Robert Halfon and Alan Pond: Brown's oil leak

Robert Halfon, Harlow Prospective MP, and Alan Pond, President of Harlow's Conservative Association, argue that Brown's handling of the oil industry should rank amongst his more high profile failures.

As Prime Minister can Mr Brown claim complete satisfaction with his past decision making? Will he be capable of accommodating decisions affecting both domestic and international affairs, reconciling current black holes with long-term planning?

Consider the oil industry’s presence in the North Sea. It is truly an international business where long-term decisions are made daily. Forty years ago, the Oil Majors commenced a programme of crude oil exploration and production in the very hostile conditions of the North Sea. £300 billion has since been invested providing £200 billion of tax revenue to the Treasury.

More recently, £8 billion was the annual investment in 2004 by the oil industry and this was expected to increase in 2005 to £10 billion due to Treasury requests to increase production during a temporary international shortage. The latter blip forced up product prices and short-term oil industry profits.

Facing a financial budget black hole, Mr Brown chose to impose an extra North Sea crude oil and gas tax of £2.3 billion per annum contrary to internal Treasury, oil company and banking advice. With North Sea exploration and production now unviable, investment has drifted down and is now forecast to have declined to £4 billion in 2007 and production of oil and gas by 12%.

Three years ago the Government’s own forecast stated that provided annual investment was maintained, 85% of the UK’s energy needs will be maintained from the North Sea to 2020. This will now be reduced to 45%. This is at a time when we face an re-emergent authoritarian Russia which currently controls 25 percent of Europe's gas supplies.

Will user nation governments never learn? The international recessional problems of the 1970/80s were caused by user nations taking more in taxation from a barrel of crude oil than they gave to the Middle East producers. Now, they are even doing it to themselves! There are now 25 billion barrels of oil left in the North Sea that may never be recovered.

For the past few weeks, the Labour Party have attempted to perpetrate 'a year zero' on the British people. An attempt has been made to sleep walk the public into believing the last ten years never ocurred - that a new era has begun.  But Mr Brown's plan for 'year zero' will not succeed in the long run. The Government cannot succeed in the face of its own internal contradictions-failing public services, widespread cynicism from the public about politics and significant economic clouds ahead (particularly the huge level of personal debt).

Only a few weeks ago, the Prime Minister was exposed for having ignored advice about taxing pensions funds. In the heady days of the new Premiership, this  has all but been forgotten. As Conservatives, it must be our job to remind the electorate of important truths.

Our Pensions, our gold reserves and our oil revenues have been frittered away by Gordon Brown. To paraphrase John Reid, is the new Prime Minister really fit for purpose?

Comments

[tapestry]

Brown has no strategic business ability. He keeps taxes at their inefficient level where they are guaranteed to reduce economic effort. In all sectors, tax take could be higher if tax rates were kept at a level which made taxpayers feel Brown wasn't extorting what is rightly theirs. The oil companies packed up trying years ago, and say they won't come back to the North Sea until Gordon Brown has gone (to City investors).

In 1997 Gordon Brown added Nat Insurance to Income Tax at all levels. Prior to that Nat Ins was not seen as a tax but as each individual buying their rights to pension/health. Brown chnaged it into a tax. Top rate of tax is 40% but add Nat Ins employers and employees and the rate is in fact 64%. Wealthy individuals are leaving Britain in droves.

Corporation Tax is no longer competitive internationally. Companies are leaving Britain too.

Brown does not undertand business and how to build a competitive economy. Don't listen to all the clunking boring meaningless words. Look at his actions. They speak far louder. Brown is no genius. We are all paying a heavy price.

[EXTREME COMMENTER WITH A NAME TIM DOES NOT RECOGNISE]

"We are told Mr Brown, our government’s Chancellor this past ten years, will shortly be taking over as our Prime Minister." Have you not seen the news this week Bobby?

[Josh]

Miller-DF1. Need we say more.

[HF]

A very good article. As an aside, BP shareholders need to ask what their ex Leader Lord Browne was doing in this time? What was the advantage in his "good relations" with Labour?

[Editor]

I have deleted that first paragraph, 'Extreme Commenter'. Robert submitted the article a little while ago and we failed to give him the opportunity to update it.

[Derek]

This is a very interesting piece. Why has this not been given more prominence before? Our party ought to be hammering this home every time energy shortages are mentioned.

[tapestry]

We are net importers of energy only because of Gordon Brown.

We lost our pensions because of Gordon Brown.

Our gold reserves were thrown away by Gordon Brown.

Many companies are relocating overseas because of Gordon Brown. Many individuals are going.

Our soldiers fight without proper equipment because of Gordon Brown.

His high taxes destroy economic effort and reduce the amount of money the government can collect.

Does he care? Not a bit of it. He enjoys his power to destroy the efforts of others. He has such a low opinion of himself that he has to reduce others so he can stand taller in comparison. The problem is we cannot get low enough, and we will be gound down a lot further yet.

At least he could do all this with Blair smiling, joking and charming away alongside before. Now we have to listen to Gordon Brown's grunting incoherence on a daily basis, as well as suffer from his gross incompetence.

[Niallster]

I was involved with PILOT. If you haven't heard of it it was (is) a joint oil industry/DTI task force designed to create a sustainable future for the North Sea, the 2020 vision as it was called.

