oil industry
TWO years of negotiations between the Government and the oil industry concerning tax relief on the costs of decommissioning old North Sea fields has resulted in the confirmation that contracts will be signed later this year
The industry now hopes smaller companies, previously priced out of potential deals, will go ahead with extracting the last reserves from existing fields, while larger operators will be able to free up capital to fund further exploration.
Brian Nixon, chief executive of offshore oil and gas decommissioning forum Decom North Sea (DNS), 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 more jobs. We believe the Budget will lead to operators being able to move forward with 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 attract new staff."
The Government committed itself to bringing in the new contractual approach last year.
In the 2013 Budget report it said: "Following successful consultation, Budget 2013 announces that contracts will be signed later in 2013, providing the certainty needed to unlock billions of pounds of additional investment."
Oil & Gas UK projected that decommissioning existing UK offshore facilities would cost £28.7 billion by 2040.
Malcolm Webb, Oil & Gas UK's chief executive, said: "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.
"The measures announced will, for the first time ever, give companies the certainty they need over the tax treatment of decommissioning. It will speed up asset sales and free up capital to use for investment, extending the productive life of the UK continental shelf."
There are already signs that companies are gearing up to take advantage of the changes.
Trevor Garlick, regional president of BP's North Sea business, said: "BP believes the measure will lead to greater investment and help to defer the decommissioning of the very infrastructure required to maximise production."
David Peattie, chief executive of North Sea oil firm Fairfield Energy, said it was a significant step forward for the UK North Sea fiscal regime and said his company expected to be able to considerably increase our investment in the region as a result of its introduction.
The news suggests the Government is succeeding in rebuilding its relationship with the oil industry after it surprised the sector with a raft of tax changes two years ago.
DNS estimates that annual decommissioning expenditure in the North Sea, will rise from £500 million to £1bn within two to three years.
Oil & Gas UK estimates that by 2017, 286 wells in the northern and eastern North Sea and 74 in the southern North Sea and Irish Sea will be plugged and abandoned.
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