North Sea deal activity faces decommissioning costs of £9b
Posted: 10 February 2004
Energy experts at Ernst & Young believe that high costs associated
with the decommissioning of North Sea infrastructure could pose
a threat to the future of asset deals in the North Sea.
“With the estimated cumulative costs of decommissioning already
touching £9 billion and rising at approximately half a billion
pounds a year, this is a seriously expensive problem. As mid-tier
and small companies have to post security for abandonment, it places
an additional strain on their borrowing facilities and can hamper
deals,” said Derek Leith, Oil and Gas taxation leader at Ernst
& Young addressing a major conference on the future of the sector
As the major oil players pull out of the North Sea and the future
of the region lies increasingly with the smaller independent exploration
and production companies, the vast sums required for decommissioning
become more of a critical issue.
“Whereas major oil companies have the credit ratings to avoid
any impact on their ability to borrow, less established players
are not in such a favourable position,” said Leith.
The existing rules do not allow companies tax relief on the financial
provisions made for decommissioning until the process actually starts
- potentially decades later.
“We believe that this legislation, which was drawn up over
twenty years ago when the prospects for the development of the North
Sea and the players in it were very different, needs to be re-examined.
Let's not have a reason to deter investment just at the time when
it is most needed.
“To ease the pressure on the independents and allow the full
development of the North Sea, with all the implications that it
has for jobs and the economy, and not least of all for future higher
tax revenues for the Treasury, a proper review of this issue must
be undertaken,” said Leith.
For more information see www.ey.com
Posted by Richard Price,
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