UK Government announces review of North Sea tax rules

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    Market update: Oil & Gas

    Earlier this month we saw the UK government announce a forthcoming review of the North Sea tax rules to help encourage fresh UK and international investment into the UK continental shelf (UKCS).

    The Government is focused on Maximizing Economic Recovery (MER) of the remaining reserves in the North Sea, and it plans to create an expert panel to identify ways of making it easier to get North Sea assets into the hands of those operators that have experience of operating late life assets effectively.

    One issue that is potentially hampering deal activity around late life assets in the North Sea is the level of tax relief available on decommissioning once the asset ceases production. North Sea decommissioning costs are forecast to exceed £50bn during the next four decades, with almost half the liability to be met by the Treasury through tax relief, according to Wood Mackenzie.

    The value of the tax relief available on each asset for decommissioning will be dependent on the amount of tax the owner has paid during the life of the asset, and this currently can’t be automatically transferred to the new owner when the asset is sold.

    By looking at this potential issue, the UK Government is hoping to ensure the UKCS remains an attractive prospect for new entrants and MER can be achieved.

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