Environmental Audit CommitteeWritten evidence submitted by Bryan Norris

[LETTER RECEIVED BY BRYAN NORRIS FROM DECC]

Dear Mr Norris

Freedom of Information Request

Thank you for your email dated 11 May 2012 in which you requested information regarding decommissioning tax relief. We have now completed our search for the information you requested.

The information which can be disclosed is given below. The remainder of the information is exempt under section 35(1) of the Freedom of Information Act and is therefore withheld.

1. How many oil and gas rigs will be decommissioned with taxpayers money?

There are currently 291 oil and gas platforms in the UKCS. The total cost of decommissioning these plus pipelines, wells and other subsea infrastructure is currently estimated to be around £30 billion in today’s money, spread over the next 40 years or more.

2. How many oil rigs are involved

Please refer to the answer for question 1.

3. What is the total budget for this subsidy?

The Government is not offering a subsidy to the Oil and Gas industry for decommissioning expenditure. Budget 2012 announced a consultation on new contracts to provide long term certainty on decommissioning tax relief; this consultation will be published this year. The Exchequer impact of this policy is beneficial to the taxpayer in receipts, driven by an increase in investment and production.

Companies are legally required to decommission their assets at the end of a field’s life. The total cost of decommissioning upstream petroleum infrastructure is currently estimated to be about £30 billion in today’s money. Tax relief at a rate of 50% (75% for older fields) is available on these costs of business, but uncertainty around the future availability of such relief has been deterring investment in older fields and making it difficult for new players to enter the market. At Budget 2011, the Government said that it would work with industry with the aim of announcing further, longer-term certainty on tax relief for decommissioning costs.

The Government has already committed to provide relief; greater certainty will generate additional investment and production.

The Government will legislate in 2013 giving it the power to sign contracts with oil and gas companies guaranteeing that they will receive a certain level of relief on the cost of decommissioning their assets. We will consult on the detail and form of the contracts in the coming months.

Costings

The Office for Budget Responsibility (“OBR”) scrutinised the assessment of the Exchequer impact. This can be found at:

http://cdn.hm-treasury.gov.uk/budget2012_policy_costings.pdf

The measure is expected to increase investment and production, and thus Exchequer revenues, by encouraging increased incremental activity and improving market efficiency in the UKCS, leading to asset trades, stimulated by certainty over the tax treatment of decommissioning costs. The size of this change in investment and production is estimated using HMRC modelling and the relevant determinants from the OBR’s economic forecast. These estimates are consistent with consultation work to date.

Exchequer Impact (£m)

The Exchequer impact has been projected as follows.

	2012–13	2013–14	2014–15	2015–16	2016–17
Exchequer impact (£m)	-115	+245	+385	+340	+290

(Positive figures denote Exchequer yield)

Appropriate oversight and analysis will continue with the NAO and OBR, following consultation.

4. Has the National Audit Office been made aware of such new extended subsidy? If so what is their judgement?

Please refer to the answer for question 3.

5. What is the independent auditors’ advice on value for money for UK taxpayers and Total exposure?

Please refer to the answer for question 3.

6. What checks have been enacted to prevent corruption?

The decommissioning process is open and transparent, operators are required to submit decommissioning programmes which are subject to wide ranging scrutiny by DECC, other government departments and statutory consultation with public bodies before approval to decommission is granted. On completion of a decommissioning programme operators submit a “close out report” summarising the outcome of the decommissioning activity—these close out reports are also subject to scrutiny. Copies of draft and approved decommissioning programmes are published on DECC’s website and can be found at:

http://og.decc.gov.uk/en/olgs/cms/explorationpro/decommissionin/decommissionin.aspx

7. With the oil industry receiving extra large tax breaks for oil exploration, please identify total positive tax receipts minus subsidies and losses and “contractual arrangements”

Please refer to the answer for question 3.

8. Please supply details of ALL contracts concerning taxpayer decommissioning of North sea oil rigs

Please refer to the answer for question 3.

11 June 2013