Oil and the North Sea tragedy
Atchojas Davenport
When the Arabs quadrupled the rice of oil in one fell swoop they that •
red the first shot in Armageddon, from an economic point of -w• Naturally, the first statesman realise the dangers of this coup wa
a, 8 1)r Henry Kissinger who has n'te job of trying to stop Armaged"Ehn literally breaking out in the s1ve Middle East. He imme tely proposed a joint energy 1)%Terence among the Western °'',?%yers and emphasised the t‘'inus fact that the problem was t!c' serious for individual nations to Qckle on their own. As Dr WitteVeen said at the recent IMF meet4%, to reallocate the Arab oil emficit, which this year will be atCp,and $60,000 million, among consumer nations "at the cost of cut-throat competition
a trade war would forfeit
the gains the world has "lade since 1945 in constructing !.11 orderly framework for intergational trade and payments." And words Mr Healey capped these rseet. of warning at the same " (len, nig: If we add to the cut in alte'ld in the consumer countries l p-auY imposed by the increase in Prices a further cut in demand in re belief that this will cure costa,11,11tiori we shall, as Dr Witteveen the world, risk turning the re"agflation' already affecting so flY countries into ,, `slumpflaen1-1,,PlAr anyone educated at Oxford C'd use these two horrific words. Hnot know but I suppose Mr eal the eY was trying to shock us into tee tight. The immediate European waPsonse to Dr Kissinger's appeal Ft,, at first disappointing. The nornch with a pro-Arab policy are beQk,eIY to jump into action at the the—" of the United States while Arabist Foreign Office in carltehall is not anxious to ncir'iont the Arabs with a gang-up prZestern powers, especially after is'ident Ford used bellicose words sPeech which seemed to Lai aten Political as well as econolat-niaction. However, there have het,`,„'Y been useful discussions 'een the 'big five' — USA, UK, ran ce, West Germany and Japan 4'act,71 as a result Dr Kissinger in an go—less at the University of Chicainest week called on the great that-„strial powers to mount a $25,1,"ani support operation up to the':.7 Million next year to finance off "sing cost of oil and help stave Tisa,, global depression. So the isece ministers of the ten leading Wa',1,8t;rial nations are to meet in —"ngton in January to discuss
detailed plans for the re-cycling of the Arab oil surpluses.
The extraordinary feature of this oil war, which may be the opening economic shot in Armageddon, is that the British government has all along been playing it cool. The first reason is that it has been looking to the friendly Arab countries to leave their surplus sterling on deposit here and help finance our £4,000 million deficit on the balance of payments. The second reason is that we expect eventually to produce from our North Sea oil discoveries sufficient to meet our present consumption of around 2.2 million barrels a day. One would have expected that any British government would have gone all out to get the oil flowing from its costly underwater fields as quickly as possible. One would have thciught that it would have welcomed Senator Henry Jackson's plan for Britain, Norway and America to mount a Manhattan type project for the 'crash development' of North Sea like the original Manhattan project launched during the last war for the development of the atomic bomb. But not at all. We have not even persuaded Norway to allow the exploration of its northern waters (north of 62° ). As for ourselves doctrinaire socialism and environmental objections to the sites for building concrete platforms and oil depots have been allowed to take pride of place over commercial action. The Government has behaved as if we were still lords of world industry and not a bankrupt world trader.
The latest folly has been the
presentation last week of the•Petroleum Revenue Tax Bill folly without naming what the tax is going to be. I have often quoted what Keynes once said to me in a talk over equity investment. "Remember," he said, that business is always .a bet." How on earth can you expect an oil company to spend millions drilling expensive holes in the sea bed under the worst weather conditions known to man if he cannot bet on what his profit could be if one hole out of ten is by the grace of God productive? An unknown tax will now decide the profit and all the Government will tell the gambler is that it would like him. to get a fair return on his bet but it cannot yet reveal the terms and chances of his bet. The Government appears to be living in a fool's paradise. The reality, is that we have already borrowed so much money against the North Sea bonanza that unless
we get a crash development going we shall be financially sunk if the price of oil drops heavily before the oil flows. There are some unpleasant features of the Petroleum Revenue Tax Bill which are likely to scare away any new potential developer. The tax is be levied not on profits but on the cash proceeds of oil pumped up after certain expenses and initial capital investment have been charged. It is a revenue tax which can then be deducted against the corporation tax to be paid later. The tax is to he imposed on a field-by-field basis, not on a company-by-company basis, and the only concession on this damaging provision is that depreciation will qualify for a 50 per cent uplift, that is, 150 per cent of the capital spent on the field can be written off.
Mr Wylie, the local president of the Gulf Oil Corporation, has said that companies must have a 25 per cent profit to make it worth while getting oil out of the expensive North Sea fields. The new tax plus corporation tax would, he said, cut profits down to an unsuitably small amount. Seeing that there is no provision in the Bill for offsetting interest charges against PRT 1 would suggest that in this period of inordinately dear money a 25 per cent profit would attract no further development — certainly not from small companies.
The crowning folly is the commitment of the Labour Government in its election manifesto to set up a National Oil Corporation to take a majority participation in all future licences and negotiate to achieve a majority in all existing licences—as well as engaging in the exploration, refining and distributing of oil. As everyone knows, the oil industry is the most capitalintensive of all industries and with a borrowing requirement which is already well over £6,000 million it would be the utmost folly to commit the Treasury to, say, another £2,000 million borrowing for the sake of participating in existing North Sea licences. The Arabs with their enormous current surpluses could afford it but not a government as debt-ridden as the present Labour administration.
Nicholas Davenport, whose column has long been a popular feature of The Spectator, has recently published his Memoirs of a City Radical (Weidenfeld and Nicoison).
Previous page
