Two law firms have backed the Chancellor’s move to examine possible North Sea decommissioning tax relief but warn the issue must be tackled now – before it is too late.
Bob Ruddiman, head of energy at Pinsent Masons, that although discussions and reviews show “promise and positive intent”, they must be backed up by decisive action.
He said the transfer of mature assets has slowed by the inability to maximise access to tax reliefs, which have been associated with complex assets which have often been owned by multiple parties over time.
Ruddiman added: “The North Sea grapples with increasingly complex reserves and mounting competition for investment from enticing frontier oil markets and every incentive to achieve maximum recovery must be encouraged.
“The bottom line is that high costs, compounded by oil price volatility, have left producers with many challenges in respect of the treatment of late life assets. The industry has been working hard to drive much needed efficiency improvements and effective management of operations and development projects.
“While we have also seen a recent uptick in E&P acquisitions and divestitures, we run the risk of stifling progress in the North Sea if the tax treatment of potential reliefs around decommissioning are not tackled now. It may have taken some time but it’s refreshing to see progress is finally being made with a commitment to deliver at Autumn Statement time.”
Clare Munro, Head of Energy and Infrastructure at Brodies LLP, also welcomed the Treasury announcement that an expert panel will examine the possible transfer of historical tax relief for decommissioning liability.
She added: “It has become increasingly apparent in the last couple of years that the current tax system inadvertently creates barriers to transferring oil and gas asset ownership in mid to late life.
“The issues involved are very complex and careful consideration needs to be given to any possible changes in the tax structure, to ensure that they do not have unintended consequences which undermine fiscal stability – the best people to do this are industry tax experts so it is very positive that the government is proposing this review.”
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