Hammond raises hopes of decommissioning hub role for Scotland
In the Autumn Statement, the UK's Chancellor of the Exchequer Philip Hammond did not make any headline changes to oil and gas tax rates, setting out instead plans to make a "call for evidence" on how to establish Scotland as a global hub for decommissioning.
In the small details, two petroleum industry related items were moved forward.
First and foremost, he enacted Transferrable Tax History (TTH). Secondly, the budget also provides a solution for claiming PRT refund when a company sold its interest in a field but retained decommissioning liabilities.
These two tax changes are positive and help the industry as it recovers from a number of very difficult years.
Most importantly, the headline tax rates remain unchanged, despite speculation that they could be increased owing to rising oil prices and the need for the Chancellor to raise government income to fund public spending.
Petroleum tax rates were changed several times during previous price swings but, at least on this occasion, the government has stuck to its promise to keep the system stable, predictable and competitive.
Of course, in the case of a no-deal Brexit, an emergency budget will follow and nothing is off the table.
The TTH enactment draws a line under two years of discussions between the government and industry. TTH becomes another option to facilitate late-life M&A transactions. It will help the buyer realise the full value of decommissioning tax relief.
However, we do not expect a large increase of transactions owing to TTH. Companies have always had a range of options to address the issue of large decommissioning costs when making deals.
In terms of PRT refunds, previously neither the seller nor the buyer could access PRT relief in this situation. Now this option is available, alongside the previously existing possibility to claim tax refund for ringfence corporation tax and the supplementary charge.
This change should be particularly useful for the Majors that are looking to divest and own a large proportion of mature fields that paid PRT in the past.
Establishing Scotland as a global hub for decommissioning is both aspirational and appropriate. The scale, scope and prize has been discussed for years. How to make a business case and execute this is the challenge. Let’s see what the "call for evidence" brings to the table.
The prize is big – we forecast over US$30 billion spend on decommissioning in the next five years.