Examination of Witnesses (Questions 80-90)
MR MALCOLM
WEBB AND
MR MIKE
THOLEN
20 JUNE 2006
Q80 Mr MacNeil: The reason I ask
if there is systematic categorisation is that it helps those outwith
the industry maybe understand the issues with industry that you
are talking about because otherwise we are just getting a series
of anecdotes rather than anything else.
Mr Webb: This is a slightly difficult
concept. One of the issues around decommissioning is the fact
that the Government has adopted what it sees as a particularly
risk-averse approach on decommissioning and has put very significant
burdens in terms of continuing liability on ex-licensees. As a
result of that, when licence transfers occur both the Government
and to some degree industry look for the incoming companies to
give guarantees or assurances with regard to the decommissioning
liabilities. Those guarantees are tending to take the form of
bankers' letters of credit, which are both expensive and also
burden the balance sheets of smaller companies. I would not deny
this is not a very difficult and complex area but it is an area
where we have got to move from where we are if we are going to
have the right regime for the second half of the North Sea. There
is discussion going on at the moment within the industry leadership
team and PILOT on the whole decommissioning issue and that issue
includes the securitisation of these obligations and how we can
best go about that in a way that does not overburden new entrants
coming in. That is another example of what we are doing.
Q81 Mr MacNeil: Last June in their
report on fuel prices, colleagues on the Trade and Industry Committee
were critical of UKOOA for your perceived reluctance to continue
the easing of fuel poverty.[9]
Given your members' charitable support for organisations in Aberdeen
such as Aberdeen Foyer, do you consider the criticism of UKOOA
to be unwarranted?
Mr Webb: No, I do not. I think
fuel poverty is a serious issue. Poverty is a serious issue. I
think they are, however, matters that need to be dealt with by
governments, not individual industries. I would say as an aside
that one of the things that has probably taken more people in
this country out of fuel poverty than any other thing in the last
40 years has been the availability of piped natural gas to communities
throughout the length and breadth of this country. That has been
very significant as the easer of fuel poverty. Indeed, I have
had discussions with the fuel poverty lobby and I was struck by
the number of ideas that they had to extend the reach of the natural
gas main to more people in this country as a significant way of
easing fuel poverty. I do not think that the industry's record
as a whole in this regard is at all bad, but I do think that the
issue of poverty, be it fuel poverty or any other form of poverty
within society, is essentially an issue for you, the politicians,
to decide and act upon as opposed to individual industries.
Q82 Mr MacNeil: You said in the earlier
part of your evidence that the Chancellor shows a lack of awareness
of the industry. What sort of questions do you think a committee
such as ours should be asking the Chancellor in the light of his
increasing taxation?
Mr Webb: It is probably not for
me to tutor you as a committee on that but one of the things I
would be interested in, and I think we are interested in, is that
we still do not quite understand where the 40% rate of return
that the Chancellor spoke about came from. I suppose one would
be interested to know his views upon the medium to long term position
on the UK oil and gas reserves and how the Treasury could act
with other parts of Government to ensure that we maximise the
ultimate recovery and how that can be best achieved.
Q83 Mr Davidson: Mr Webb, how do
you think a single Department for Energy would be able to do a
better job within the current disparate arrangement where several
Government departments have separate areas of responsibility?
Mr Webb: It might not. It depends
upon how that department is staffed, run and focused, I suppose
is the answer to that. What we are saying here, and it has been
said already, is that we are looking for more joined-up government
on energy policy. We do think that energy policy at the moment
is in danger of being created in various parts of Government by
creating a new Department for Energy under a Secretary of State.
We think that there would then be a sharp focus within Government
and hopefully that individual would be able to drive a consistent
energy policy right across Government. That is really what we
are looking for here.
Q84 Mr McGovern: In your opening
remarks and your answer you admit that that might not be the solution,
that it would depend how it was staffed and how it was run, but
you think that it would be a step in the right direction?
Mr Webb: Yes. I personally think,
and it is in our submission, that that would be the right step
forward, but just an organisational move of itself is not enough.
