Sir Ian Wood has called on the UK Chancellor to deliver concrete change in the North Sea’s decommissioning tax liabilities.
The North Sea doyen said a confirmation in the upcoming Autumn budget was crucial to the sector’s recovery.
Speaking at the opening of the new Oil and Gas Innovation Hub, Sir Ian said: “Our fiscal environment is now way better than it was, but we definitely need to get this change made on the transfer of the decommissioning tax liability. That will attract a number of new investors and we need that.”
Sir Ian’s calls for change were echoed by the First Minister and Oil and Gas UK’s chief executive.
The trio were at the Oil and Gas Technology Centre in Aberdeen for the official opening of the North Sea’s new Innovation Hub.
OGUK boss Deirdre Michie said the change in liability was a vital component to avoiding the early shutdown of installations.
The CEO said: “I met with the Chancellor last week and took the opportunity to reinforce that we are looking for that, because we do think that will help to unlock further investment and activity in the basin.
“Drilling activity continues to be really challenging and at an all time low, so we need something to help and we know there are some projects that if we don’t make the intervention sooner rather than later those will move to decommissioning, where as this would help unlock some of those in a positive sense.”
Currently, oil and gas companies are entitled to decommissioning tax relief associated with well plug and abandonment and the dismantling of infrastructure. However, the value of the relief is weighted against how much tax the operator has paid during the life of the asset.
The current structure around the tax relief deters a healthy acquisition market or newcomers entering the basin, according to the industry as it prevents those tax benefits transferring hands.
Earlier this year, UK Chancellor Philip Hammond announced a review, which would examine options for reform, including allowing the full value of tax relief to be transferable from one owner to another.
However, last week he warned he warned that despite “pulling out the stops” in regards to the industry, there were “complex” issues that may not be resolved by the time of his November 22 Budget.
But First Minister Nicola Sturgeon challenged the Chancellor to deliver, insisting the decommissioning clarity must come hand-in-hand with further support aimed at spurring exploration.
“Some of the fiscal changes in the last few years have been positive, but there now have been repeated calls for the kind of clarity around decommissioning tax relief,” she said. I hope that is given in the Autumn Budget and I hope we see further support for exploration as well, because of course today’s exploration are the discoveries of tomorrow.”
In the run-up to the budget, Sir Ian said the industry will need strike a “fine balance” in between recognise it was the past the worst but accepting there was still a lot of work left to do in terms of it recovery.
“There’s still a lot of uncertainty in the world of who is producing what,” he said.
“I think we are in for slow recovery. When I see some serious investment come in, then I will feel better, but right now we’re not getting that.”
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