Clause
65
Security
for decommissioning
obligations
Amendment
made: No. 3, in clause 65, page 52, line 36, at end
insert—
‘(5) In subsection
(4) “enactment” includes an instrument made under an
enactment.’.—[Malcolm
Wicks.]
Question
proposed, That the clause, as amended, stand part of the
Bill.
Malcolm
Wicks:
Thank you, Mrs. Humble, for reminding us
about that important amendment, which I did not immediately call to
mind.
Hon. Members
will remember that we discussed protection from insolvency for
decommissioning funds in the context of nuclear waste. The clause will
ensure that moneys set aside for decommissioning of offshore renewables
installations cannot be accessed by creditors in the event of a company
becoming insolvent. It will do that by disapplying the relevant
insolvency legislation. It will ensure that any such moneys will not be
restricted or prevented from being used for decommissioning if the
company with the decommissioning obligations becomes insolvent. Similar
arrangements to safeguard funds already exist in section 29 of the Coal
Industry Act
1994.
Without
such provision, if a company with decommissioning obligations were to
become insolvent, creditors could access moneys set aside for
decommissioning. In other words, payments could be returned to
creditors for purposes other than decommissioning. That could mean that
there would not be sufficient moneys remaining to pay for
decommissioning after those payments to
creditors.
The clause
will also allow the Secretary of State to direct that the information
regarding relevant financial security arrangements be published by the
person responsible for the decommissioning programme—for
example, in the financial pages of that person’s website. That
will ensure that informed decisions can be made by creditors: they will
know that there are certain earmarked funds that they cannot
access.
To
ensure compliance with the direction to publish information about
relevant financial security arrangements, the clause also enables the
Secretary of State or a creditor of the person responsible for a
decommissioning programme to apply for a court order if the direction
is not followed. It is Government policy to ensure that developers make
adequate provision for the cost of decommissioning their
installations—to protect the environment, but also to protect
the taxpayer and to meet our international obligations. By protecting
any funds set aside for decommissioning from insolvency, we are
minimising the risk to the
taxpayer.
Charles
Hendry:
I have a couple of quick questions. Will the trust
fund have to be set up within the United Kingdom, or might it be set up
offshore—at the risk of a pun, an offshore offshore fund? That
is a serious issue. If the fund is set up offshore—for example,
in Liechtenstein—it may not be subject to UK laws. How would it
be covered by the
legislation?
The
Minister talked about the super-grid, which also raises an interesting
issue. The super-grid would have a range of offshore installations in a
range of different territorial waters. How is that covered? Will there
be a fund specifically for decommissioning the turbines in UK
territorial waters? What will be in place to stop that fund being used
to decommission the turbines that happened to be in German or Dutch
territorial waters? Will the use of such funds to decommission
facilities that have been set up in someone else’s territorial
waters be explicitly
prevented?
Malcolm
Wicks:
The second question is for the future, because we
are not there yet. The European Union has asked the former German
Energy Minister, Mr. Adamowitsch, to look at the issue as
related to
offshore wind—we noted his role in earlier
conversations. I have had discussions with him, but he has not yet
reported. That is an important point for the future. No doubt those
issues will be looked at then, in an appropriate way. The hon.
Gentleman has raised an interesting question but, with due respect, it
does not require an urgent answer, because we are not there
yet.
In terms of
offshore offshore, I might need to take advice.
[
Interruption.
] I thought it was a sound line, but
it fell to the ground immediately. The Secretary of State will clearly
have to be certain that there are appropriate arrangements for the
funds. I anticipate that funds proposed by a developer will be approved
case by case by the Secretary of State, so he or she—who knows,
in the future?—will make a judgment on the suitability of the
funding proposal. It is unlikely that we will approve a programme if
the fund is outside the UK. It comes down to the Secretary of
State’s sound judgment on such
matters.
Question
put and agreed
to.
Clause 65,
as amended, ordered to stand part of the
Bill.
Clause
66
Provision
of information to Secretary of
State
Question
proposed, That the clause stand part of the
Bill.
Malcolm
Wicks:
The clause, which concerns provision of information
to the Secretary of State, will ensure that the Secretary of State has
access to the necessary information to carry out his functions as they
relate to the decommissioning of offshore renewables. Those functions
include making a judgment on the suitability and financial viability of
the proposal contained in a decommissioning programme—the
offshore issue relates to
that.
