Look at bigger picture when talking offshore oil and gas rigs decommissioning
Your article (10 January) “Oil revenues ‘wiped out’ by costs to scrap rigs” must be considered in the context of the overall benefits the offshore oil and gas industry offers to the UK.
The UK oil and gas industry is an industrial success story, contributing £330 billion in tax payments to HM Treasury over the past 50 years. It supports a secure energy supply, has inspired countless innovations and provides hundreds of thousands of highly skilled jobs across the country.
Decommissioning is simply part of the life cycle that every oil and gas installation operating in the North Sea (and globally) needs to go through. Companies carry out rigorous decommissioning planning to ensure it is carried out safely and in an environmentally sound, cost-effective and timely manner. Investment is extending the lives of many fields, which not only postpones decommissioning but adds to the tax receipts of HM Treasury through enhanced oil and gas production.
Decommissioning all our North Sea assets will take time – up to 30 years at least. A recent survey of our North Sea members shows that the average spend over the next decade on decommissioning is likely to be £1.5-2bn per year, with this cost largely paid for by the oil and gas companies. This spending will generate work for supply chain companies, helping develop a specialist UK industrial capability which can be exported globally. Importantly, this economic activity will also generate tax receipts for the UK Treasury.
The Government’s share of the decommissioning cost is met via the tax regime, not through subsidies. The UK offshore oil and gas sector is not – and has never been – in receipt of government subsidies. Compared with other industries in the UK, oil and gas producers currently pay tax at double the normal rate (40 per cent). The UK tax rules allow all businesses paying tax on company profits to offset normal business costs against taxpayments.decommissioning costs are treated similarly.
Decommissioning offshore assets is rightly a major responsibility for the sector. However, it is worth pointing out the industry is currently intent on reducing these costs, and that the tax relief oil and gas companies are forecast to receive represents only a small fraction of the £330bn they have paid in taxes to the Treasury since North Sea production began.
DEIRDRE MICHIE Chief Executive Oil & Gas UK
Market Street, Aberdeen