Decommissioning: the UK's US$66 billion headache Report

Insight 25 November 2016

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Report summary

Decommissioning is arguably the single biggest issue in the minds of those interested in UK oil and gas right now, weighing on operators, oilfield services companies, prospective asset buyers and sellers. In total, Wood Mackenzie estimates future decommissioning spend from 2017 onwards at £53 billion (US$66 billion, 2016 terms) with £11 billion (US$19 billion) expected to be spent over the next five years. There are a number of uncertainties surrounding this market, from fundamental questions such as how much will it cost, when will it happen, through to what happens if someone defaults on their liabilities. There are, mercifully, some certainties in the decommissioning sector. The UK has stringent regulations that set out the obligations of what needs to be removed, how to handle companies defaulting on obligations and decommissioning relief deeds (DRD) which guarantee the rate of tax relief.

Executive summary
Overview
The size and timing of the decommissioning market
- Cost estimates for decommissioning
  - Timing of decommissioning
- Is the service sector ready?
Laws and regulations
- International obligations provide clear rules on the removal of facilities
- National obligations
Fiscal rules
- Ring Fenced Corporation tax and Supplementary Charge
- Petroleum Revenue Tax
- Decommissioning relief deeds (DRD)
  - Non-Default
  - Default
  - Implications for UK based oil & gas companies
  - Outlook
    - Is the UK Government able to sustain decommissioning tax relief?