Offshore Energy Industry

Debate between Frank Doran and Mike Hancock

Tuesday 13th July 2010 Westminster Hall

[Mr Doran]

The right hon. Gentleman is absolutely right. Nevertheless, there are many reasons for the improvements in safety that have occurred. I think that the most important reason has been the dramatic change in the industry’s attitude. We must constantly be vigilant, which is why we depend on the HSE. Its KP3 report was a wake-up call. The safety of working on platforms has certainly improved dramatically, although there are still issues about helicopters.

The oil and gas industry has realised the importance of engagement with the work force. A key part of the HSE’s review of the KP3 report was a careful examination of worker involvement in the North sea oil and gas industry, which involved working with both the industry and the unions.

A huge step forward was taken when the industry set up its helicopter task group to look at the Super Puma helicopter disaster 15 months ago. Three trade union officials from Aberdeen were involved in that task group, which examined a lot more than the accident itself. It looked at the causes of the accident, worked out what the problems were, reached conclusions and made recommendations. In addition, it looked at issues that had concerned people such as the right hon. Member for Gordon and me for years.

For example, there was concern about the lack of radar in the North sea oil and gas industry. When the Minister was about to make an offshore trip—I know that it was not his first such trip—I told him one of my scary stories about trying to get on to an oil platform in very thick fog in the middle of the North sea. It took us three attempts to get on to the platform. That was not the best experience of my life, but the people who work in the North sea have to make such trips every week when they go out to the platforms and then come back in. However, progress will be made, such as by providing radar and improving the lighting on platforms. The helicopter task group went much further than looking only at the Super Puma disaster and I think that everybody in the industry welcomed the report that it produced. In addition, the Oil Spill Prevention and Response Advisory Group has been set up to tackle the consequences for the North Sea, if there are any, of an oil spill similar to the one that is happening now in the gulf of Mexico. The trade unions are involved in OSPRAG, too.

The Minister cheered me up immensely two or three weeks ago after we had heard the statement from the Secretary of State for Energy and Climate Change on the oil spill in the gulf of Mexico and the action that he was taking in relation to the North sea. After that statement, the Minister said to me, “I’m going up to Aberdeen next week and I’d like to meet the trade unions.” I must say that after the 20-odd years—with a slight break in the middle—that I have been a Member of Parliament, a Conservative Minister saying such a thing shows that there has been a change everywhere. If this Government recognise the importance of the trade unions, particularly in the area of North sea safety, I welcome that wholeheartedly. I know that the Minister had a good meeting with trade union officials in Aberdeen.

The other key part of the infrastructure is the Government. I have seen a massive change in the Government’s approach to the industry. When I was first elected to Parliament in 1987, there was a Department of Energy, which was responsible for both production and safety. However, it was quite clear that the Department did not work, and I must say that we did not need the Piper Alpha disaster to tell us that, although it underlined the fact in spades. Of course, one of the key recommendations of Lord Cullen’s inquiry into the Piper Alpha disaster was that responsibility for checking safety should be passed to the HSE.

At that time, I was appointed to the Front Bench as part of the then shadow Energy team with responsibility for the oil and gas industry. I spent four years shadowing two Ministers: Peter Morrison and Colin Moynihan. Given that and subsequent experience, I have no doubt that the Government in those days saw the industry as a cash cow for raising money, which was one reason why the focus on safety was not as strong as it should have been.

When my party was elected to government in 1997, I do not think that the position changed—the attitude was the same. I remember many battles with Treasury Ministers in 1997 and 1998 when they were reviewing oil taxation and seriously considering increasing the tax on the oil industry. A windfall tax had been levied on the banks, which some of us cheered, and similar measures were being proposed for the oil industry. Those of us who were involved in that campaign recognised that the industry had gone through a sustained period of low prices and that increasing taxes would be the wrong thing to do.

Thankfully, the then Chancellor, who was one of the most dyed-in-the-wool proponents of the tax—I remember a difficult meeting with him—ultimately accepted that we were right, and a Government review decided that the tax regime should not be changed. The tax was increased when prices improved and again, if I remember correctly, during the next Parliament. However, the industry’s position was much more secure by that time, and it was recognised during the 1990s that taking money out of the North sea was wrong.

One result of that, as the right hon. Member for Gordon mentioned, was that the Revenue became more involved in the oil industry task group pilot. That was a fundamental change, because at the time the Treasury saw itself as completely separate from the industry. It had some knowledge of how the industry operated, but did not concern itself with the day-to-day stuff. Sending an observer from Her Majesty’s Revenue and Customs to the pilot meetings fundamentally changed the Government’s attitude to the oil and gas industry. It is now accepted that it is crucial to encourage inward investment in the North sea and to consider how the oil companies spend their money. The right hon. Gentleman rightly discussed the significant sums that will, we hope, be invested this year and next year in the North sea, and the revenue benefit to the Government as a result of that investment.

It is crucial that we continue to bring in new blood. The right hon. Gentleman mentioned Apache, which had never been in the North sea, having concentrated mainly on America and the middle east. Apache came over and bought the massive Forties field. It made it work and is now a major player. When BP was not prepared to invest any more, Apache made things work.

Another crucial thing that the previous Government did was to improve tax reliefs for new entrants to drilling. Before that, drilling, exploration and appraisal costs were allowable only against previous profits. If a company had no previous profits because it had not been in the North sea, it got no tax relief.

I hope that the important changes that have been made, mainly in the past 10 years, will be carried forward by this Government. It is important that we continue to encourage investment in infrastructure and in new fields, although they tend to be smaller. We must also ensure that we encourage new entrants to the North sea, and the tax regime is fundamental in that respect.

I will briefly raise two burning issues that do not get a lot of attention. The first is that we still have a skills problem. A major factor is that we depend hugely on immigrant labour in the North sea. In the main, such immigrants are highly skilled. Two or three years ago, I spoke to a major company that had brought 1,500 skilled engineers over from the Philippines. They had not come as cheap labour; they were essential to the company’s summer maintenance programme. Agreements were reached with the union to pay them the rate for the job, and after it was completed, they went back to the Philippines to do their normal jobs. However, I am hearing about more and more problems in my surgery, although they have nothing to do with the new Government as they have been building up for some years. The smaller companies in the supply chain are finding it particularly difficult to bring people in, while the universities have the same problem. Two universities now operate worldwide to bring in students, particularly from Africa—the students take a first degree in Nigeria or Ghana and then come to Aberdeen to do their master’s degree—but now even Government-sponsored students are finding it difficult to enter the country. That is a serious problem.

Finally—I have probably spoken for a lot longer than I should have—although the Department of Energy and Climate Change is now responsible for the energy industry, who looks after the oil and gas industry as a business? There is a sense in the industry that it has been abandoned by the Department for Business, Innovation and Skills, previously the Department of Trade and Industry, and that the Government are no longer focusing on the industry as a business. Will the Minister say a little about that that important issue, which relates to not the industry’s place in the energy industry, but its status as a business like any other?

[Mr Mike Hancock (in the Chair)]

As no other Back Bencher wishes to catch my eye before I invite the Front Benchers to respond, I call Emily Thornberry.