Energy Bill

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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?
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.
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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.
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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.
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.
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