UK: MEPs call for more clarity on cost of O&G decommissioning to taxpayers

The UK taxpayers might have to contribute much more to the cost of decommissioning of offshore oil and gas platforms in the North Sea through tax reliefs than the £24 billion estimated by HMRC, UK MEPs have warned on Wednesday, calling for more clarity on the expected expenditure.

CC BY-NC-ND 2.0
Illustration only: Photo by Jim Barton/Flickr shared under CC BY-NC-ND 2.0 license. The image shows Brent Delta Oil Platform for moved ashore for breaking and recycling at Able Seaton Docks

The Oil and Gas Authority expects that the decommissioning of oil and gas facilities could cost between £45 billion and £77 billion overall, with most expenditure in the next 20 years.

Based on the OGA estimate, HM Revenue and Customs has estimated that the UK taxpayers will contribute £24 billion to the cost of decommissioning through tax reliefs. Taxpayers are additionally liable for the cost of decommissioning assets that oil and gas companies cannot afford to decommission themselves.

The MEPs with the UK’s Public Accounts Committee (PAC) have warned that HMRC’s estimate is based on the central estimate of the OGA’s range.

” [HMRC] has not estimated what the costs to taxpayers would be if decommissioning costs are at the top end of the OGA’s range,” PAC has said.

Also, PAC has said that oil and gas companies are commissioning new assets in line with the government’s objective to maximise recovery of remaining oil and gas reserves, which could increase the decommissioning bill further.

“New projects could generate tax revenues for the government but will also add to the total decommissioning bill and increase the future cost of decommissioning to taxpayers.”

Furthermore, PAC said that if oil and gas companies can reduce their decommissioning costs then, in turn, UK taxpayers will benefit through a reduction in the value of tax reliefs that the government provides. However, MEPs have called for more clarity on how OGA and BEIS are doing to help the oil companies reduce these costs.

Meg Hillier, Chair of the PAC said: “Taxpayers will incur costs running to billions for oil and gas decommissioning, but it is far from clear what these costs will be in practice.

PAC said it was unclear how actions taken by the Department for Business, Energy and Industrial Strategy and the OGA are reducing decommissioning costs for oil and gas companies.

“The Oil and Gas Authority must bring greater certainty to its cost estimates. Together with the Department for Business, Energy and Industrial Strategy, it should be transparent about how these estimates measure up to reality, and explain exactly what impact it is having on reducing costs.

“It would be wholly unacceptable for taxpayers to pick up a hefty bill that could have been reduced had more timely action been taken by the Government.”

Offshore Energy Today Staff

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