Decommissioning Insight 2019

DECOMMISSIONING INSIGHT 2019

Financial Capability Guidelines — An influx of new players to the basin as a result of recent M&A activity has led BEIS to consult on its Financial Capability Guidelines. These guidelines form part of the overarching Guidance Notes for Decommissioning of Offshore Oil and Gas Installations and Pipelines . 3 A key priority for the Offshore Petroleum Regulator for the Environment and Decommissioning (OPRED), a unit of BEIS, is to ensure there is no undue risk from companies defaulting, and these guidelines provide transparency regarding the assessments which will be made by the regulator when considering a merger or acquisition. UKCS Decommissioning 2019 Cost Estimate Report 4 — This shows steady progress. The forecast total cost for decommissioning on the UKCS has fallen to £51 billion (P 50 estimate) when including new fields given FID or installed over the past two years. On a like-for-like basis — comparing against fields installed or in operation prior to 2017 — the cost is around £49 billion (P 50 estimate) and reflects a reduction of 17 per cent from the £59.7 billion baseline figure first published by the Oil and Gas Authority (OGA) in 2017. This shows what the industry has achieved thus far and the benefits of close collaboration with the OGA through the asset stewardship process to make decommissioning more cost-effective. Industry pays for the full cost of decommissioning in the first instance and, since decommissioning is a normal cost of doing business in the UK, tax relief is provided on this expenditure. The OGA’s latest reduction in estimated forecast expenditure now infers that £16.8 billion could be recovered by industry as tax relief over time — a reduction of £7.2 billion from the 2018 forecast and that stated in the NAO report. This is made up of £8.3 billion from tax repayments and a reduction in offshore corporation tax of £8.5 billion. Certainty regarding the tax treatment of decommissioning is important at this stage in the basin’s life and increases the potential for investment in the UK in a competitive global environment. Recognising this, government has made a commitment to provide assurance that relief will be paid on decommissioning expenditure, putting in place Decommissioning Relief Deeds (DRDs) in 2013. As a result of the DRDs signed to date, it is estimated that more than £6 billion of cash has been unlocked for reinvestment which would not have otherwise been available.

3 https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/ file/760560/Decom_Guidance_Notes_November_2018.pdf 4 www.ogauthority.co.uk/news-publications/publications/2019/ukcs-decommissioning-cost-estimate-2019-report/

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