Oil & gas tax move could free up investment billions
10 Jul 2012
London – The UK government has 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.
The new consultation proposes the creation of ‘decommissioning relief deeds’, which specify the levels of tax relief that companies would 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.
The aim is to reduce the level of security required when one party acquires the assets of another, or from companies operating together in fields. This, the Government believes, will free up capital for investment, increasing production and Exchequer revenues.
“At the Budget the Government signalled its determination to get the most out of the UK’s oil and gas reserves,” said economic secretary to the Treasury Chloe Smith. “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.”
The Treasury consultation has been welcomed by industry, with Oil & Gas UK’s economics director, Mike Tholen commenting: “An effective solution should provide the industry with the long term confidence to invest in oil and gas activities for a long time to come and delay decommissioning of oil and gas infrastructure.”
This, said Tholen, would give rise over time to up to £40 billion of extra investment and result in the recovery of an additional 1.7 billion barrels of oil and gas.
“The Exchequer could receive an extra billion pounds of tax revenues in the first five years alone,” he added. “Oil & Gas UK will engage keenly in the consultation over the coming weeks to help ensure that the details of the measure are established to best effect.”
