Budget targets Scottish decommissioning hub

In his latest budget unveiled on 29 October 2018, the UK Chancellor of the Exchequer Philip Hammond announced that the current headline tax rate will continue and stated that the government would launch a call for evidence on plans to make Scotland a global hub for decommissioning.

Reported by some in the media as rather a ‘non-event’ as far as the oil and gas industry was confirmed, the measures announced largely confirmed earlier proposals and indicated the government’s commitment to maintaining current fiscal conditions and maximising economic recovery from the UK’s offshore oil and gas reserves.

‘In saying very little about oil and gas today, the Chancellor delivered a further confidence boost to investors which will hopefully see a continuing trend of new players entering the basin and helping to realise its potential,’ commented Derek Leith, EY’s Global Oil and Gas Lead.

Echoing this sentiment, Alan McCrae, Leader of Industry for Oil and Gas at PwC UK, said:’ The measures announced in the Budget largely confirm earlier proposals and this will be warmly welcomed by the oil and gas industry. The introduction of a transferable tax history mechanism for oil and gas companies should help facilitate the number of deals taking place, and help breathe new life into the sector by making it more attractive to new investors. This will help protect and create jobs, and increase investment in both the industry and local economy.’

He added: ‘Any move to position the UK as a global hub for decommissioning will also be welcomed, to help bring the current aspirations to reality. There is certainly appetite to examine the tax and regulatory system in its widest sense to see if there is anything that can be done to reduce costs. Anything which reduces costs is important for the government as well as business, as increased profitability for the oil companies results in higher taxes for the government.’

Nathan Swankie, Principal at environmental and engineering consultancy Ramboll, noted that the announcement presented ‘a valuable opportunity for supply chain companies and technology developers in Scotland, and across the UK, to develop the capability to meet domestic and global demand for offshore oil and gas decommissioning’. He said: ‘Through the city of Aberdeen, Scotland already has a global reputation as an engineering hub for the offshore oil and gas industry and the establishment of a global decommissioning hub is a logical progression. The global decommissioning hub can tap into existing skills and knowledge as well as driving industry innovation in areas such as cost reduction, decommissioning technologies and environmental performance.

According to Oil & Gas UK, the decommissioning market in the North Sea is forecast to grow steadily and is likely to be worth £1.8bn/y on average over the next decade.

Looking downstream, Hammond confirmed his earlier announcement of a freeze on fuel duty.