Exchequer Secretary (): The Government’s
fiscal approach for oil and gas aims to balance encouraging
investment with ensuring a fair return for the nation in exchange
for the use of its resources. Following the introduction of the
Energy (Oil and Gas) Profits Levy in May last year, the UK
currently has a headline tax rate of 75% on profits from oil and
gas production, one of the highest tax rates for oil and gas
across comparable countries around the world.
At Budget 2013, the government announced it would begin signing
decommissioning relief deeds. These deeds represented a new
contractual approach to provide oil and gas companies with
certainty on the level of tax relief they will receive on future
decommissioning costs.
Since October 2013, the government has entered into 105
decommissioning relief deeds. Offshore Energies UK estimate that
these deeds have so far unlocked approximately £10bn of capital,
which can now be invested elsewhere.
The government committed to report to Parliament annually on
progress with the decommissioning relief deeds. The report for
financial year 2021-22 is provided below.
-
Number of decommissioning relief agreements entered
into: the government entered into 3 decommissioning
relief agreements in 2021-22.
-
Total number of decommissioning relief agreements in
force at the end of that year: 101 decommissioning
relief agreements were in force at the end of the year.
-
Number of payments made under any decommissioning
relief agreements during that year, and the amount of each
payment: two payments were made under a
decommissioning relief agreement in 2021-22, for £46.6m in
total. These were made in relation to the provision recognised
by HM Treasury in 2015, as a result of a company defaulting on
its decommissioning obligations.
-
Total number of payments that have been made under any
decommissioning relief agreements as at the end of that year,
and the total amount of those payments: ten payments
have been made under any decommissioning relief agreement as at
the end of the 2021-22 financial year, totalling £244.3m.
-
Estimate of the maximum amount liable to be paid under
any decommissioning relief agreements: the government
has not made any changes to the tax regime that would generate
a liability to be paid under any decommissioning relief
agreements. HM Treasury’s 2022-23 accounts will recognise a
provision currently estimated to be £102.1m in respect of
decommissioning expenditure incurred as a result of a company
defaulting on their decommissioning obligations[1]. The
majority of this is expected to be realised over the next two
years.
[1] This figure takes into account payments made subsequent to
the financial year covered by this Written Ministerial Statement
and may be updated to reflect newer information.