The
provisions will therefore enable the Secretary of State to require
information about the place where the offshore renewable energy
installation is or will be situated; the offshore renewable energy
installation and an associated electric line; in certain circumstances,
details of an associate as defined by the Bill; the financial affairs
of the person receiving the notice for information and, in certain
circumstances, the financial affairs of an associate as defined by the
Bill; the proposed security in relation to carrying out the
decommissioning programme; and, in certain circumstances, the name and
address of any person whom the recipient of the notice believes to be
an associate.
The
clause will make it an offence to fail to comply with a notice
requesting information without a reasonable excuse. The penalties are
set out in section 113 of the Energy Act 2004. One of those is becoming
rather familiar to us, and I have had the honour of reading them out on
a number of occasions. However, I know that the hon. Member for Wealden
likes the full works, as it were, so an offender is
liable
“on summary
conviction, to a fine not exceeding the statutory
maximum”.
That is
£5,000 in England, Wales and Northern Ireland, and
£10,000 in Scotland. I will not comment on why it is
£10,000 in Scotland because that matter is devolved. On
conviction, they are liable
“to imprisonment for a term not
exceeding two years or to a fine, or to
both.”
The
hon. Gentleman may want that to be 10 years, with all those prison
places to fill up—in the very distant future, may I say? I do
not know, but I do not want to anticipate his
question.
9.45
am
Anne
Main (St. Albans) (Con): I do not wish to tempt the
Minister down the route of talking too much about Scotland. However,
will he reassure the Committee that the £10,000 fine has nothing
to do with Scotland being more worried about the severity of the
crimes, but applies because it is a harsher
regime?
Malcolm
Wicks:
I am sure that my hon. Friend the Member for
Glasgow, North-West has no direct experience of that. I think that the
penalty is different because Scottish law has different origins and
differs from English law in many respects. Such things are lost in the
mists of time, so I will not go down that
route.
The clause also
provides that it is an offence for a person to disclose information
obtained by virtue of a notice under the clause unless it is disclosed
with the consent of the person providing the
information—that
it
“is for the purpose of
the exercise of the Secretary of State’s functions under this
Chapter, the Electricity Act 1989 or Part 4 of the Petroleum Act
1998”,
or
because it is otherwise required by law. Under the Bill, the offences
in relation to the disclosure of information are also included in the
decommissioning provisions for nuclear waste and for oil and gas
installations. The penalty provisions for such offences mirror those in
section 41 of the Petroleum Act 1998 and section 113 of the Energy Act
2004. It is important that information can be obtained for the
Secretary of State to fulfil his functions under the chapter. The
clause clearly states for what allowable purposes such information may
be further disclosed. Clarity on information use and disbursement is
essential to enable the decommissioning regime to operate as intended
and to ensure that all operators meet their responsibilities in regard
to
decommissioning.
Question
put and agreed
to.
Clause 66
ordered to stand part of the
Bill.
Clause
67
Persons
who may be required to submit abandonment
programmes
Question
proposed, That the clause stand part of the
Bill.
The
Chairman:
With this it will be convenient to discuss new
clause
19— Notices—
‘(1)
Section 31 of the Petroleum Act 1998 (c. 17) (section 29 notices:
supplementary provisions) is amended as
follows.
(2) After subsection
(2) insert—
“(2A)
Subject to subsection (3), the Secretary of State shall not give a
notice under section 29(1) in relation to an offshore installation to a
person within paragraph (b) or (c) of section 30(1) unless the person
owns or has owned any interest in the offshore
installation.”’.
Malcolm
Wicks:
Part IV of the Petroleum Act 1998, which
consolidates provisions from the Petroleum Act 1987, sets up
the statutory scheme for the abandonment of oil and gas facilities. We
are now moving on from renewables. Since the regime was established in
1987, there have been changes in business practices in the oil and gas
industry. For example, there has been increasing participation by
smaller players with fewer assets, who, as such, bring increased risks
that they might not be able to meet their decommissioning liabilities.
This issue is to do with the maturity of the fields on the UK
continental shelf in the North sea. Experience has shown that it has
not always been possible to share liabilities equitably between the
parties responsible for installations or pipelines. This provision will
strengthen the existing abandonment regime by amending part IV of the
1998 Act.
The clause
will strengthen the provisions in three ways in response to the above
challenges. First, it will extend the list of persons who may be
required to provide a decommissioning programme upon receipt of a
section 29 notice under the 1998 Act. That will include licensees who
have transferred their rights to another company without the consent of
the Secretary of State. Companies should not be able to avoid
their decommissioning liabilities by such unconsented action.
