Decommissioning guarantees could be holding back billions of pounds of North Sea investment, an oil and gas industry economist said yesterday.
Mike Tholen, economics director for Oil and Gas UK (OGUK), said solving a wrangle over the costs involved in dismantling infrastructure could unlock a large amount of cash for investment that was currently set aside in the form of guarantees.
Freeing up the money could potentially provide tens of billions of pounds for developing existing assets and new fields in the UK continental shelf (UKCS) over the next few decades, Mr Tholen added.
The industry is currently eligible for substantial tax relief – as much as 75% – on the decommissioning costs.
But there is no certainty that future UK governments will meet that commitment, which means the industry must provide security for decommissioning at the full rate as if there was no tax relief available.
For large firms, it is often just a “paper” pledge covering decommissioning obligations – like an IOU. According to Mr Tholen, smaller North Sea players are having to take cash out of their businesses now to cover costs that will arise in the future.
Some of that could instead be used for further investments, said Mr Tholen.
He admitted, however, that it was a difficult issue to resolve as governments tended to have a short-term view of what was best for the UK oil and gas industry.
Speaking at the end of an OGUK business breakfast in Aberdeen, Mr Tholen said the answer could be to build in the tax relief whenever operating licences were awarded or by “other contractual means”. Mr Tholen was one of three speakers at yesterday morning’s event at Aberdeen Exhibition and Conference Centre.
Alec Carstairs, senior partner at the Aberdeen office of professional service firm Ernst and Young, warned delegates the North Sea was in a “race for capital” as the larger energy firms mulled over where to invest their money.
Possible regulation in the wake of the Deepwater Horizon rig explosion in the Gulf of Mexico last year and recruitment challenges were other concerns raised at the gathering, which saw Cosalt Offshore chief executive Rod Buchan join the other two men on a panel taking audience questions.
Opening the event, OGUK chief executive Malcolm Webb said the 480-strong turnout showed the confident mood of the industry just now, an optimism backed up by survey findings – reported yesterday – showing investment in UKCS exploration and production was expected to soar to about £8billion this year, compared with less than £5billion during 2009.
