Economic Report 2013

Decommissioning Tax Relief

Oil & Gas UK believes that the BFA is essential in enabling maximum recovery of the UKCS’ resources and ensuring that projects are competitive in attracting international capital investment. Since the BFA was introduced, more than £3 billion of capital expenditure has been allocated to some of the oldest and most mature fields on the UKCS, unlocking around 300 million boe of reserves. However, as mentioned above in Section 4, it is clear that the taxation of the UKCS will have to be refined further in the years to come to ensure that the overall objective, shared by government and the industry, of recovering as much oil and gas as is economically possible is achieved. A table explaining the various field allowances can be found in the Appendix of this report.

Operators are under an obligation to decommission their wells, platforms, pipelines and other facilities once production from a field has ceased (there are strict regulatory requirements in place). Clearly, this is an expensive process which is currently forecast to cost the order of £35-40 billion for the whole UKCS (in 2012 money). As with the original investment, it is a cost which is allowable for tax purposes. However, profits have been taxed year by year without any provisions being allowed for future decommissioning expenditure and, furthermore, there has never been any certainty that tax relief on decommissioning costs will be available as and when the expenditure is incurred.

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ECONOMIC REPORT 2013