A depression builds over the North Sea

Press, 31 May 1982, Page 16

A depression builds over the North Sea

By

PETER HETHERINGTON

in the “Guardian,” London

It is ironic that a Government which came to power pledged to set the North Sea free from petty restrictions — to create a new spirit of enterprise, to reduce the tax burden where necessary, and to let the oil men get on with the job — should now be presiding over an ever-deepening offshore recession. By the end of the year thousands of workers could be out of work — men from the recently-prosperous production yards and the related fabrication and assembly outlets throughout Scotland and northern England that were once thought to be sheltered from the economic downturn. Precautionary redundancy notices have recently been issued to 2000 people, most of them in the past month. North Sea development work has all but ground to a halt as more operators shelve oilfield plans and — more ominously — disband vital project teams that often take several years to assemble. Staff are being dispatched to more “favourable" overseas postings. More marginal fields — the very ones the Government promised to encourage — remain unexploited. And no oilfield development plan has been submitted to the Department of Energy for almost two years.

The anti-Government feeling in much of the industry — the belief that they are being taxed out of the North Sea — is now such that some, who were deeply suspicious of the last Labour Government for ideological reasons, only wish Mr Tony Benn (the former Energy

Secretary) would come back and take charge of the whole show.

Energy Ministers, of course, put a brave face on it all. They claim that the postponement of three large projects over the past month (they could have produced enough oil to satisfy United Kingdom demand for one year) has been due more to technical problems and weak oil prices. The ever changing off-shore tax regime,’ which can grab almost 90 per cent of profits from a large oilfield, is said to be only a “minimal” discouragement. But the , all-party Energy Select Committee of the British Parliament told a different story in the middle of May. It found that some of the oil companies had a persuasive case against the tax system and that there was a substantial risk of developments being discouraged — to the extent that there will be an alarming production rundown in the next decade. Britain’s self sufficiency, in short, could be short lived.

Mr Philip Shelbourne, appointed chairman of the Stateowned British National Oil Corporation (8.N.0.C.) by the present Government, has warned that the time will shortly come when the North Sea should simply be regarded as any other industry, liable only to 52 per cent corporation tax. If the Government does not respond to industry pressure, he warned, the outlook towards the end of the eighties will be gloomy indeed. The dilemma for any Government attempting to plan

ahead offshore towards the next century — and there is little evidence of plannings so far — is that most of the large oilfields have now been discovered. although there are still plenty of hydrocarbons below the continental shelf.

The average size of the first 26 fields currently producing or under development, is — in the oilman’s measurement terms — 400 million barrels. The next 11 fields identified as “potentially commercial” average only 100 million barrels and a further 37 capitalised as marginal are down to only 60 million. But the industry’s lobbyists, the United Kingdom Offshore Operators Association, now claims that the “punitive tax regime makes only three of the eleven potentials attractive."

Of course in a seemingly prosperous Aberdeen, Europe's oil capital, there is little evidence of the off-shore recession as the large Sikorsky and Chinook helicopters ferry workers every minute of the day to the off-shore installations, and the hotels bulge with American oilmen.

Yet the picture is more ominous to the north-west on the Moray Firth and beyond where the platform yards employing over 10,000 alone in five Scottish locations are rapidly running out of work with little prospect of orders large enough to keep work forces intact. There is now talk of at least one yard being closed,. while the smaller assembly yards are rapidly running down. The Energy Secretary, Mr Nigel Lawson, who did his best

recently to play- down the low level of offshore development activity — "companies are discussing their plans with us ..." — did concede when pressed that there was a “real problem” in these yards. There may well. be a hiatus but it is a highly volatile and cyclical industry. Yet it is the firm belief of many in the industry — some oil executives and the bankers who support their projects — that things would have been in a much healthier state if the Government had been prepared to take the initiative to stimulate greater activity. Instead it has only succeeded in curbing development. Not long after taking office it ordered the 8.N.0.C. to postpone development of the Clyde oilfield, 160 kilometres off the Firth of Forth, fearing it would overstretch the public sector borrowing requirements. The Treasury wanted a five year delay, while sections of the Department" of Energy wanted an immediate start to providework for the emptying yards. In the event a compromise was reached — a two year delay — and a development plan for Clyde will be submitted this August, with a platform order in 1984 instead of this year. Then last year the Government, after earlier optimistic noises, abandoned plans tor. the North Sea’s largest project — a $3.8 billion, 650 kilometre gas gathering pipeline system — on the grounds that it, too, could have increased Government borrowing. Scottish bankers, who were playing a leading role in working out a financial package, are still convinced that the cost to the Government would have been relatively minimal.

In two weeks time industry and Government alike, however, will be celebrating the inauguration of the North Sea’s latest project — the mediumsized Beatrice oilfield, only 20 kilometres off the Scottish coastline in the Moray Firth. It is the only British oilfield visible from the coast. Yet, if the development was being planned today in the current

fiscal climate, it is doubtful if the Beatrice operators — 8.N.0.C. — would have gone ahead.

In the meantime the Government and Department of Energy will be considering the findings of the Energy Select Committee. It has urged a steady increase in development. with a lower level of taxation for the smaller fields.