Decommissioning: the UK's US$66 billion headache

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Decommissioning is arguably the single biggest issue in the minds of those interested in UK oil and gas right now, weighing on operators, oilfield services companies, prospective asset buyers and sellers. In total, Wood Mackenzie estimates future decommissioning spend from 2017 onwards at £53 billion (US$66 billion, 2016 terms) with £11 billion (US$19 billion) expected to be spent over the next five years. There are a number of uncertainties surrounding this market, from fundamental questions such as how much will it cost, when will it happen, through to what happens if someone defaults on their liabilities.  There are, mercifully, some certainties in the decommissioning sector. The UK has stringent regulations that set out the obligations of what needs to be removed, how to handle companies defaulting on obligations and decommissioning relief deeds (DRD) which guarantee the rate of tax relief.

Table of contents

  • Executive summary
  • Overview
    • Cost estimates for decommissioning
      • Timing of decommissioning
    • Is the service sector ready?
    • International obligations provide clear rules on the removal of facilities
    • National obligations
    • Ring Fenced Corporation tax and Supplementary Charge
    • Petroleum Revenue Tax
    • Decommissioning relief deeds (DRD)
      • Non-Default
      • Default
      • Implications for UK based oil & gas companies
      • Outlook
        • Is the UK Government able to sustain decommissioning tax relief?

Tables and charts

This report includes 3 images and tables including:

  • Tax receipts 2009 - 2016
  • UK plc total decommissioning spend vs tax relief
  • Future UK abandonment tax relief (top 20 companies)

What's included

This report contains:

  • Document

    Decommissioning: the UK’s $66 billion headache

    PDF 283.59 KB

  • Document

    UKCS Decommissioning tax relief.xls

    XLS 229.50 KB