§ Mr. Craigen
asked the Secretary of State for Energy whether he will report on the progress of the Study Group on North Sea Cost Escalation set up in June 1975.
§ Dr. J. Dickson Mahon
The report of the study group is being published this afternoon and copies will be available in the Library of the House. The report is in two parts, the first by the study group and the second by the consultants Peat, Marwick, Mitchell and Company, and Atkins Planning. A summary of the conclusions and recommendations is at the end of Part I. The report contains a good deal of material on the experience of companics during the early years of the development of North Sea oil. I believe that this will be valuable to those in the industry and elsewhere concerned with this important subject.
The report shows that in the period 1973 to 1975 estimates of costs in many cases more than doubled. The most important cause was an initial underestimation by the oil companies of the magnitude of the technological challenge presented by the North Sea combined with the telescoped timescale in which the work was to be completed. In addition to this there was the level of general inflation prevailing at the time. The various contributary factors are analysed in detail in Part II.
The study confirms the Government's impression that the combination of circumstances in 1973 to 1975 was exceptional, and that, for the future, unforeseen cost escalation is unlikely to be such a severe problem. Lessons learnt from the early years, greater knowledge of the technical and physical conditions, a more deliberate timescale and reduced pressure on resources should all help to limit levels of cost escalation. The available evidence suggests that escalation rates this year are well below the levels of 1973 to 1975. The Government will continue to monitor the situation closely.
The report recommends improvements in project management and quality control on the part of the operators. The De- 492W partment will be discussing with the operators way in which the suggestions of the study group can be pursued. The recommendations also include proposals on research and development, certification of offshore structures and collection of meteorological data. In all these areas there have been important developments through the work of the Offshore Energy Technology Board, the certifying authorities and the Meteorological Office, and my Department is working on further measures within the limits of the funds available.