Energy Bill

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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.
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.
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.
Malcolm Wicks: rose—
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 CO2, 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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