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Government to provide clarity on tax treatment of decommissioning of assets in oil and gas industry

The Government is to outline plans to provide more "certainty" to energy firms over the tax breaks they would receive when decommissioning oil and gas projects.28 Mar 2013

In a joint Government and industry strategy for oil and gas (53-page / 2.18MB PDF) published on Thursday, it was announced that the Government would "give industry certainty on the future treatment of decommissioning tax relief" later this year.

The strategy outlined plans to ensure that companies are attracted to invest in the UK oil and gas industry through "the right fiscal environment". It said that the "delivery of a Decommissioning Relief Deed" would "give businesses certainty over the tax relief they will receive when decommissioning their assets" and that this would "lead to increased asset trades and investment".

The Government said that the UK's oil and gas industry was operating in "an increasingly challenging production environment" but said the strategy, which also set out plans to improve technology uptake in the industry; ensure safety standards are maintained and to attract sufficiently skilled people to work in the industry, would help industry overcome the problems.

Plans to help the UK companies that operate in oil and gas supply chain were also unveiled. Government and industry are to work to "map the UK supply chain, including exports, by value and destination" by the final quarter of this year. This will help "to determine areas of constraint and potential opportunities for additional support", according to the strategy.

"The full capability of the UK oil and gas supply chain needs to be mapped to support strengths and address weaknesses," the strategy said. "This knowledge can then be used by UKTI to help UK supply chain businesses as they seek to internationalise. Alongside this, Government and industry will continue to share best practice with, and learn from, other countries’ oil and gas industries in order to improve the effectiveness of developing the supply chain internationally."

UK operators should "champion" UK suppliers' "technical capabilities" when abroad, the strategy said, whilst those suppliers should also be given "full consideration" to be named as "approved bidders" for UK Continental Shelf (UKCS) contracts where those companies are "deemed to have the necessary capability and capacity to execute the work."

"Without compromising the competitiveness of projects in the UK, Government and industry both want to see UK businesses being given every opportunity to bid for all UKCS contracts," the strategy said. "The ultimate goal is to maintain a viable and globally competitive UK supply chain that not only serves the industry through to decommissioning, but is anchored in the UK."

More than 70% of the UK's energy is expected to still be provided from oil and gas sources into the 2040's, it added.

In a joint foreword in the Oil and Gas Industrial Strategy paper, Business Secretary Vince Cable, Energy Secretary Ed Davey, the Secretary of State for Scotland Michael Moore and the Chairman of the Oil and Gas Industry Council, Gordon Ballard, outlined the role the oil and gas industry could play in supplying energy to the UK in future.

"This strategy’s goal is to put Government and industry on the right path to ensure future decades of investment and production in the North Sea," the four signatories said. "Quite simply, we want to maximise economic recovery of oil and gas from the UK Continental Shelf (UKCS) and support a dynamic supply chain which sustains high quality jobs in the UK."

"As the UK pursues a long-term process to decarbonise our society, we will need substantial amounts of oil and gas. Gas will assist, for example, the transition away from coal powered generation. Low-carbon transport is unlikely to replace all petrol and diesel vehicles for two or more decades. Britain’s energy security and long-term economic performance will benefit hugely from maintaining the health of this key industrial sector," they added.

In a separate announcement the Department for Energy and Climate Change (DECC) announced that, in the latest three months, imports of natural gas were 7.3% higher and exports of natural gas were 46.9% lower than the same period last year. Net imports of gas were 23.6% higher.

Energy law specialist Bob Ruddiman of Pinsent Masons, the law firm behind Out-Law.com, said: "The figures demonstrate the scale of the challenge for the UK Government in developing a sustainable energy policy. Shale gas is not a panacea. The UK needs a balanced energy mix across renewable, nuclear and oil and gas.”

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