Background Note
11.When an oil field comes to the end of its productive life, the companies that are licensed by the Department of Energy and Climate Change (DECC, previously the DTI/BERR) to extract oil from that field are responsible for the costs of decommissioning the field, i.e. removing all the pipelines, platforms etc and returning the sea bed to its natural state.
12.Although the licensee companies have to meet the decommissioning costs in full (there is no Government subsidy), the costs are fully relievable for petroleum revenue tax (PRT) purposes. However this assumes that the company is still a licensee and is thus still within the charge to PRT. Otherwise the decommissioning costs will not be available for relief.
13.However, the oldest licences (1st round) are due to expire in 2010 and if no action is taken, companies will no longer be able to extract oil from fields in that (expired) licence area. What DECC proposes to do is, on expiry of the licence, extend the term of the licence (but only in respect of the producing fields) for each field until such time as the company ceases production of oil from it. When the last such field on a licence ceases production, the licence itself will expire.
14.However, once the licence has expired companies will still be required to decommission the field infrastructure, and if they are no longer licensees then they will not get relief for PRT in respect of their decommissioning costs.
15.This section and Schedule deem a company still to be a licence holder for the purposes of the PRT legislation where is has ceased to be so by virtue of the expiry of a licence and, furthermore, for the relevant field to continue to exist. As a result the company will still be able to claim relief for its decommissioning costs. In addition, any income the company receives following cessation of production (e.g. tariff or disposal receipts) will be subject to PRT.