BP spent millions on it and they were not alone.

When the 10% supplemental charge was announced in 2002 the DTI were given one hours notice before Brown announced it in parliament.

PILOT was effectively dead from that date. The DTI wanted to issue a joint statement with UKOOA saying everything was fine. UKOOA told them to stick it up their arse. PILOT still lives as sort of undead, nobody serious is involved anymore.

The North Sea has been winding down ever since.

The key point will come when the oil companies start decommission the main pipelines. Once they are go no new smaller fields will ever be developed again.

There has been a golden autumn lately because of the high oil prices but the oil companies are reaping the cash and investing it elsewhere.

The North Sea is effectively dead. Everyone in the oil industry knows it even if the Pols don't.

Me? I went into banking...

[Charlie Elphicke]

And excellent article. Brown's approach to oil is much like his approach to everything else. Massive waste, enormous tax hikes followed by a sense of bewilderment when everything disappears.

The North Sea is an incredible resource. It is a crime that Labour's policies are leading to reduced investment, which will lead inevitably to less oil won and lost jobs.

[NigelC]

The closeness of BP and Lord Browne to New Labour ought to be thoroughly investigated. The BP pension fund wants to build 10-25,000 houses north of Harlow on agricultural land. The independent planning Inspector ruled against it but ministers ignored this advice and are proposing it should go ahead. It could be worth billions to the BP pension fund.

[Niallster]

Lord Browne’s links to New Labour would certainly bear investigation but little good it did them. In my time on UKOOA in the early 90’s BP were hiring any Blairite they could get their hands on at vast salaries for what seemed to me to be pretty much non-jobs.

I can remember meetings festooned with political advisors and to be fair to BP not just theirs, all the oil majors had their advisors on New Labour in the room and apparently none of them could tell us that we were totally wasting our time talking to the toothless and useless DTI when we should have been talking to Brown’s Treasury.

Not saying that Brown would have met us or listened to us he probably wouldn’t have but what we were doing with the DTI was frankly pissing in the wind.

[Niallster]

Sorry 90's should have read 00's

[Andrew Lilico]

One tricky problem with oil is the timescales, which in the current environment create considerable uncertainty. There are two dimensions of this that seem important to the discussion in this article: (a) Extraction from the North Sea might well be viable if current prices were expected to be sustained long-term. Will they be? On the one side, this seems unlikely, once Caspian oilfields come on line. On the other, what is the future demand profile from China and India?

(b) Environmentalism. This seems like the weakness in the discussion above. Surely there are two important environmentalist-related reasons that make North Sea drilling relatively unattractive. For one thing, campaigns against dumping at sea make disposal of oil rigs enormously more expensive than is necessary - hard to blame Gordon Brown for that. For a second thing, presumably oil companies must be kind of nervous about what sorts of taxes or other disincentives to use oil might be imposed in the future, given the current appetite for green measures (an appetite concerning which Gordon Brown is not the only enjoyer...). My guess is that, for relatively less attractive exploration and extraction, such as will always characterize the North Sea, the uncertainty over future regulatory and taxation developments will be important in undermining current investment.

Is this a Bad Thing? Well, that depends on how Green you are. I suspect that quite a few Conservatives would regard the demise of our oil industry as a Good Thing. And it's hard to see how we could hope, at the same time, to paint ourselves as Climate Change Action Proponents and as Friends of the Oil Industry. We may perhaps need to choose our political ground and then sit in it firmly and without fidgeting about...?

[Niallster]

Three points:

1. As said oil business is long term business and currently the industry makes decisions based on £20 oil.

2. It doesn’t really matter a damn what criteria the oil industry uses to make decisions as they do not trust Brown and won’t invest in the North Sea whilst he is in power whatever the oil price. It's not just the tax hikes but the way he introduced them without any consultation whatsocver.

3. The current green agenda is actually prolonging the life of the North Sea. After the Brent Spar debacle which ended I remind you in Shell petrol stations being firebombed in Germany (very green) everyone is terrified of what will happen if they undertake a major abandonment project. Typically Asset Managers rotate every three years and it is standard for a newly in-place Asset Manager to review any abandonments scheduled during his term and to tell his team to re-do the economics as he doesn’t want that sort of trouble on his watch. As such infrastructure that really should have been ripped out years ago is still in place but eventually it will go and that's the end for any remaining oil pockets, they will never be developed.

[Niallster]

US$20 sorry.

[Martin Wright]

The point about trust is crucial. From my experience, the oil majors would be more concerned about the stability of the tax regime than the actual headline rate of tax. Brown's sudden hike in Corporation Tax must have done enormous damage not only to Labour's reputation but to the UK long term as a place to do business. Companies must prioritise the use of their finite capital across global markets and it is doubtful that there will be (m)any projects in UK waters that give an adequate post-tax return on capital.

[Adrian Peirson]

It is Grossly negligent that Knowing oil would be running down that we have not invested in alternative energy before now.
Grossly, Grossy Grossly...and now...upto three Million Dead in the Mid East, because of our Need for Oil...our international reputation destroyed...I could go on.
Any half decently intelligent School kid would not have allowed us to get in this position with regards to Energy.