Secondly, it
clarifies the existing Petroleum Act provisions so that it is clear
that they apply to limited liability partnerships in the same way as
they apply to limited companies. That includes the existing provisions
for making associates, such as parent companies, responsible for
decommissioning when there are, for example, concerns about the
financial strength of their
subsidiary.
Finally,
it will ensure that all those involved in a development share the
decommissioning obligation from the same point in time. The wording of
the current legislation means that the operator can be made responsible
for decommissioning when construction of the platform starts, but his
fellow licensees cannot be made responsible until one of the specified
activities, such as production, has commenced. That may leave a
significant period when the liability rests on a single company, which
I do not believe is
equitable.
By amending
the 1998 Act, the clause will help to ensure a clearer legal framework
of rights and duties for all concerned, which will provide greater
clarity and certainty for developers and
investors.
John
Robertson (Glasgow, North-West) (Lab): To help the hon.
Member for St. Albans, the Scottish Presbyterian upbringing makes us a
lot harder and much more unforgiving than most people. That is linked
to why I rise to speak to new clause 19, which is tabled in my name,
and is a technical proposal designed to probe the Minister for
information. I hope that colleagues will not find it too boring, as I
am afraid that that is the end of the light-hearted
bit.
The
Minister will be aware that now that oil and gas exploration and
production on the UK continental shelf is at a more mature phase of
development, it is often the case that a single licence governs the
development activities of various groups of licensees, all with
interests in separate blocks and unrelated infrastructure. Industry
representatives have told me that the subdivision of licence interests
has increased in recent years, particularly
with the introduction of the fallow block initiative. It has been
further complicated in instances where blocks have been re-licensed
following decommissioning or partial decommissioning of existing
infrastructure. In
discussions with the industry, officials from the Department for
Business, Enterprise and Regulatory Reform have stated that their
policy is to ensure that a party to a licence will incur a liability
with regard to the decommissioning of an offshore installation only
where such a party owns, or has previously owned, a beneficial interest
in a specific offshore installation that requires decommissioning, or
is a related person in accordance with section 30(1)(d) and (e) of the
1998 Act. That liability is not intended to extend either to parties
who are licensees but have no ownership interests in the particular
infrastructure, or to parties who have re-licensed in a particular
block where an offshore installation has been constructed subsequent to
the transfer. I hope that everyone is following this. The existing
legislation is drafted so as to impose an obligation on the licensee or
a previous licensee and does not expressly refer to the ownership
interest in the offshore installation. Oil & Gas UK and some of its
members are concerned that such liabilities might be attributed to
parties who have never been involved with the ownership of such an
installation. New clause 19 would clarify the current
situation.
Charles
Hendry:
I am very interested in the hon.
Gentleman’s new clause, but I would be grateful if he would
clarify what the problem is. Are people who do not own offshore
facilities going round applying for permission to decommission someone
else’s facility? I am not sure why they would do that, although
perhaps Shell would find it helpful to decommission all BP’s
facilities.
John
Robertson:
The hon. Gentleman asks a very good question,
but unfortunately I do not have a very good answer; I only have what I
have been told. I will direct his question through to the Minister, who
may find a way of giving a nice answer that he will be happy
with.
As
I said, the new clause seeks to clarify the situation, and perhaps some
my remarks will help in that respect. Since the Secretary of State is
using the opportunity represented by the Bill to further define, as
part of the process that notifies companies that they have become a
decommissioning liability, which persons may be served with a section
29 notice, this seems to be an ideal moment to gain clarification on
that point. I suggest to the Minister that without the new clause it is
likely that companies engaged in the transfer of existing licence
interests to companies seeking innovative ways to extend the production
life of fields where existing infrastructure has been decommissioned or
partially decommissioned will request additional security to ensure
that no liability for decommissioning new infrastructure can be
attributed to them. Equally, co-licensees with an interest in separate
licence areas may seek security to back the indemnities provided under
the trust deed to ensure that they face no further unintended
liabilities.
This
clarification should assist with active training in the asset market
and encourage new investors by removing the potential for increased
licence entry costs. I look forward to the Minister’s
response.
