Oil and Gas Decommissioning Relief Deeds

James Murray Excerpts

Tuesday 8th April 2025 Written Statements

[The Exchequer Secretary to the Treasury (James Murray)]

The Government’s fiscal approach for oil and gas aims to balance encouraging investment with ensuring a fair return for the nation in exchange for the use of its resources. Currently, inclusive of the temporary Energy (Oil and Gas) Profits Levy, companies engaged in the production of oil and gas in the UK and on the UK continental shelf (UKCS) are subject to a 78% headline tax rate on their profits.

At Budget 2013, the Government announced that they would begin signing decommissioning relief deeds. These deeds represented a new contractual approach to provide oil and gas companies with certainty on the level of tax relief they will receive on future decommissioning costs.

Since October 2013, the Government have entered into 109 decommissioning relief deeds. Offshore Energies UK estimates that these deeds have so far unlocked approximately £14.7 billion of capital, which can now be invested elsewhere.

The Government committed to report to Parliament annually on progress with the decommissioning relief deeds. The report for financial year 2023-24 is provided below.

Number of decommissioning relief agreements entered into: the Government entered into three decommissioning relief agreements in 2023-24.

Total number of decommissioning relief agreements in force at the end of that year: 108 decommissioning relief agreements were in force at the end of the year.

Number of payments made under any decommissioning relief agreements during that year, and the amount of each payment: three payments were made under a decommissioning relief agreement in 2023-24, for £87 million in total. These were made in relation to the provisions recognised by HM Treasury from 2015 onwards as a result of companies defaulting on their decommissioning obligations.

Total number of payments that have been made under any decommissioning relief agreements as at the end of that year, and the total amount of those payments: 19 payments have been made under any decommissioning relief agreement as at the end of the 2023-24 financial year, totalling around £347 million.

Estimate of the maximum amount liable to be paid under any decommissioning relief agreements: the Government have not made any changes to the tax regime that would generate a liability to be paid under any decommissioning relief agreements. HM Treasury’s 2024-25 accounts will recognise a provision currently estimated to be £123 million in respect of decommissioning expenditure incurred as a result of companies defaulting on their decommissioning obligations^[1]. The majority of this is currently expected to be realised over the next several years.

^[1] This figure, which is an estimate at the last interim reporting period, is unaudited and takes into account payments made subsequent to the financial year covered by this written ministerial statement. The estimate is under review ahead of the year end reporting period and may be updated to reflect newer information.

[HCWS584]