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Session 2007 - 08
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General Committee Debates

Energy Bill

The Committee consisted of the following Members:

Chairmen: Mr. David Amess, Mrs. Joan Humble
Baron, Mr. John (Billericay) (Con)
Binley, Mr. Brian (Northampton, South) (Con)
Hendry, Charles (Wealden) (Con)
Horwood, Martin (Cheltenham) (LD)
Iddon, Dr. Brian (Bolton, South-East) (Lab)
Ladyman, Dr. Stephen (South Thanet) (Lab)
Main, Anne (St. Albans) (Con)
Owen, Albert (Ynys Môn) (Lab)
Palmer, Dr. Nick (Broxtowe) (Lab)
Reed, Mr. Jamie (Copeland) (Lab)
Robertson, John (Glasgow, North-West) (Lab)
Seabeck, Alison (Plymouth, Devonport) (Lab)
Swire, Mr. Hugo (East Devon) (Con)
Tipping, Paddy (Sherwood) (Lab)
Webb, Steve (Northavon) (LD)
Whitehead, Dr. Alan (Southampton, Test) (Lab)
Wicks, Malcolm (Minister for Energy)
Chris Shaw, Committee Clerk
† attended the Committee

Public Bill Committee

Thursday 6 March 2008


[Mr. David Amess in the Chair]

Energy Bill

Clause 70

Information about decommissioning of wells
Question proposed [this day], That the clause stand part of the Bill.
1 pm
Question again proposed.
The Chairman: When the Committee adjourned this morning, the Question was that clause 70 stand part of the Bill, and the Minister was reaching his peroration.
The Minister for Energy (Malcolm Wicks): Good afternoon, Mr. Amess. I was certainly in full flow, and about to respond to my hon. Friend the Member for South Thanet on whether the power in clause 70 to require information on action from a licensee arises too late in the process. I do not believe that that is the case, and I am reassured by my Department’s lawyers, who agree with me. I believe that it happens in a timely way, and I hope to explain why in reasonably plain English.
If the Secretary of State was uncertain about a licensee’s ability to plug an abandoned well at the time that the licensee requested consent to drill, he would not grant consent. In other words, financial scrutiny at the beginning is crucial. However, the power to require information to be provided and action to be taken can be exercised at any time after drilling has been started. The provision is designed to cover situations where we believe that the licensee, having started to drill a well, will start to or has started to run into financial difficulties; or, further down the line, where we believe that the licensee, after suspending a well, will start to or has started to run into financial difficulties. We would then require the licensee to take specific action, including providing financial security, which could involve the licensee giving a letter of credit. However, if a licensee’s financial capacity comes increasingly into doubt, the aim is to take the necessary action before he loses the necessary capacity. Besides protecting the taxpayer and giving the Secretary of State greater assurance that wells will be plugged and abandoned, it is worth noting that the power will give him greater flexibility in accepting small companies’ business plans. He will be able to consider allowing wells to be suspended in cases where he might otherwise have no choice but to require immediate abandonment. I hope that that deals with the point raised by my hon. Friend the Member for South Thanet.
I wish to provide clarity on what I said in response to my hon. Friend the Member for Southampton, Test about what would happen if existing oil and gas wells were to be used for the purpose of CO2 storage. There is flexibility on whether such wells would need to be capped and redrilled—it would depend on the needs of carbon storage.
The hon. Member for Wealden asked whether entire structures should be decommissioned, including everything below the seabed and the associated pipelines. An international convention—the OSPAR convention, to which the United Kingdom is a signatory—requires that redundant installations are removed to shore for re-use, recycling or disposal. To be more specific, the structures will be cut off below the seabed, the wells will be sealed at the reservoir, and the pipe work will be removed to a depth usually of 2 m or 3 m below the seabed. A small number of installations may be given exemptions allowing them to be left in place, because that is the most practicable option. However, cutting them off at that distance below the seabed should help in relation to the issue that was raised about fishermen’s—or fisherperson’s—nets, dragging and so on. I hope that that is a useful response.
Pipelines may be decommissioned by removing them to shore for recycling of the steel or, if they are already buried and therefore not a hazard, they may be left in place. The Secretary of State’s powers under the 1998 Act enable him to control the choice of decommissioning options, having regard to the international convention and the impacts on safety, environment and other users of the sea—and, of course, the taxpayer.
Charles Hendry (Wealden) (Con): I thank the Minister for that very helpful response and for the additional detail that he has been able to give us. I would certainly never seek to catch him out—he is far too nimble-footed for that. My interest was much more parochial than he suggests. My constituency is adjacent to Royal Tunbridge Wells, and I have always wondered why it is not called Royal Tunbridge Borehole. I am grateful to him for making the distinction so clear.
Question put and agreed to.
Clause 70 ordered to stand part of the Bill.

