Labour Law and Off-Shore Oil

Jonathan S. Kitchen

• Publisher: Routledge
• Year: 2017
• ISBN:
  9781351806510
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

Economically and politically, North Sea oil very quickly became of vital importance to Britain. But very little serious attention was paid to the problems of the men working out on the rigs, and certainly none to their legal problems: they had been working in a kind of legal 'no man's land'. This informative and critical book, first published in 1977, represents a new and exciting approach to labour law looks closely at the way in which the law applies to workers out on the rigs and at the way it regulates the various aspects of their employment. More than that, it looks at the context in which the law is applied, a dynamic industry operating within severe physical, economic and political constraints, showing not only how the law came to be shaped, but also how its provisions are but one example of the employment process and which mirror changing moods and standards.

1 Industrial Development and Government Response

‘The rules governing employment, and the way in which they are made and interpreted, cannot be understood apart from the organisations which take part in the process.’ (H.A. Clegg, The System of Industrial Relations in Great Britain, Blackwell, Oxford, 1970, p.2.)

Offshore oil is now rarely out of the news. Each new development in the process of extracting more and more of this vital energy source from the hazardous waters of the North Sea is meticulously charted in the British press. For Britain, of course, the potential savings to the balance of payments of domestically produced oil, and the prospect that the country might even be in a position some time in the near future to export it, has given the whole subject an importance which makes it relevant to the lives of the whole population. Oil has thus become a part of the domestic political scene as well as a part of international politics. It affects discussions relating to devolution and taxation. It is part of the debate on nationalisation, and its effect on employment, housing, and the order books of British companies is closely scrutinised.

Similar discussions are, of course, taking place in all those countries affected by the recent discovery of offshore oil. The same arguments crop up in Norway, for example, and in Holland and Denmark. In other parts of the world, too, improved technology has made offshore oil important. In Venezuela, Nigeria, Australia, Japan and North America, as well as the traditional Middle-Eastern oil producing nations the same kinds of arguments about oil and its effects take place at one level of government or another.

The person who works on an offshore installation out in the North Sea thus works in an industry which is closely tied to, and affected by, current issues of public policy. Naturally they have an effect on job opportunities, job security, and industrial relations policy. They bear particularly on the way those who work for the industry are treated. How the industry develops, how it is treated by governments, and how it behaves, are therefore all matters which must be examined by the person seeking to understand how the law relating to working offshore operates, how it is relevant, why it takes the form it does, and how it is likely to be used, interpreted and changed.

I. EARLY DEVELOPMENTS¹

The geographical location of the world’s major oil deposits has shaped the petroleum production industry. The fact that the ever-increasing demand for petrol, oil and gas products is located in the major advanced capitalist nations who are insufficiently endowed with the necessary deposits forced the industry to become international almost from its conception.² It is now dominated by a small number of huge multi-national corporations operative throughout the world, all of which are concerned, not only to market the available products, but also to discover and exploit further deposits. This search has been given enormous impetus by the obvious political and financial advantage that would result from the deposits being located nearer the markets. Even before the oil crisis was brought about by the Middle-Eastern states in October 1973, attention had been increasingly focused on countries like Alaska, and areas like the North Sea. From the marketing point of view, of course, oil deposits in northern Europe could not be strategically better placed.

It was hardly accident that led the major oil companies to the North Sea, to Great Yarmouth and to Aberdeen. Geological and seismological surveys had, in fact, been undertaken in many areas of the Continent and the United Kingdom for some considerable period of time. Indeed, onshore oil exploration in Britain has been going on for over sixty years, although with limited success.³ But in 1959 a large natural gas field was discovered in the Dutch province of Gröningen, some twelve miles from the coast. The short distance of this major gas field⁴ from the sea redoubled suspicions that the rock formation under the North Sea might be gas bearing. Some seismic survey work had already been done in the late 1950s,⁵ but 1963 saw three full survey parties at work in the North Sea.⁶ Preliminary surveys were made off the British coast by BRP in the autumn of that year.⁷ Actual drilling began in the North Sea in the summer of 1963⁸ and towards the end of the year British Petroleum drilled the first (test) well in British territorial waters.⁹ Two years later, in October 1965, BP discovered the first North Sea natural gas in the ‘West Sole’ field 45 miles east of the Humber estuary, and within a year it was found by three other groups off the Norfolk coast: ‘Leman Bank’ by the Shell/Esso and Gas Council/Amoco partnerships, ‘Indefatigable’ by the same combinations, and the ‘Hewett’ field by the Phillips and Arpet groups.¹⁰

