At Budget 2013, the government announced it would begin signing decommissioning relief deeds. These deeds represent 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 has entered into 86 decommissioning relief deeds.
Oil & Gas UK estimates that these deeds have so far unlocked more than £5.7bn of capital, which can now be invested elsewhere. In compiling this estimate, Oil & Gas UK discovered a clerical error in their previous estimate. As a correction, the figure reported for 2015-16 should have read £5.5bn. Independent checks have been made to ensure the error has not been repeated.
The government committed to report to Parliament every year on progress with the deeds. The report for financial year 2016-17 is provided below.
1. Number of decommissioning relief agreements entered into: the government entered into 11 decommissioning relief agreements in 2016-17.
2. Total number of decommissioning relief agreements in force at the end of that year: 83 decommissioning relief agreements were in force at the end of the year.
3. Number of payments made under any decommissioning relief agreements during that year, and the amount of each payment: two payments were made under a decommissioning relief agreement in 2016-17, totalling £5.4m. These were made in relation to the provision recognised by HM Treasury in 2015, as a result of a company defaulting on their decommissioning obligations.
4. 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: two payments have been made under any decommissioning relief agreement as at the end of the 2016-17 financial year, totalling £5.4m.
5. Estimate of the maximum amount liable to be paid under any decommissioning relief agreements: the government has not made any changes to the tax regime that would generate a liability to be paid under any decommissioning relief agreements. HM Treasury’s 2015-16 accounts recognise a provision of an aggregate £327m in respect of decommissioning expenditure incurred as a result of a company defaulting on their decommissioning obligations. The majority of this is expected to be realised over the next five years.
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