Clause 71

Transfers without the consent of the Secretary of State
Question proposed, That the clause stand part of the Bill.
Malcolm Wicks: “Disgruntled of Tunbridge Borehole” has a certain ring to it, but we had better not go there.
It is a term of existing petroleum licences that a licence cannot be transferred without the Secretary of State’s prior consent. That is to ensure that interests in a licence are not transferred to a party or parties who would not have gained the Secretary of State’s consent for such a transfer had he been asked. The Secretary of State needs such powers for situations where, for example, the licences transferred to parties who will not or cannot put enough time and resource into recovering oil and gas from the area. It is important that licensees’ objectives are aligned with the Government’s aim of maximising production from the UK continental shelf. However, despite the requiring of the Secretary of State’s consent to transfer a licence, experience has shown that there can be circumstances where a licence interest has been transferred without it. In such situations, under current provisions, the Secretary of State could accept the transfer—although if it has already been decided that the new licensee is unsuitable, that would not rectify the problem—or revoke the whole licence, although that would mean that any new licensee would need to wait until the next licensing round to get the licence, which could significantly delay production. However, the Secretary of State could not force the parties to transfer the licence back.
We believe that the Secretary of State’s having the power to direct that a transfer revert back to the transferor is a better solution because the transferor would then have the option of transferring the rights under the licence to a more suitable person. In turn, that would mean that production on the field could continue. The clause allows the Secretary of State to direct that the licence interest revert back to the transferor, should he think fit. I believe that that creates an important safeguard and an effective incentive for licensees to comply with the existing requirements of a licence and to seek the Secretary of State’s consent before going ahead with any potential licence transfers. I reiterate that this does not change any of the existing obligations about seeking prior consent for transfers from the Secretary of State; rather, it creates an effective system for addressing any such transfers if the Secretary of State believes it appropriate to do so.
In order to ensure that the Secretary of State has the information necessary to identify whether an unconsented licence transfer has taken place, the clause also allows the commissioners for Her Majesty’s Revenue and Customs to give specific information to the Secretary of State for the purposes of determining whether that has taken place. That ensures that any actions that the Secretary of State may wish to take are fully informed.
Mr. Hugo Swire (East Devon) (Con): Given that the clause gives the Secretary of State new powers relating to the uncontested transfer of rights or benefits under petroleum licences, why is the Secretary of State being granted these new powers at this point? What has gone wrong in the past which has led to this need for additional legislation?
Malcolm Wicks: I hoped that I had touched on that in my opening remarks, but I will try to give greater clarity in a few moments.
It is important to protect the information and the people to whom it refers. That is why the clause sets out that the information supplied by the commissioners at HM Revenue and Customs must be limited to that necessary for the Secretary of State’s decision. There are also restrictions on the purposes for which the information can be used. The clause also, in line with the rules on sharing information between Government Departments, makes it an offence for information to be further disclosed without the permission of the commissioners of Her Majesty’s Revenue and Customs, the people identified in the information, or in pursuance of a court order. If found guilty of that offence, a person will be liable, on summary conviction, to a fine up to the statutory maximum and, on indictment, to a fine, imprisonment of up to two years, or both.
Charles Hendry: May we have clarification on a couple of issues? In what circumstances is the Secretary of State’s consent required? Is it always required if a licence is being transferred? Will the Minister clarify the rules regarding the trading of licences? Are people allowed to trade licences, subject to the consent of the Secretary of State, and in what circumstances might he use his powers to revert the licence to the transferor? Would it happen automatically if it were an unconsented transfer, or only if the Secretary of State had additional concerns about the consequences of that transfer?
Malcolm Wicks: Let me deal first with the question from the hon. Member for East Devon. As I have explained in the context of one or two other clauses, the circumstances in the North sea UK CS are changing. Whereas in the past it was dominated by relatively few big players—the well-known names—the field is maturing as some of the big players give priority to fields elsewhere in the world and there are opportunities for new enterprise companies to come forward, and issues of security have arisen. A number of smaller players are active on the continental shelf. That is welcome, but the other side of that coin is that they are potentially less financially viable. We therefore thought it important to use the Bill as an opportunity to introduce new safeguards.
The hon. Member for Wealden asked several questions, and I may not be able to answer them all at this precise moment. He asked in what circumstances consent is required and whether it is always required. The answer is that it is always required. Moving on—seamlessly, I hope—he also asked whether licences can be traded if the Secretary of State agrees. Yes, they can. Indeed, that is now an important part of the market. However, licensees can also transfer the benefits without his consent, and that causes a disparity between the benefits and the obligations of a licence. Perhaps that was not so seamless. I need to clarify that point, as I muddled myself.
On the question of whether the Secretary of State will always revoke the licence of unconsented transfers or do so only if there are other concerns, some unconsented transfers are acceptable, but we would use the powers only if there were concerns about one of the parties involved in the transfer—for example, about their financial health. If I can clarify other matters later, I will do so.
Anne Main (St. Albans) (Con): Perhaps I was not listening as closely as I should have been and what the Minister said was brilliant, but I thought that he said that the parties could transfer the benefits but not the obligations. Is that something on which he is seeking clarification?
Malcolm Wicks: It is.
Question put and agreed to.
Clause 71 ordered to stand part of the Bill.
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