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Chapter 3: The Shocking Truth about Tax Breaks and Decommissioning

Westminster ‘may be giving Scotland’s oil away for free’.

Given the scale of North Sea oil and gas plundering over the past 50 years it is not surprising to discover that approximately 600 installations will have to be decommissioned in the next 50 years.

It has always been an accepted principle that oil companies, after undertaking offshore well drilling and production, have an obligation to:

  • Plug and make safe the wells
  • Remove to shore for recycling or scrapping all the platform infrastructure
  • Remove all oil and gas debris from the seabed
  • Remove any oil trapped on sub-sea storage cells and remove the cells
  • Remove pipelines from the seabed

In other words, oil companies should restore the seabed cosmetically to its original condition. Estimates for the cost of the work involved have been as high as £70 billion. Who should meet this cost?

The total UK Government take from the North Sea oil and gas is of the order of £400 billion but that figure is approximately half of that obtained by Norway for similar production volumes. Logically that might mean the take of oil companies has been disproportionately high due to Westminster’s mismanagement.

Under those circumstances it would seem fair to the UK public that these fabulously wealthy oil companies should pay for the clear-up. Think again.

According to Economic Secretary to the Treasury Sajid Javid: “Oil and gas is one of the UK’s greatest industrial success stories and the Government is committed to making the most of this valuable natural asset. That is why the Government announced earlier this year, as part of an ambitious package of oil and gas measures, that it would provide further certainty over tax relief for decommissioning.”

In other words, the Conservative Party agreed that UK taxpayers would pay approximately half the decommissioning cost. One would have hoped that given this fabulous concession there would be strings attached such as a requirement to maximise job retention and undertake all decommissioning work in Scotland. Ha. I keep forgetting the UK has not devolved such negotiating power to Holyrood!

The logic about giving this tax repayment assurance to oil companies was that it would free up spare cash for companies to make new investment in the North Sea.

However, currently and for the foreseeable future, oil prices will remain depressed and production from past and new investment is likely to result in reported accounting losses which will result in oil companies getting a repayment of previous tax paid.

The UK Treasury may well be giving away Scotland’s oil for free. Worse than that, the new investment will mean more decommissioning expense in the future that the UK taxpayer will have to pay!

There is good news and bad news. The good news for oil companies is that the final decommissioning costs are likely to be less than £70bn as Westminster, Oil and Gas UK and the Oil and Gas Authority will seek ways of reducing the cost. In the case of Shell and their Brent field decommissioning of installations of Eiffel Tower proportions and weighing 300,000 tonnes, their solution is simple.

Chop off the topsides and transport them out of Scotland for decommissioning, perform other tidying up of debris, but leave the giant legs and storage cells to adorn the Scottish North Sea.

Since the UK Government committed taxpayers to meet an expense that makes the cost of a Brexit divorce deal look like chickenfeed, they are likely to give the Shell plan the green light.

After all, the rusting hulks are well away from London. The protruding legs can have a little red flag attached to them to alert fishing boats and nuclear submarines not to get too close, or, who knows, might even make excellent target practice for UK war planes. This certainly cuts down the cost. But why on Earth should Scotland’s seabed become a dustbin to save oil companies the cost of clearing them up?

Leaving contaminated junk on the sea bed certainly cuts down the cost. But why on earth should Scotland’s seabed become a dustbin to save oil companies the cost of clearing them up? No-one would allow such an event happening in their garden. The argument that Shell didn’t design the structures to be decommissioned is frankly irrelevant at best and an indictment of the industry at worse.

And just try taking a half-empty tin of paint down to say Black Dog beach in Aberdeen, watch out for the seeping oil deposits dumped there by the oil industry, and bury it in the sands and attach a warning flag to it. You will be in prison before you have time to call your solicitor.

The bad news is that whatever counter claims are made the Scottish North Sea environment is being compromised.

Acceptance of the Shell plan also gives a green light for owners of other installations to make similar plans. And of course fewer jobs will be available if the model decommissioning procedures are not being fully implemented. Shell have boldly stated they have learned from the Brent Spar oil storage buoy debacle in 1995.

Basically, egged on by the UK Government, Shell simply wanted to sink Brent Spar in the North Sea and were only persuaded not to do so after intervention by Greenpeace and boycotts of Shell petrol stations.

It remains to be seen what the reaction will be to the Shell decommissioning plans.

Holyrood should insist on having full direct control over all economic activity including decommissioning of oil and gas installations situated in its territory.

All decommissioning work of installations in Scotland should be undertaken in Scotland. The decommissioning tax situation should be reviewed in light of the decommissioning plans being submitted by oil companies and of the disproportionate take given to oil companies from North Sea revenue.

With respect to Scotland, the cost of fully removing all parts of the installations should be calculated and if oil companies try to avoid that cost by partially removing the structures, then the difference in cost should be paid to Holyrood. That could be a useful contribution to Scotland’s missing Oil Fund!

Published in The National, October 2017