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Energy Bill

I do not have a PowerPoint presentation to give because they are not allowed in our Committee. I was hoping to address the concerns of my noble friend with some clear definitions, and I hope helpfully. The noble Lord, Lord Teverson, has broadened the debate by asking me to explain the clause, which is a rather more daunting prospect. I shall give some context to the issue because my noble friend has followed the argument in the other place with more diligence than perhaps other Members of the Committee have been able to. He has alighted on a specific point to which I want to respond constructively. As he indicated, the Government had every intention of responding constructively when the Bill was considered in another place. However, I am not as critical as he is about the processes that have developed since he and I were last there. Suffice it to say that on this occasion, it was not possible to make quite the full response he seeks, and I hope to do that for the benefit of the Committee today. The obvious point is that the UK has benefited from our reserves of oil and gas from the North Sea for many decades, and it has been necessary to update the provisions that apply to the obligations of the contractors. Part IV of the Petroleum Act 1998 consolidated provisions in the 1987 Act, and in this Bill we seek to bring up to date Part IV of the 1998 Act in order to meet the existing abandonment regime which, as my noble friend said, has different structures from the companies. The original structures were clear. Large multinationals with huge resources at their disposal carried out the initial exploration and exploitation, but as the industry developed it has become more sophisticated and the companies now involved are much smaller. The question of who bears the burden, therefore, has to be defined and updated with greater accuracy. First, the clause extends the list of persons who may be required to provide a decommissioning programme upon receipt of a Section 29 notice under the Petroleum Act 1998. This list will include licensees which 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, so this is an attempt to ensure that, despite changes that may have taken place in recent years regarding where decommissioning liabilities should rest, they will continue to do so. Secondly, the clause clarifies the 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. This includes the provisions for making associates such as parent companies responsible for decommissioning where there are concerns about the financial strength of a company. I am sure that noble Lords will recognise the importance and significance of ensuring that we are able to put responsibility where it lies; that is, with the organisation that is able to meet its obligations. Thirdly, the clause will ensure that all those involved in a development share the decommissioning obligation from the same 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 activities specified in the Act has commenced; for example, production. That may leave a significant period when the liability rests on a single company, which is not equitable. Finally, the clause will prevent the Secretary of State from placing a decommissioning obligation on a licensee or a party to a joint operating agreement if that licensee or party is not entitled to derive, and never has been entitled to derive, any benefit from the installation. Consequential changes for associate companies of licensees are also included to reflect this change. The point is, as I indicated, that over the years, oil and gas companies have created a patchwork of commercial arrangements by splitting licensed areas into sub-areas. As a result, some companies which have received no benefit at all from a particular commercial sub-area are still a party to the licence that covers that sub-area. It is not right that they should bear that responsibility. I now come to a point that I hope my noble friend will recognise is especially helpful. The wording of Section 30 of the Petroleum Act 1998 brings all the companies on the licence for a given area into the scope of the Secretary of State’s power to make them responsible for decommissioning an installation in any part of that licensed area. Naturally, companies which have never been entitled to derive any benefit from an installation are reluctant to carry a liability for its decommissioning. In our discussions on the clause with companies that might be affected, it was clear that there could sometimes be doubt about whether a company would be seen as being entitled to derive a benefit from an installation. My noble friend is asking us to define who does not receive the benefit and therefore ought not to fall within the range of liability, so I want to make it clear that the entitlement to a benefit must arise from the exploitation or exploration of mineral resources or storage or recovery of gas from the installation in question. We do not regard that as including persons who are only transporting production from another installation via the installation in question, nor persons who only buy oil or gas produced from the installation. It would also not include persons whose only benefit is derived from trading the installation’s carbon dioxide allowances or from the supply of goods or services to the installation. We intend to consult the companies concerned further on this issue and will publish revised guidance notes on the department’s website, but I hope that my noble friend will recognise that he was seeking what the Government intend to happen. We will, of course, issue guidance after consultation. I hope that the explanations that I have given assure the noble Lord, Lord Teverson, of the virtues of the clause in general and particularly on the position of companies which have never derived a benefit from an installation, which was the burden of my noble friend’s anxiety. Changing the wording from ““may”” to ““shall”” would not alter the way that the clause limits the Secretary of State's powers, so it is not necessary. I hope he will recognise that we intend to meet the anxieties that he expressed when moving the amendment.