After 1965 the estimates of the possible economic outcome increased steadily.¹¹ One can, however, point to two early lulls in the development. Before the discovery of gas in the ‘West Sole’ field the absence of a legal regime for exploration and production offshore prevented the immediate rush that might otherwise have followed the Gröningen discovery. With the division of the continental shelf into ‘sectors’ under the jurisdiction of the coastal states, and the passage of the Continental Shelf Act 1964 in Britain, and similar legislation in the other countries surrounding the North Sea,¹² this situation was rectified by the subsequent allocation of licences to blocks of the continental shelf giving permission for drilling to take place.¹³

In the United Kingdom sector a more serious setback was experienced after discovery of gas, centring around the negotiations between the discovering companies and the monopolist Gas Council¹⁴ over the purchase price of the gas to be piped ashore.¹⁵ Hints from some sections of the Labour Party, then in office, of moves to nationalise part of the industry, or at least to induce a greater measure of state participation, also acted as further dampeners in this period on the enthusiasm previously shown by the oil companies.¹⁶ In this respect, the companies involved, many of American parentage,¹⁷ had few problems compared to those they have faced in the Middle East. In fact, the discovery of a further supply of energy so close to the shores of Britain might have provoked a sharper reaction, especially as the other forms of energy being used by Britain were in relative national decline. The long-term future of the run-down coal industry was already uncertain, and indeed production has gone down since. The powerful lead that Britain had built up in the field of nuclear energy showed few signs of being sustained through indecision over which type of nuclear reactor should be used in the future.¹⁸

It is in fact since 1970 that most of the significant developments in the industry have taken place. With the change of government in Britain the industry ‘picked up’ tremendously towards the end of the year.¹⁹ Many new companies sought financial involvement.²⁰ By the end of 1971 further gas finds made it possible to estimate that 90 per cent of gas supplied in the United Kingdom was natural gas from the North Sea, and the discovery of the giant ‘Frigg’ field in the north in 1972 will mean this figure will certainly remain steady in the future, if not improve.²¹ But the most important change was produced by the long-awaited discovery of oil, first in the Norwegian sector of the continental shelf in the ‘Ekofisk’ field, and then in the British sector in September 1969 with the ‘Montrose’ field,²² and in particular with the discovery of the giant ‘Forties’ field in November 1970.²³

II. THE DISCOVERY OF OIL

Although it had long been expected, the discovery of oil changed everything. The political situation in Scotland, for example, was transformed almost overnight, and the regional economy of eastern Scotland would very soon receive a major blood transfusion, even if it has had its price.²⁴ But the most important effect, of course, has been on the national political scene, and on government policies, through the projected benefits assumed to be forthcoming to the national economy. Immediately, overseas borrowings seemed to have a domestic guarantee attached, and the balance of payments deficit, so long a major government headache, appeared in a different light. In 1973, for example, the UK had an overall balance of payments deficit on her current account of £1,117 million. Oil imports cost the country more than that: £1,281 million. Rapid development of North Sea oil would potentially answer the problem, although, of course, reliance on the development of domestic production immediately placed the developers in an extremely strong position with the Government.

As in the case of the other countries around the North Sea who stood to benefit in a similar fashion, this situation took on a new dimension when the average f.o.b. price of oil from the Middle East was raised by OPEC²⁵ from about $2 a barrel to over $10 per barrel between September 1972 and mid-1974.²⁶ The UK balance of payments deficit jumped to £3,838 million in 1974, oil imports costing the country £4,142 million. But not only does a rise in the world price of oil devastate the economy: when combined with the potential threat of a fall at some future date it plays havoc with exploration and production plans, and in particular with the interrelated problem of taxation, placing the companies, and the Government, in an extremely vulnerable position. If the world price of oil rises it automatically becomes economic to develop a certain number of the smaller fields, all other factors being equal. If taxes are introduced the value of some of these fields again becomes questionable, even if the tax is levied in the expectation of the price being at the new high level. If the world market price of crude were then forced down again, the expectations of both the companies and the Government would be dashed, and the effect would be as devastating as the initial increase. Hence the attempts to reach an international agreement on the minimum price for crude oil. The important questions which demand attention, therefore, are related to the amount of oil available, the speed with which it can be recovered, and the costs and profits of the companies involved and the governments concerned.

In early 1972 it was estimated that the industry would be able to bring ashore some one million barrels of oil a day by 1975,²⁷ a figure which now looks as though it was produced in a rush of hopeless overoptimism. But despite increasingly large estimates of the costs of development, the discovery of the major ‘Brent’ field by the Shell/Esso partnership in July 1971, and the ‘Argyll’ field by Hamilton Brothers, seemed to make this figure more realistic.²⁸ Other discoveries followed rapidly. The ‘Beryl’, ‘Thistle’, ‘Dunlin’, ‘Auk’, and ‘Cormorant’ fields were also found in 1972, and the ‘Piper...