Question

To ask Her Majesty’s Government what assessment they have made of the share of the total cost of decommissioning gas and oil infrastructure in the North Sea that will be met by the public purse under the current fiscal regime.

The Government believes in making the most of the UK’s oil and gas resources – to date the oil and gas industry has contributed £330bn to the Exchequer and is the UK’s largest industrial investor, supporting hundreds of thousands of jobs, supplying a large portion of the UK’s primary energy needs and making a significant contribution to GDP. With between 11 and 21 billion barrels of oil equivalent still to be exploited, the UK Continental Shelf can continue to provide considerable economic benefits for many years to come.

Decommissioning is an inherent cost of doing business in the UK Continental Shelf. As a result, capital allowances are available on decommissioning expenditure (for the purposes of Ring Fence Corporation Tax and Supplementary Charge) and the expenditure is tax deductible for the purposes of Petroleum Revenue Tax. The provision of relief requires a company to have current or previously taxed upstream profits against which to offset losses. Relief is not available where a company has not paid tax or where a company’s decommissioning costs exceed the amount of profits on which they have previously paid tax.

We are committed to ensuring decommissioning programmes represent value for money, which is why the Government intends to bring forward amendments at Lords Report Stage of the Energy Bill to: require decommissioning programmes to be cost effective, ensure the Oil and Gas Authority has the powers it needs to scrutinise companies’ decommissioning plans to ensure they are cost effective, and enable the Secretary of State to require a company to take specific action to reduce the costs of decommissioning to address cost overruns.

HMRC’s annual accounts include an estimate of, and provision for, the liabilities associated with the decommissioning of oil and gas infrastructure. Their annual accounts for 2014-15 are available below in the attached (page 115, Section 8).