising North sea investment. Allowances were directly responsible for £7 billion of 2013’s record-breaking £14.4 billion investment in the North sea. That investment has supported more than 50,000 jobs in the United Kingdom. At the autumn statement, we announced a new allowance for high-pressure, high-temperature oil and gas projects. That allowance will reduce the tax rate on a portion of the company’s profits from 60% to 30%.

Last year, we also announced further reforms to the fiscal regime—reforms to generate investment. We will be introducing a basin-wide investment allowance to simplify and replace the existing system of offshore field allowances over time. We are also taking action to encourage companies that are already investing by extending the ring-fence expenditure supplement from six to 10 years for offshore oil and gas activities, helping the short-term cash flow of companies looking to invest.

Our third area of reform is exploration, where access to good-quality seismic information has been an issue for the industry. Our commitment to provide financial support for seismic surveys in under-explored areas of the UK continental shelf will help the situation.

We want to reward investment in the North sea. As the UK’s economy grows and our recovery strengthens, our direction of travel will be to implement further measures to increase investment. Of course, decommissioning also has to be considered; in the coming decades, that will be increasingly important as the UK continental shelf moves into the decommissioning phase ahead of many other basins. The challenge here is that the North sea, owing to its maturity, will often have to be the site of pioneering methods. Industry will need to develop new operating models and bring in skills and expertise. However, the opportunity is immense. Get this right and we will develop highly valuable—and saleable—expertise here in the UK and reap great rewards down the line. It will be vital to attract new entrants and specialists into the basin to take on decommissioning work.

[Sir Robert Smith]

The Minister is making an important point about the value of decommissioning, but we really want that to be as far away in the future as possible. The crucial thing is to sustain production. I would be grateful if he took the message back to the Treasury that when people drill for oil, they take a big risk, and if they find something, they would like a larger share of what they find as a reward. The supplemental tax needs serious review.

[David Mundell]

I think I had set out in my initial remarks that the issue is a combination of ensuring that what future production there can be is maximised and of taking advantage of the opportunities that may arise through decommissioning.

I want to address a point that the hon. Member for Aberdeen North raised on health and safety and the ageing infrastructure. As many of the UK’s onshore installations are working beyond their original design lives and have been exposed to a harsh environment and heavy usage, it is absolutely essential that asset integrity is maintained. Asset integrity is critical to effectively managing and controlling major accident hazards, protecting the work force and maintaining production. Maintaining such arrangements, even during a period of low oil prices, is essential for the two key reasons that he set out: first, to comply with legislation to manage major risk hazards; and secondly, to maintain these assets for use in the future. I assure him that the Health and Safety Executive will continue to inspect thoroughly asset integrity issues and raise those with the industry at every opportunity to ensure that regulatory standards are not compromised.

It is by bringing a package of measures together and by working together—I think that is the sentiment of this afternoon’s debate—that we will maximise the potential of the industry and support vital jobs across the sector and the supply chain in the north-east of Scotland, as well as in areas such as East Anglia, to which my hon. Friend the Member for Waveney drew attention so adroitly. We have been talking about those jobs today; it is because the UK has such a large and diverse economy, of course, that we are able to commit to these long-term support measures.

We can deal with the volatility of oil prices and continue to provide the stable regime that is so important to the industry. The hon. Member for Glasgow East drew our attention to the many predictions that have been made about oil prices, but it is in a country on the scale of the United Kingdom that changes can be sustained. On that basis, having listened to today’s debate and set out the measures that the Government have taken, I conclude my contribution.

Referendum (Scotland)

Debate between David Mundell and Robert Smith

Monday 15th October 2012 Commons Chamber

[David Mundell]

In simple terms, the Government will not do that because we do not support 16 and 17-year-olds voting in such elections.

[Sir Robert Smith (West Aberdeenshire and Kincardine) (LD)]

I welcome the agreement, which gives us a single, legally based question that can settle the future for Scotland once and for all. However, will the Minister reinforce the message that any Parliament or Government that chooses to ignore the advice of the Electoral Commission will be judged by the public for what it has done?

[David Mundell]

I absolutely agree with my hon. Friend. I have absolute faith that the people of Scotland will not be duped by chicanery or trickery by the Scottish Government or anybody else in making this most important decision on the future of Scotland. If any Member of Parliament believes that any party in the referendum is guilty of such a charge, it is their job to hold it to account in debate, whether in the UK Parliament or the Scottish Parliament. We can be confident, because I can see no reason why the Scottish Government, whatever their spin doctors say, would ignore the Electoral Commission’s recommendations, given that no other Government have done so before.

Oral Answers to Questions

Debate between David Mundell and Robert Smith

Wednesday 27th October 2010 Commons Chamber

[Sir Robert Smith (West Aberdeenshire and Kincardine) (LD)]

I remind the House of my entry in the Register of Members’ Financial Interests as a shareholder of Shell. May I reinforce to the Minister the concerns in that global industry now that it is so much into the export market? Not only is there the problem of work permits and getting people into this country, but, because of the way we treat people coming to this country, it is more difficult to get skilled people into other countries where we have an export market.

[David Mundell]

I take the hon. Gentleman’s points on board. He will recognise that the potential of the industry has been recognised again this morning with a statement to the House about the potential award of 144 seaward production licences in the 26th oil and gas licensing round.