Malcolm
Wicks:
With your permission, Mrs. Humble, I
will clarify an earlier point which is, in a way, related. The hon.
Member for Wealden asked whether a combined hybrid project—for
example, an offshore wind turbine on an oil and gas platform, a
development that is beginning to happen—will be covered by two
decommissioning regimes. The answer is yes. I can envisage someone
making the debating point that that seems onerous, but it is
unreasonable to propose a new clause to deal with a variety of hybrid
types that might occur in future. The hon. Gentleman also asked whether
there are parties looking to decommission oil and gas installations for
which they have no interest. The answer is
no.
The new clause is
interesting. It relates to the maturity of the UKCS, where a number of
players are now involved, including some relatively new and small
enterprising companies. Our initial assessment is that the new clause
could apply to well over 100 licences. We are aware of the issue, have
considered it carefully, and will continue to do so. The new clause is
a significant proposal, but we feel that there are complexities that
need to be fully identified and discussed with the industry before
deciding on the right way to treat the different parties that might be
covered by it. One issue is that over the years companies have created
a patchwork of commercial arrangements within many of the licences by
splitting them into sub-areas. Some licensees have no interest in a
particular commercial sub-area but are still a party to the licence
that covers it. The wording of section 30 of the 1998 Act brings all
licensees within the scope of the Secretary of State’s power to
make them responsible for decommissioning an installation in any part
of the licence area. Naturally, companies that have not had an interest
in the installation are reluctant to carry a liability for its
decommissioning.
I
understand that view, and would like to explain how our policy tries to
reflect the different standing of licensees. It might be helpful to see
the policy as being based on three tiers of liability. The first tier
comprises those who have been served with a section 29 notice to
establish their statutory obligation to decommission an installation.
That will include the current field players and any previous partners
who have sold their interest but have not had their notices withdrawn
by the Secretary of State because of concerns about the financial
strength of the remaining
partners.
The
second tier includes previous partners who have sold their interests
and have had their section 29 notices withdrawn by the Secretary of
State at an earlier stage, and are therefore not obliged to submit a
decommissioning programme. The third tier comprises licensees who have
never had an interest in the installation or been served a section 29
notice.
10
am
Our
policy is that decommissioning should be carried out by the companies
that are currently responsible for the installation: the current field
partners in what I call the first tier. Our proposals in the Bill
include measures to strengthen the arrangements for ensuring that those
companies are able to carry out the decommissioning. If a financial
assessment of the first-tier section 29 notice holders indicates that
they might have difficulty funding the decommissioning, provisions in
the Bill will
enable the Secretary of State to ask for security, such as a
bank’s letter of credit, at any time during the project from any
of the first-tier notice holders.
Charles
Hendry:
Will the hon. Gentleman give
way?
Malcolm
Wicks:
I wonder whether it would be helpful for me to make
a little more
progress.
Charles
Hendry:
My point relates specifically to the issue to
which the Minister has just referred.
It is common practice now
within the North sea for different people to own and use the rigs, so
there are people who develop businesses by constructing the rigs and
hiring them out to others. In those circumstances, who would be
responsible for the decommissioning, the contractors or the
owners?
Malcolm
Wicks:
I hope to come back to that point in due course, as
I certainly understand the hon. Gentleman’s description of where
the industry
is.
As
I was saying, with the provision to cover the higher-risk cases, there
should be little chance that the current field partners will fail to
decommission the installation. However, in the unlikely event that
those companies do default, the Secretary of State would have to call
on other notice holders in the first tier, and if those fail, on those
in the second tier. That would cover the companies that were
responsible for the installation until they sold their interest and
would, we believe, provide a kind of belt-and-braces approach that
should cover all but the most exceptional circumstances.
We have had
only two instances in the past 20 years when first-tier companies have
been unable to meet their decommissioning responsibilities, but I
cannot assure Parliament that our policy will cover 100 per cent. of
cases. There is the very remote scenario in which the second-tier
companies might also fail. On a multi-block licence, the question would
then be whether the taxpayer must step in or whether the Secretary of
State should call on the third-tier companies to do the decommissioning
work. The new clause would remove that choice of accessing the third
tier and mean that—I emphasise this point—the taxpayer
would have to fund the decommissioning in that remote
scenario.
