Clause
68
Financial
resources
etc
Question
proposed, That the clause stand part of the
Bill.
Malcolm
Wicks:
I am sure that my civil servants, who are looking
at hundreds of licences now, are grateful that we have had that useful
discussion.
I shall move
on to clause 68, which concerns financial resources. It clarifies the
information that may be required to satisfy the Secretary of State of a
person’s ability to fund their decommissioning obligations. It
also brings forward the time when the Secretary of State can require a
person to take relevant action, such as providing the security of a
bank’s letter of credit when the risk of default is deemed by
the Secretary of State to be unacceptable on the basis of a published
assessment process. The provisions in this clause therefore help to
ensure that the taxpayer is protected from the risk of a person being
unable to meet their decommissioning
obligations.
To
assess a person’s ability to carry out decommissioning
obligations, the Secretary of State may require information such as
financial accounts to compare with the potential costs of the work.
This is achieved by amending section 38 of the Petroleum Act 1998,
which sets out the existing information requirements. Under this
provision, the Secretary of State can require information such as a
detailed estimate of the costs of the abandonment, predictions of
future revenue, the costs and benefits of any plans for further
development, and up-to-date management
accounts.
Clause
68 enables the Secretary of State to obtain some of this information
prior to serving a notice requiring a decommissioning programme. This
will enable the Secretary of State to assess the potential
impact of the decommissioning liability on what may be a small company.
Later, more detailed information may also be required before the
approval of an abandonment programme, in order to assess whether
financial security is required. This information allows the Secretary
of State to assess the financial resources of a person earlier than
under the existing regime to further ensure that the risk of default on
a future decommissioning obligation is
minimised. After
considering the information obtained and consulting the Treasury, this
clause allows the Secretary of State to require a person to take
action, such as providing financial security, to satisfy the Secretary
of State that the decommissioning duty can be discharged. By enabling
the Secretary of State to require action before an abandonment
programme is approved, he will be able to ensure that proper taxpayer
protections are in place at whichever point in time the assessment
process indicates a higher risk.
It is standard practice to draw
up programmes at the end of the life of a field when there is greater
certainty of available technologies. Given the nature of oil and gas
reservoirs, the levels of risk can vary across the life of a field, and
therefore we need to be able to adjust the security requirement to
match the risk. The flexibility in this clause will reduce the costs of
security to the companies, compared to a catch-all approach to
financial
security.
Officials
will not be able to disclose the information unless required by law or
with the consent of the person who provided it. It will be an offence
to disclose information if it does not fall within the exemptions set
out in this clause. The penalty for such an offence will be a criminal
sanction. The same offence for disclosure of information is being
proposed in the Bill in the decommissioning provisions for nuclear and
offshore renewable installations. It is also important that the
Secretary of State has the power to obtain information so that he can
fulfil his functions under this chapter of the Bill. The industry will
benefit if the Secretary of State’s actions to protect the
taxpayer and the environment are based on up-to-date and accurate
information.
Question
put and agreed
to.
Clause 68
ordered to stand part of the
Bill.
Clause
69
Protection
of abandonment funds from
creditors
Amendment
made: No. 4, in clause 69, page 57, line 35, at end insert
‘or Northern Ireland legislation’.—[Malcolm
Wicks.]
Clause
69, as amended, ordered to stand part of the
Bill.
Clause
70
Information
about decommissioning of
wells
Question
proposed, That the clause stand part of the
Bill.
Malcolm
Wicks:
The Government are committed to maximising the
production of oil and gas from the UK continental shelf, often know as
the UKCS. That is
worth emphasising. At a time of some interest and excitement around
renewables and nuclear, people can forget our still heavy reliance on
oil and gas from the North sea and the wider UKCS. I think that, at
present, some two-thirds of our energy comes from the UKCS. That is a
considerable resource and, as such, it is important that the regulatory
framework remains appropriate against a rapidly changing commercial
environment.
10.15
am
One of the most
noticeable changes in operations on the UKCS over the past five years
has been the increasing number of smaller players, as noted earlier.
Typically, such smaller firms are more focused on exploiting smaller
fields, where their less complex and more flexible financial and
operational processes can be an asset in helping to exploit new
opportunities on short time frames. However, some smaller players may
be less resilient and more exposed to financial risk, compared to their
bigger brothers.
The
Government must therefore look at what measures may be used to mitigate
the additional risks to the taxpayer of having smaller firms on
licences, while not discouraging viable new players from entering the
market. The clauses on oil and gas licensing update the regulatory
regime to do just that. It is important, for the protection of the
environment, that all wells are properly plugged and abandoned. It is a
term of a petroleum licence that licensees must plug and abandon their
wells at least a month before the end of their
licences.
There are
also provisions, later in the Bill, to allow the Secretary of State to
order that a suspended well be plugged and abandoned at any time. If
parties to a licence cannot afford to do that when the time comes, by
which we mean when their licence requires them to do so, the cost of
doing so could fall to the taxpayer.
The clause allows the Secretary
of State to require financial information at any point and in any
circumstance during the course of the licence. Being able to gather
such information will enable the Secretary of State to monitor whether
the licensee has sufficient resources to plug and abandon the well when
required to do so under the
licence.
