Examination of Witnesses (Questions 160-177)
UK OFFSHORE OPERATORS
ASSOCIATION
25 JANUARY 2005
Q160 Chairman: Does that mean you are
not going to hand out the increased profits in dividends, you
are going to retain that in case the difficult years come along?
Mr Peacock: We are returning money
to the shareholders.
Q161 Chairman: That is rather different,
is it not? That is another form of dividend. There is talk of
different share option schemes and things like that.
Mr Peacock: If you are talking
about the dividend back to the country or the Treasury, they are
already receiving higher tax revenues because we happen to be
in a period of relatively high prices.
Q162 Judy Mallaber: There are hundreds
of thousands of people being pushed into spending a huge proportion
of their income on home fuel. Is there any reason why the Government
should not impose a tax to redistribute some of those profits
you have made as a result of that back to those people who have
suffered and have found it difficult to put their heating on or
survive or buy food as a result of those price rises?
Mr Peacock: Obviously you could.
You need to be careful it does not have exactly the opposite impact
from that intended. What do I mean by that? Long run, prices go
up and down over the space of five to 20 years that it takes to
produce and develop a field. I think the first point is it would
be a very odd tax regime, for example, which introduced new tax
rises as the oil price rose and then did nothing as the oil price
fell. That would destroy investor confidence in the North Sea
as a regime within which to invest.
Q163 Judy Mallaber: How long would you
need to be making these huge profits from the price rise for you
to think it is reasonable to put some of it back to the people
who are suffering as a result?
Mr Peacock: Putting it back to
the people who are suffering as a result, I think our best role
is to continue to invest to prop up supply so that has a dampening
effect on price increases, that is one contribution. The second
contribution is through the additional tax which is going to come
naturally when prices are higher.
Q164 Judy Mallaber: No justification
whatsoever?
Mr Peacock: No. I said there were
two significant roles that we can play: investing to keep supply
up which is going to help with prices and then the returns that
come through to the Treasury naturally under the existing regime.
Q165 Chairman: How do you calculate the
amount of charitable giving you enter into as a company? You are
telling us of all the good works you do in Scotland, is it a proportion
of your profit?
Mr Peacock: No, it is not a direct
proportion of the profit.
Q166 Chairman: That is a bit unfortunate.
Really what you are telling us, you give what you think will keep
the punters happy and keep the beggars sweet. I think we have
to almost discount that part of your testimony regarding the philanthropic
tendencies of BP because it is just decided on a whim, it is not
in any way related to your profits. Obviously if you do not make
profits you cannot do it but if you make super profits you do
not enter necessarily into super charity status. Is that a reasonable
way of putting it?
Mr Peacock: I do not like to believe
that it is just done on a whim as a token gesture, it is absolutely
not. On the environmental side alone in Scotland, for example,
we are investing £10 million with the Forestry Alliance so
they are not trivial amounts.
Q167 Sir Robert Smith: I am not as old
as the Chairman but I do remember the rows of For Sale signs throughout
the Bridge of Don in Aberdeen when oil was low and jobs dried
up and people were made redundant. I just wonder how many jobs
you bring to the UK economy from your investment?
Mr Webb: It is 260,000 direct
and indirect jobs we bring to the UK economy.
Q168 Sir Robert Smith: What sort of percentage
of manufacturing investment comes out?
Mr Webb: It is extremely significant.
We are the largest single industrial investor, I think. It is
about 17%; I need to check that number and come back to you on
it.
Q169 Sir Robert Smith: Thinking of the
consumers—because obviously consumers are facing high prices—one
of the key ways, it would seem from a lot of the evidence on the
market is, is encouraging more gas supply to the UK. When you
are competing for investment, Mr Peacock, do you get investment
direct to the UK or does it come from a pot of money that is available
to invest globally and are we in a competitive market in terms
of things like that?
Mr Peacock: Yes, there is a pot
of money available to invest globally and the North Sea competes
on the quality of its opportunities which will include things
like the remaining reserves' potential, the size of the fields,
the cost of extracting those from the North Sea.
Q170 Sir Robert Smith: Presumably confidence
in a fiscal regime to be able to predict the returns on investment?
