UK Chancellor George Osborne’s decision to guarantee tax relief on North Sea decommissioning expenditure in the 2013 Budget has been welcomed by leaders of the oil and gas industry in the country.
During the budget statement to the House of Commons, Osborne said: "For the North Sea we will this year sign contracts for future decommissioning relief, the expectation of which is already increasing investment there."
Welcoming the changes in the budget, the offshore oil and gas decommissioning forum Decom North Sea (DNS) said that the decommissioning relief agreement will boost the sector.
According to DNS, the budget is expected to provide long-term certainty, new jobs and increased investment in technology.
Annual decommissioning expenditure in the North Sea has been predicted to reach more than £1bn from £500m, within the next few years.
DNS said that based on initial projections, an increase on the cost of decommissioning North Sea oil and gas facilities could reach £24bn to £30bn within the same period to 2040. If Norwegian, Danish and Dutch oil and gas facilities are included, the figure is expected to double.
DNS chief executive, Brian Nixon, said the chancellor’s clarification of tax relief through Decommissioning Relief Deeds will alleviate one of the greatest concerns facing the North Sea industry and attract investment and create more jobs.
"Once assets have been recognised as nearing the end of their economic lives, we believe the budget will lead to operators being able to move forward with their 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 to attract new staff," Nixon added.
It is believed that only a small percentage of the infrastructure in the UK sector of the North Sea has been decommissioned so far.
In the coming years, the sector will need huge investment from the supply chain and considerable expenditure by operators and the government to remove more than 600 installations and associated infrastructure, around 5,000 wells and nearly 10,000km of pipelines.
Responding to the budget announcement, Oil & Gas UK chief executive Malcolm Webb 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 today will for the first time ever give companies the certainty they need over the tax treatment of decommissioning," Webb added.
"At no cost to the government, it will speed up asset sales and free up capital for companies to use for investment, extending the productive life of the UK Continental Shelf."
Ernst & Young Aberdeen head of oil and gas taxation, Derek Leith, said: "Smaller companies that had previously been priced out of potential deals will now be in a position to maximise recovery from existing infrastructure, while larger players will be able to free up capital to fund further exploration and production."
Image: UK Chancellor George Osborne. Photo courtesy of HM Treasury.