The Government has
today published a consultation aimed at giving oil and gas
companies more certainty over the level of tax relief on the costs
of decommissioning used assets in the North Sea.
At the Budget, the Government pledged to deliver greater
certainty through the signing of contracts with industry.
Uncertainty over future relief is cited as blocking new long-term
investment, and making it more difficult for oil and gas assets to
change hands.
Today’s consultation proposes the creation of Decommissioning
Relief Deeds, which specify the levels of relief that companies
will receive. Companies will also receive new certainty on the
level of relief they will receive when liable for the
decommissioning costs of another party which has defaulted.
Without increasing the forecast Exchequer cost of
decommissioning, the Government’s intention is to reduce
significantly the level of security required when one party
acquires the assets of another, or from companies operating
together in fields. This will free up significant levels of
capital for investment, increasing production and Exchequer
revenues.
Launching the consultation, Economic Secretary to
the Treasury Chloe Smith said:
“At the Budget the Government signalled its determination to get
the most out of the UK’s oil and gas reserves. By providing
certainty on decommissioning costs through signing legally-binding
deeds with industry, we are paving the way for billions of pounds
of new investment in the North Sea. This is great news for jobs
not just in the North Sea, but across the UK. These changes will
also benefit the taxpayer, with increased tax revenues in the long
term boosting the public finances.
“We will also continue to positively engage with industry on the
tax regime for oil and gas. I look forward to hearing the views of
leaders on our proposals and will be chairing a meeting of the
Fiscal Forum today in Aberdeen.”
Notes for Editors
1.
Profits from UK oil and gas production are currently
taxed at 62% or (in the case of older fields) 81%. Currently, oil
companies receive tax relief on the costs of decommissioning used
oil and gas assets at a rate of at least 50%. The level of relief
is specified in the tax code, but the signing of long-term
contracts is designed to deliver greater certainty.
2.
Where companies are decommissioning assets and are not
able to achieve a specified level of tax relief under the tax code
they will receive a short fall payment (subject to the conditions
set out in the consultation).
3.
Currently, companies associated with a North Sea
asset (e.g. previous owners) demand security for the full expected
cost of decommissioning that asset from the current owner, so that
they know funds are in place if the operator defaults and they
become liable for decommissioning.
4.
By providing certainty that companies will be able to
claim at least half their decommissioning costs back in tax relief
if they are paying in the case of another company’s default, these
Deeds will allow companies to at least halve their securitisation
requirements. This will represent billions of pounds of capital
released for additional investment in the UK Continental Shelf.
5.
The consultation will last until 1 October 2012.
6.
To read the consultation in full, please visit http://www.hm-treasury.gov.uk/consult_decommissioning_relief_deeds.htm
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