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. Following the introduction of the energy (oil and gas) profits levy in May last year, the UK currently has a headline tax rate of 75% on profits from oil and gas production, one of the highest tax rates for oil and gas across comparable countries around the world.
At Budget 2013, the Government announced 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 105 decommissioning relief deeds. Offshore Energies UK estimates that these deeds have so far unlocked approximately £10 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 2021-22 is provided below.
Number of decommissioning relief agreements entered into: the Government entered into three decommissioning relief agreements in 2021-22.
Total number of decommissioning relief agreements in force at the end of that year: 101 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: two payments were made under a decommissioning relief agreement in 2021-22, for £46.6 million in total. These were made in relation to the provision recognised by HM Treasury in 2015, as a result of a company defaulting on its 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: 10 payments have been made under any decommissioning relief agreement as at the end of the 2022-22 financial year, totalling £244.3 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 2022-23 accounts will recognise a provision currently estimated to be £102.1 million in respect of decommissioning expenditure incurred as a result of a company defaulting on their decommissioning obligations1. The majority of this is expected to be realised over the next two years.
1 This figure takes into account payments made subsequent to the financial year covered by this written ministerial statement and may be updated to reflect newer information.