It is clear
from the breadth of existing powers in the Petroleum Act 1998 that
Parliament intended that every effort should be made to ensure that the
taxpayer does not have to pay for decommissioning due to the default of
companies involved in a field. Our policy is therefore not to rule out
the extremely remote possibility that it might be necessary in an
exceptional case to use the full powers of the 1998 Act to protect the
taxpayer.
It has been
pointed out to my Department that the potential liability for
third-tier companies on multi-block licences could discourage sales of
field interests, but there is an answer to that situation. The industry
and my Department have put considerable effort over the past two or
three years into developing a new model security deed to deal with
decommissioning liabilities. That deed could be used to indemnify
third-tier companies in multi-block cases. As the deed has just been
launched, ideally I would like some time to see how it beds
in.
However, given
the interest shown in the proposed new clause, I am prepared to
consider that further within the context of the Bill. That will require
the examination of hundreds of existing licences to consider the impact
of such a change, so it is a considerable undertaking that we need to
work on. There are complex commercial arrangements on some of those
licences, which make the process more complicated. It is not
straightforward, but I am committed to investigating it further,
although I emphasise that it will take some time. I cannot give a
commitment that that will lead to an acceptance of the proposal, but I
hope that, in view of this undertaking, my hon. Friend the Member for
Glasgow, North-West will not press his new clause.
I was asked whether the
liabilities will be on the owners or the contractors. I am advised that
both the owners and licensees will be liable for the decommissioning;
they will both be tier 1
bodies.
Charles
Hendry:
I am grateful to the Minister for that helpful
response, and I am sure that the hon. Member for Glasgow, North-West
will be grateful for the Minister’s offer.
Can the Minister tell us a
little more about the decommissioning involved? Is it the entire
structure, meaning the rig, the pipe work that goes with it and the
areas below the sea bed as well? I was part of the British-American
parliamentary group trip to Texas last year where BP showed us how it
is identifying new reserves under 10,000 ft of water and 20,000 ft of
rock.
In
circumstances where it is possible to identify and to reach oil and gas
reserves that were simply unachievable a few years ago, an enormous
amount of pipe work is going to be in the sea bed and the rock beneath
it. I do not know whether it is already standard practice for that to
be removed at the end of the process or whether it is simply left
there. Will the Minister’s decommissioning proposals require the
removal of all that infrastructure or simply that above the sea
bed?
Malcolm
Wicks:
My understanding is that it is certainly not just
that above the sea bed. I want to get this right, and we might have to
return to it or I will write to the hon. Gentleman. I think that, to
put it simply, the principle is to do as much as possible. In reality,
however, it might not always be possible to remove some very deep
infrastructure on the sea bed. I will not pretend that I have been out
to a number of oil rigs or that I am an
expert.
An important
question is what the obligation represents. The ideal principle is that
we remove as much as possible, but I do not think that it is always
possible to do that 100 per cent.
Dr.
Brian Iddon (Bolton, South-East) (Lab): Has my hon. Friend
had any discussions with Ministers representing the fishing industry?
More and more trawlers that trawl the bottom of the sea are snagging
installations. For that reason alone it is important that as much of
the debris as possible is removed after the use of these
wells.
Malcolm
Wicks:
Yes, that seems to be the basic
principle—the ideal scenario. I have said that I will write to
the hon. Member for Wealden, and I will
obviously copy that to Committee members. We need to
establish what the regulatory framework desires and also what the
practice has been in the recent past. I understand the concern. I can
assure my hon. Friend that although I have not raised that issue with
my colleague in the Department for Environment, Food and Rural Affairs,
only yesterday I was talking about matters of mutual interest on the
marine environment and my concerns as Minister for Energy. I will
certainly raise that issue with
him.
We are into an
era where there is much competition for sea and marine resources. The
hon. Member for Wealden asked about shipping; this is a fisheries
aspect of shipping. There are now aspects of marine life that touch on
different areas of Government and we need to co-ordinate wherever
possible. I am advised that wells are sealed and made safe, and that
wellheads are fully removed, which seems a fairly definitive answer. If
I need to add to that, I will pursue my ambition to write to the hon.
Gentleman.
John
Robertson:
I thank the Minister for his extensive answer
and I look forward to hearing his deliberations on Report to see how we
go. I reserve the right to bring back my new clause, but I will
not press it.
Question put and agreed
to.
Clause 67
ordered to stand part of the Bill.
| 
