New government faces decommissioning challenge The UK North Sea industry is recovering from the oil price slump thanks to a ‘globally competitive’ tax regime.
“But more work will be needed under the incoming government to ease the decommissioning of defunct facilities,” the head of Oil and Gas UK, Deirdre Michie, said Tuesday.
Speaking ahead of Thursday’s UK general election, Michie, the lobby group’s chief executive, said she expected an uptick in sanctioning of new projects this year after just two were approved last year, and noted a surge in Mergers and Acquisitions.
A number of projects have been earmarked for likely approval, with Hurricane Energy hoping to approve a preliminary development of its Lancaster oil discovery west of the Shetland Islands, and private equity-backed minnow Alpha Petroleum planning the Cheviot oil field development.
But despite a spate of asset deals, difficulties remain with transferring the tax relief that companies can claim when they decommission aging platforms and pipelines — when such an asset changes hands, its associated tax ‘history,’ and therefore eligibility for tax relief, stays with the seller.
“The UK continental shelf is getting back in the game — and investors are clearly taking note — we can take as a welcome vote of confidence the billions that have been spent on asset and corporate deals in recent months,” Michie said in Aberdeen in a speech distributed by the organization.
We think more such deals can be facilitated if the current discussions with Her Majesty’s Treasury on decommissioning tax relief bear fruit in the government’s Autumn budget statement, she said. “We will work with the next government to realise this.”
North Sea oil and gas has played little part in the UK election campaign, partly reflecting reduced tax revenues from the basin.
However the UK upstream industry is enjoying a production uptick, due to improvements in efficiency and high levels of investment before oil prices tanked in 2014.
The current Conservative government has broadly promised to maintain low UK corporate taxes, with the Labour Party seen as likely to demand more from corporations.
Oil and Gas UK says GBP1.2 billion ($1.6 billion) was spent last year decommissioning aging North Sea facilities, a level likely to reach GBP1.9 billion this year.
Over the long term huge sums are likely to be needed to remove the infrastructure legacy of an industry now in its fifth decade.
But industry chiefs aim to re-purpose as much infrastructure as possible to extract and transport new oil discoveries, and some infrastructure may be left in place.
In March last year the government slashed taxes on upstream oil and gas production and effectively abolished one class of tax, known as Petroleum Revenue Tax, in a bid to safeguard the industry.