Government watchdog the National Audit Office (NAO) has published a report warning that decommissioning the UK’s oil and gas platforms could cost the government £24bn.
The NAO said: “Oil and gas operators in the UK are increasingly decommissioning their assets as they are reaching the end of their useful economic lives. Operators’ expenditure on decommissioning is rising: they have spent more than £1bn on decommissioning in each year since 2014.
“Decommissioning affects the government’s finances because operators can recover some of their costs through tax reliefs.”
According to the report, HM Revenue & Customs (HMRC) estimates that it will repay £12.6bn to operators in taxes previously collected as part of the decommissioning process.
A further £11.1bn of tax income will also be spent due to the expenditure of the decommissioning process reducing taxable profits.
The NAO also warned that taxpayers will be ultimately liable for the total costs of decommissioning oil and gas assets if operators are unable to decommission them.
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This could further raise the cost for taxpayers, though the NAO noted that the risk of these unfunded decommissioning liabilities is low, as 80% of assets have previously been, or are currently, owned by large oil and gas operators that would be able to fund the decommissioning themselves.
However, the report also notes that the actual cost of decommissioning is “highly uncertain”, as it depends on factors such as future economic conditions including oil prices and exchange rates.
Industry regulator the Oil and Gas Authority (OGA) has worked with operators to reduce their decommissioning costs. Currently, the OGA estimates that decommissioning the UK’s oil and gas assets will cost operators between £45bn and £77bn.
The OGA’s plans include efforts to develop more predictable and sustainable markets for operators, establishing greater certainty about costs and clarifying the requirements of decommissioning regulations. These efforts are also in line with the government’s desires to maximise the potential economic value of the country’s remaining oil and gas reserves.
There are currently around 320 fixed installations, including oil platforms, in production in the UK. To date, oil and gas assets have enabled operators to recover more than 44 billion barrels of oil and gas.