We need to create, and I hope it is going to come out of this
later stage of the Energy Policy Review, a very clear energy policy
which covers all aspects of energy in this country. It would be
good if we could have one consistent dialogue with Government
on those issues instead of, as I have said before, these several
dialogues that we are having.
Q85 Mr MacNeil: Do you think there
is a feeling within the industry that the Chancellor looks at
you as a cash cow, whereas we see other countries in Europe that
have no oil and they are running more successful economies?
Mr Webb: All I can say is that
at this point the industry is somewhat concerned and driven by
the fact that we have had three significant tax increases in three
years, and that is not a positive thing for the industry and the
industry is concerned about that, both for the effects that it
has had and also for the effects that it could have in the future.
Q86 Mr MacNeil: Would it help if
these three tax increases had been one?
Mr Webb: Maybe not.
Q87 Chairman: Mr Webb, you were not
very sure how much of the taxation of £0.9 billion would
have gone to the shareholders and how much would have gone into
investment in exploration. Would you have any idea what percentage
would have gone probably to tackle fuel poverty or any charitable
causes?
Mr Webb: No, because I do not
keep any tag upon the charitable activities of my membership.
That is a private matter for them. It is not something that a
trade association would ever concern itself with.
Q88 Chairman: The Trade and Industry
Committee tried very hard with the high oil prices to get the
industry to give an undertaking to contribute money to fuel poverty,
which they refused, and the Committee in turn said, "If you
don't hand over at least some money voluntarily, we will quite
understand if the Chancellor takes it by force". How do you
comment on that?
Mr Webb: I disagree with the comment.
If we look back to fuel poverty and the responsibilities of industry
and the Government, I think the responsibilities of my members
are to provide this country with the best oil and gas industry
in the world, and I think we are almost there, also one of the
safest oil and gas industries in the world. We know we are not
there yet and we are determined to get there and we have strong
plans in respect of that, and it is also to work with the Government
to maximise recovery from the profits and to pay our taxes, and
we are paying taxes. We are paying significant taxes, £12.5
billion or thereabouts this year. If you take the product that
we produce and take it downstream, you will find that the £12.5
billion that we pay is a pale reflection almost of the £30
billion that then comes at the petrol pump from oil and gas, so
from the oil and gas stream one can see that the Government is
enjoying a revenue of somewhere round about £40-45 billion
each year. That is about 10% of Government revenue and that is
a fair pot, I would have said, to tackle fuel poverty.
Q89 Chairman: I can understand, Mr
Webb, that it is the Government's responsibility to deal with
fuel poverty and social issues and so on, but of course, when
we are living in the world we have huge corporate companies whose
budgets probably are more than some of the countries have available
to them, and so do you not think those companies should be encouraged
to participate in charitable causes where they can help people
who are in need and that they have some obligations to society?
Mr Webb: I think companies do,
through their corporate social responsibility programmes in this
country and abroad, undertake various charitable works. I do not
have an aggregation of that because we do not check those statistics,
but I still do think that our primary obligation is to run a first-class
industry for the benefit of this nation, to make sure that our
employees are properly trained, that they are safe at their work
and that we are doing all that we can to maximise recovery from
the North Sea oil and gas reserves. What I do not think we should
be involved in, and I think it is a very dangerous route for industry
or Government to go down, is subsidising fuel to the end consumer.
I think that is a very dangerous route to go down.
Q90 Chairman: Thank you, Mr Webb
and Mr Tholen. That concludes our questions. Before I declare
the meeting closed do you wish to say anything on any areas which
we have not covered in our questions?
Mr Webb: No. I think you have
raised a very comprehensive set of questions and I thank you and
the members of the Committee for giving us the opportunity to
put the case for UK oil and gas to you today. Thank you very much
indeed.
Chairman: Thank you once again, Mr Webb
and Mr Tholen. Your evidence, I am sure, will be very helpful
to this Committee when we finally report and we will make sure
that your concerns are expressed in our report.
9 Trade and Industry Committee Report, Fuel Prices,
HC279, Session 2004-05. Back
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