Scope of the inquiry
There are currently more than 300 fixed installations, such as oil platforms, in production in the UK, primarily in the North Sea. Since the early 1970s, oil and gas operators in the UK have recovered more than 44 billion barrels of oil and gas, generating £334 billion of net tax revenues for the government. But reserves are running out, with the remaining oil and gas becoming harder to find and extract.
The Government has an objective to maximise the potential economic value of the UK’s remaining oil and gas reserves. Oil and gas operators in the UK are increasingly decommissioning their assets as they reach the end of their useful economic lives and so expenditure on decommissioning is rising. Operators have spent more than £1 billion on decommissioning in each year since 2014. The Oil and Gas Authority (OGA), the sector’s regulator, estimates that decommissioning the UK's oil and gas assets will cost operators between £45 billion and £77 billion out to the 2060s.
A recent National Audit Office (NAO) report has found that the actual cost to taxpayers of decommissioning is uncertain. This is because it will depend on how much decommissioning ultimately costs operators as well as future economic conditions, such as oil prices and exchange rates, which determine profits. The NAO report also found there were gaps in HM Treasury and HMRC’s understanding of the costs and benefits of recent changes to oil and gas tax rules. The Committee also recently concluded in its ‘HMRC’s performance in 2017–18’ report that the Government did not know whether a large number of tax reliefs delivered value for money.
Members will use this hearing to challenge the Department for Business, Energy and Industrial Strategy (BEIS) and the Oil and Gas Authority on how they will ensure decommissioning costs for taxpayers are minimised and potential export opportunities are exploited. Moreover, Members will ask the Government to commit to be more transparent about the potential costs of decommissioning to taxpayers. Members may also wish to challenge the Government to improve its understanding of the costs and benefits of its actions in relation to the oil and gas sector.
The Committee may also want to follow up with BEIS on its previous reports including on Renewable Heat Incentive (RHI), new nuclear projects and the impact of Government policies on consumer bills.