North Sea decommissioning tax relief move welcomed

Flare from platform Decom said the Budget would help operators move forward with their decommissioning plans

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Oil and gas industry leaders have welcomed a move by Chancellor George Osborne to clarify tax relief on decommissioning expenditure.

On Budget day, Mr Osborne said the UK government would enter into contracts with companies in the sector to provide certainty over relief.

Decom North Sea said decommissioning relief deeds would boost the sector.

Annual decommissioning expenditure in the North Sea has been forecast to top £1bn within the next few years.

Decom North Sea is a decommissioning forum with more than 200 members, including operators and contractors.

Chief executive Brian Nixon said: "The chancellor's confirmation of tax relief through Decommissioning Relief Deeds will help ease one of the greatest concerns facing the North Sea industry and lead to investment and ultimately more jobs.

"Once assets have been recognised as nearing the end of their economic lives, we believe the Budget will lead to operators being able to move forward with their decommissioning plans, which will in turn help to reassure the hundreds of supply chain companies and encourage them to consider investment in new equipment or tooling or to attract new staff.''

'Long-standing problem'

Oil & Gas UK chief executive Malcolm Webb also welcomed the Budget announcement.

Start Quote

The measures announced today will for the first time ever give companies the certainty they need over the tax treatment of decommissioning”

End Quote Malcolm Webb Oil & Gas UK

"The industry has been working closely with the Treasury since the 2011 Budget to resolve the long-standing problem of uncertainty on decommissioning tax relief," he said.

"The measures announced today will for the first time ever give companies the certainty they need over the tax treatment of decommissioning.

"At no cost to the government, it will speed up asset sales and free up capital for companies to use for investment, extending the productive life of the UK Continental Shelf."

Derek Leith, head of oil and gas taxation at Ernst & Young in Aberdeen, said the Budget measures would "act as a gateway to greater investment in the North Sea".

He added: "Cementing the promise of contracts that guarantee tax relief on costs associated with deactivating and dismantling oilfields during the lifetime of this and future parliaments removes another layer of fiscal uncertainty from the UK Continental Shelf and should facilitate the transfer of assets.

"Smaller companies that had previously been priced out of potential deals will now be in a position to maximise recovery from existing infrastructure, while larger players will be able to free up capital to fund further exploration and production."

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