Offshore Oil and Gas Industry

George Kerevan Excerpts

Thursday 3rd March 2016 Westminster Hall

[Callum McCaig]

I agree with my hon. Friend and Oil & Gas UK on that. The North sea, particularly at Aberdeen, benefits from being the best place to live to work in the oil and gas industry, but it needs to be the best place in terms of the assets and the tax regime.

[George Kerevan (East Lothian) (SNP)]

Does my hon. Friend also agree that another reason for having the best possible tax position is that the existing companies, particularly the smaller companies in the North sea sector, are under threat from the international credit rating agencies that, since Christmas, have been downgrading them? That worsens those companies’ ability to raise capital. Anything that puts confidence into the companies and keeps their credit ratings high gives confidence for the longer term.

[Callum McCaig]

Yes, absolutely. The international creditworthiness of the companies is fundamental to their access to finance. Speaking to the financial providers and asking that they look favourably on the sector because it has the support of Government would have an automatic benefit for their creditworthiness. Were we to do that, it would be a win-win in the clearest sense.

We should be looking to do an awful lot more exploration, and reducing the headline rate of tax is the best way of doing that. There is undoubted potential to the west of Shetland and in the Atlantic margins, but we should not give up on the core parts of the North sea, whether that is the central North sea or the southern North sea. I met with representatives of Statoil earlier this week, and they were discussing a field where they have found 2.8 billion barrels of oil and gas. That is next to the Oseberg field in the Norwegian sector, but it is in one of the most heavily explored areas of the Norwegian continental shelf. The exploration that happened in large parts of the UK side of the line happened a long time ago. The advances, whether those are in drilling technology or seismic technology, mean that we should be looking to go back around some of the old ground to see what we have left there. There is a chance that there will be significant finds, and we need to ensure that that exploration is properly incentivised, so that the companies going out to look for oil and gas get as big a return as possible. That will make it economically viable.

The asks are on tax and access to finance, as we have heard. There is a key point on the transferability of tax liabilities when it comes to decommissioning. The ability to bring new players into the market is important. Each time there has been a downturn in the North sea, there has been a reconfiguration of the companies operating, and largely speaking that has been positive. We have gone from the big US companies to the majors to the middle-ranking players, and we are perhaps looking to go to smaller players still. Those at the cutting edge of innovation are the smallest companies. Their bread and butter is making the most of ageing or smaller fields. They can devote their time, expertise and capital to doing that and getting it right.

Finally, I want to talk about Aberdeen. It has felt the impact, and my hon. Friends the Members for Aberdeen North and for West Aberdeenshire and Kincardine have touched upon the impact on our constituents. It has been significant and for many of them it has been painful. However, on the investment made by both Governments, the city deal shows proper collaborative working. Although I am disappointed that it is not bigger, there is no politician who has ever represented anywhere ever who has not wanted more from the Government when it comes to financing. I recognise it is a significant commitment. The work to establish the oil and gas technology centre is a smart use of money and builds on the expertise that is already there within our universities, making sure that we make that box a little bit more clever.

Investment in infrastructure in Aberdeen is hugely important. When we discussed the issues of oil and gas a year or more ago at the beginning of the downturn, the previous head of Oil & Gas UK said that Aberdeen was part of the problem in terms of the competitiveness of the North sea and in terms of our infrastructure, both physical and digital. Steps are under way to put that right, but we cannot rest on our laurels, and we have to up the pace of investment in infrastructure to unleash the potential that Aberdeen has.

There has been much talk about the tax regime. Again, we welcome the efforts made in last year’s Budget. I read this morning that the head of Oil & Gas UK had described the tax cuts as “so last year”, but I think the headline writer has taken a bit of a liberty because, having read the article, I am disappointed to say that she did not say that. However, because she did not, I shall. What was done, although important, was done last year; there need to be efforts this year. The Budget is coming upon us. It was welcome that a Treasury Minister was here for the opening remarks; he has not missed much by not staying to hear what I have to say. I know the Minister of State, Department of Energy and Climate Change, understands the industry and is well regarded there. I hope that she is having conversations with her colleagues in the Treasury around the same issues; I would expect nothing less.

Time is of the essence. We are at a crossroads here. There is a future for the North sea, and the Governments in Westminster and in Holyrood should make every effort to make sure that that future is the brightest possible. That requires action in the Budget and I very much hope that we will not be disappointed.

--- Later in debate ---

[George Kerevan]

On the point about decommissioning versus future exploration, the hon. Gentleman might like to know that Denmark has gone for the future development strategy, and this year had a successful seventh round of issuing new licences for prospecting in its sector of the North sea.

[Dr Whitehead]

I thank the hon. Gentleman for that information, which emphasises what the prospects can be if the process is undertaken carefully. I do not say that there should not be decommissioning, because clearly there will be a substantial amount to undertake, but it should be undertaken in the full knowledge of what is in store if it is not done carefully and of whether there may be different uses in future for elements of what is in the North sea, particularly for carbon capture and storage and gas storage. The infrastructure could assist with that in the future, establishing jobs and skills for the long term, when different circumstances may apply.

The theme that has come out of this afternoon’s debate on the future of the North sea is collaboration. As for what we and the Government should be doing, what has emerged is that support needs to be given now for careful investment in collaboration, and for establishing the circumstances for a bright future in the North sea, in the context I have set out. One of the investments that the Government have already considered is the question of joint seismic work for possible explorations, whose results will be publicly available—a point that highlights collaboration in exploration for the future. Investments and assistance with that approach in mind seem to me to be the most important way forward.

In the light of the good sense and harmony that have prevailed this afternoon, I should perhaps not venture down this route, but I wonder whether I should remind the House that as late as 2011 Her Majesty’s Treasury imposed a windfall tax on North sea oil and gas, by putting up the supplementary levy from 20% to 32%. One thing I must say to the Treasury about future arrangements and assistance for the North sea is: “Don’t do that ever again.”