UK’s Watchdog Questions Decommissioning Tax Relief

Britain’s National Audit Office (NAO) said Friday decommissioning of the UK’s offshore oil and gas infrastructure could cost taxpayers £24 billion ($31.6 billion) or more in the next 44 years, Kallanish Energy reports.

The estimated cost is based on the government’s tax relief offered to operators, in the period 2018-19 to 2062-63. With currently 320 fixed installations in the UK, mostly in the North Sea, the oil and gas regulator estimates future decommissioning to cost £45-77 billion ($59.2-101.3 billion)

Due to the maturity of the UK Continental Shelf, operators are increasingly decommissioning their infrastructure, spending over £1 billion ($1.31 billion) on this annually since 2014, the NAO said. Such an amount is, however, partially recovered through tax relief.

The problem is with lower production and lower crude oil prices, the government has paid out more to oil and gas operators in tax relief than it received in revenue, resulting in repayments of £290 million ($381.7 million), NAO argued.

“The NAO found that there are gaps in the government’s understanding of the costs and benefits of changes to the tax regime,” it said, in statement.

The government said in an emailed statement it’s working with the oil industry to minimize decommissioning costs. “By providing tax relief on decommissioning we are attracting continued investment into our reserves – supporting jobs, boosting the economy and protecting our energy supply,” it added.

Source: www.kallanishenergy.com