Mr Peacock: Yes, that is absolutely
key, and it is to the tune of $2 billion next year and over the
next several years just as an example.
Mr Webb: We have spent £211
billion to bring us to the point that we brought today, which
is roughly over halfway through. It is going to take incredibly
significant amounts of further investment capital and we will
measure that in hundreds of billions going forward as well. It
is hugely important our industry stays internationally competitive
because there are many other oil plays out there.
Q171 Sir Robert Smith: From an investor's
point of view, is it the actual absolute level in a particular
tax or is it the uncertainty and surprise nature of taxes suddenly
appearing which were not predictable?
Mr Webb: Yes, markets do not like
surprises and investors do not like sudden taxes imposes upon
them.
Q172 Chairman: People do not like big
price rises in their energy costs. We have had evidence this morning
from British manufacturing. Mr Peacock your firm sells gas, I
think, to a timber processing plant in my constituency. They will
not be able to buy your gas because if the prices do not fall
their investors in Canada will turn round to them and say "It
is a better bet to process timber in Poland because energy costs
and other things are that much cheaper." Unless you get your
act together in terms of sorting out the price system, then we
are going to see a fall in the manufacturing industry in this
country which is the major customer for your products.
Mr Webb: I still think the long
term interests of the UK consumer are best served by a strong
and dynamic UK offshore oil and gas industry which would not be
helped if we had windfall profits tax imposed on it at this critical
stage in its development.
Q173 Chairman: All I can say is that
a number of people in my constituency who work for BP may retain
their jobs in the short-term, but in the immediate short-term
a number of people who work for other companies will be walking
down the road if energy prices do not come down to levels which
are internationally compatible or are lower than they have been.
This is the lesson we have to try and give you before you leave.
We are looking at evidence, and we will take more from the glass
industry, we have had the ceramics already and we are having the
chemical people this afternoon, and the message they are giving
us is not the relaxed "In the long-run, it will be all right"
because, as Keynes said, in the long run we are all dead.
Mr Peacock: That is exactly why
the most important thing we can do is continue to invest in future
supply. As an offshore producer, we do not set the prices in the
market, so the best thing we can do to have a beneficial impact
on them is to ensure there is as much supply as possible and keep
investing in that.
Q174 Chairman: You can do that at $27
a barrel. According to today's FT the price was $46.01
for Brent Crude yesterday.
Mr Peacock: And it is today, and
who knows what it will be in the future.
Q175 Chairman: The chances of it going
down to 17 very quickly are a wee bit remote. Nobody is saying
it will get much below 30. Your gaffer said in the Sunday Times
on Sunday that $30 a barrel was the figure he thought we would
get down to which is within your investment. Can we take it you
are going to have extra investment with the other $16 you have
to play with at the moment?
Mr Peacock: The $30 is an average,
and is one of the factors on which we judge whether to invest
in projects. So again there will be times when we think it will
be above that and there will be times when we think it is below
that. It would be a very strange fiscal regime when every time
it is above that—
Q176 Chairman: It is pretty good when
it is 50% above the average. It is going to have to fall a very
long way before the average kicks in.
Mr Odling: Chairman, the price
of oil only went up to $30 at the beginning of last year. Previous
to that, it twice, momentarily, passed through $30 and that was
in 2003 and in 2000. Other than that, it was down in the 20s,
and in the 1990s it was down in the teens other than at the very
beginning when there was the Gulf War. This industry's investments
last ten, 15, 20, 30 years, so our members have to take a long-term
view. Yes, you are right, the price is high at the moment and
has been for the last 12 months, over $30, but one year does not
make an oil industry investment; ten, 20 years do.
Q177 Chairman: You have just made the
case for a windfall profits tax I think. It is something you do
not expect, it happens, it is a benefit to the company that it
did not expect and never really calculated for.
Mr Odling: In 1999 the price was
10 dollars. We ride that kind of yo-yo, our members have to ride
that kind of swing. That is the oil game internationally.
Chairman: At that point I think we will
finish. We will be taking additional evidence from other people
as well. We will be interested to get your views on the competitiveness
question because that is important.
| 
