Spring Budget 2017: 'Promises of intent' on oil and gas decommissioning must be acted on, says expert

The Spring 2017 Budget makes it clear that ensuring maximum recovery of remaining North Sea oil and gas reserves will require the support of the tax system, particularly on late-life asset transfer and decommissioning reliefs. A formal discussion paper will be published alongside the Finance Bill later this month, while the government will also convene a panel of industry experts to properly review all the options, according to chancellor of the exchequer Philip Hammond.

The review panel has been asked to report to the government in time for the Autumn Budget later this year. Energy law expert Bob Ruddiman of Pinsent Masons, the law firm behind Out-Law.com, said that it was "refreshing" to see the government make progress on the topic, but urged it not to lose its momentum on the topic.

"While discussions and reviews show promise and positive intent, they must be backed up by decisive action by both government and industry," he said.

"Encouraging the transfer of mature assets has been in part frustrated by the inability to maximise access to tax reliefs which have been associated with complex assets which have often been owned over time by multiple parties. The North Sea grapples with increasingly complex reserves and mounting competition for investment for enticing frontier oil markets and every incentive to achieve maximum recovery must be encouraged," he said.

Ruddiman said that high costs, compounded by recent volatility in the price of oil, had "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," he said. "While we have also seen a recent uptick in E&P [exploration and production] acquisitions and divestitures, we run the risk of stifling progress in the North Sea if the tax treatment of potential reliefs around decommissioning is 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 Budget time," he said.

Over $6 billion has been invested in North Sea assets in recent months as a result of renewed interest in E&P activity, including the recent $1.24 billion acquisition of Ithaca Energy by Israel-based Delek Group. Rosalie Chadwick of Pinsent Masons, who was part of the team that provided legal advice to Ithaca on the deal, said last month that these deals appeared to point to the start of a "third wave" of North Sea investment activity.

As part of Chrysaor's recent acquisition of $3.8bn worth of its former North Sea oil and gas assets, Shell agreed to cover around $1bn worth of its future decommissioning costs. Chadwick said at the time that companies were beginning to take a "more realistic" view of assets due for decommissioning when arranging these types of deals.