The
obligation to plug and abandon a well arises either automatically, at
the end of the licence, or when directed to do so by the Secretary of
State. If the information is not provided or if, having looked at the
information, the Secretary of State is not satisfied that the licensee
will be capable of plugging its well in the future, then, after
consulting the Treasury, the Secretary of State can require it to take
certain action—including providing financial security. That will
reduce the risk of licensees not being able to plug and abandon the
well at the end of their licences, thereby reducing the risk that the
taxpayer would have to foot the bill.
To ensure that this is an
effective tool and that licensees take heed of notices given by the
Secretary of State, the clause also makes it an offence for a person to
fail to comply with a notice from the Secretary of State requiring
either information or action. If found guilty, they would be liable, on
summary conviction, to a fine
not exceeding the statutory maximum or, on
conviction on indictment, to a fine, imprisonment up to two years, or
both. The clause will apply equally to licensees under the Petroleum
Act and to licensees holding gas storage and unloading
licences.
Charles
Hendry:
I have a couple of small points for clarification.
The Bill
says:
“This
section applies in relation to a person who has drilled, or commenced
drilling”.
What does
“commenced drilling” mean? Does it cover exploratory
work, so that if someone is drilling with the hope of finding gas it
counts as “commenced drilling”, or does it refer to an
exercise once gas has been found and extraction is involved? What,
therefore, are the implications for someone doing exploratory work, and
do the same rules apply to people who find
nothing?
Also, the
definitions towards the end of the clause say that
“‘well’ includes a borehole”. What is the
difference between a well and a borehole? The Minister may wish to
write to me about that, as it is a point not of fundamental objection
to the clause, but for my own
education.
Dr.
Ladyman:
I have taken my hon. Friend by surprise. I have
just a few questions for him, and I am trying to be helpful. I wonder
whether the clause is phrased as well as it might be, because it seems
to be embedding a logical inconsistency. If he finds that somebody is
incapable of plugging the well, he can consult the Treasury about
requiring them to plug it. If they are incapable of that, how can they
be required to do
so?
What my hon.
Friend means by this is that the Government wish to identify somebody
who is about to enter a process that might render them incapable of
plugging the well because they do not have the money to do it and wish
to intervene early to require them to do it before they enter that
process. The way that the provision is phrased, however, will not allow
my hon. Friend to take action until that person is not capable of it,
by which time it will be too late to intervene. Would he like,
therefore, to have a chat with the lawyers in his Department about
whether the provision is phrased in a way that will be useful to him in
the future?
Dr.
Alan Whitehead (Southampton, Test) (Lab): Further to that,
I wonder whether the Minister can clarify whether, under circumstances
that we have already discussed, a licence will be granted for carbon
capture and storage, but be granted before the ending of a licence of
someone who has previously drilled a well or a borehole. Will that
licence therefore have to be terminated according to the conditions of
the clause, or will the person who wishes to undertake carbon capture
and storage by placing carbon through the well or borehole that is
about to be abandoned take over the process without the well having to
be capped or otherwise disposed
of?
Alternatively,
does my hon. Friend intend the processes to be entirely
separate—that the well be capped and that all business cease? If
so, presumably the person engaging in carbon capture and storage would
have to undrill the well and start again.
Malcolm
Wicks:
On that last point, I will take refuge in the fact
that CCS is still an infant technology. We are working hard on these
issues, not least in our working group with the Norwegians, which our
Dutch colleagues have now joined. We have taken regulatory powers in
the Bill and there is also the demonstration project. I cannot
therefore be precise about the answer to that question. Given that the
great hope is that vacated oil and gas works would be the repository
for CO 2, as a non-engineer I do not envisage that they would
be closed and then
reopened.
There is
also the issue of enhanced oil recovery. One of the commercial
advantages is achieved through access to more oil and gas. That is one
of the factors that helps to make CCS—I will not say financially
viable, because there is a gap—part of a commercial set up.
Although, as a lay person, I do not see the thing being closed and
sealed and then reopened, I can see that there are interesting issues
about where the two regulatory regimes come together, which we will
need to explore in the future.
It was not by any means a
boring question, but I cannot at the moment describe the difference
between a borehole and a well. I will write to the hon. Member for
Wealden, given his great interest in the subject. On exploratory
drilling, we do include exploration because there is something to be
decommissioned. It is one of
the risks of the business that not every investigation, exploration or
drilling leads to a find. There is, however, something there to be
remedied. My hon.
Friend the Member for South Thanet asked about how we can require
someone to plug a well if they are unable to do so and whether we can
take action before they become incapable? The answer is that we can ask
for information as soon as they have started to drill a well. If we are
not happy with what we find, we can ask them to take action—for
example, give financial security of some kind. We have therefore to be
vigilant and we can act early in the process. I have talked about the
different tiers that come into our
regime.
Dr.
Ladyman:
I fully accept that it is my hon. Friend’s
intention to take early information and act before the situation
arises. I am not a lawyer but my understanding of the clause is that it
might be interpreted to say that he cannot act until the situation has
arisen, even though he may see it coming
up.
Malcolm
Wicks:
I am not a
lawyer—
It
being twenty-five minutes past Ten o’clock,
The
Chairman
adjourned the Committee without Question put,
pursuant to the Standing
Order.
Adjourned
till this day at One
o’clock.
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