MPs on the Public Accounts Committee (PAC) have highlighted concerns about the future costs to taxpayers of decommissioning oil and gas assets in the North Sea.
HM Revenue & Customs (HMRC) has estimated oil and gas companies will pass on £24 billion of decommissioning expenditure to taxpayers through tax reliefs but the MPs suggest there is a “wide range of possible additional future costs” as most companies are at the early stages and still learning about how much different activities will cost.
The Committee says is it also concerned the Department for Business, Energy and Industrial Strategy (BEIS) “does not have a clear plan” for maximising the potential economic benefits and is being urged to ensure taxpayers are protected from the risk of footing the bill.
It is also calling on BEIS to ensure its support for oil and gas remains compatible with its other activities aimed at achieving climate change goals and developing carbon capture, usage and storage (CCUS).
According to the report, oil and gas companies have spent more than £1 billion on decommissioning every year since 2014 and the Oil & Gas Authority (OGA) expects clean-up costs to total between £45 billion and £77 billion over the next 20 years.
The Committee believes while the OGA claims to have helped oil and gas companies reduce the expected decommissioning costs by 7%, “the direct impact of the OGA is hard to isolate from other factors influencing company decision-making, particularly the wider economic situation”.
The MPs suggest the OGA should set out how it is making its estimates more certain and what the expected impact of new projects will be and BEIS and the OGA should set out by July – and report to Parliament annually thereafter – on the direct impact they have had on reducing decommissioning costs.
They are also calling on BEIS to write to the Committee by June 2019 explaining the clean-up arrangements for fracking, including a “full and clear explanation” of the responsibility for subsequent costs once licences have been returned to the government and what it is doing to prevent liabilities falling to taxpayers.
Other recommendations include BEIS setting out, as part of its energy White Paper, how it will continue to ensure government support for oil and gas remains compatible with its wider energy objectives and its expected timetable for CCUS deployment.
PAC Chair Meg Hillier MP said: “Taxpayers will incur costs running to billions for oil and gas decommissioning but it is far from clear what these costs will be in practice.
“The Oil and Gas Authority must bring greater certainty to its cost estimates. Together with the Department for Business, Energy and Industrial Strategy, it should be transparent about how these estimates measure up to reality and explain exactly what impact it is having on reducing costs.
“It is concerning that the department has not yet properly set out the terms for how fracking assets will be decommissioned. It must do so before this industry grows further. It would be wholly unacceptable for taxpayers to pick up a hefty bill that could have been reduce had more timely action been taken by the government.”
A BEIS spokesperson said: “The oil and gas industry employs around 280,000 people, meets around half of our energy needs and has contributed over £334 billion in taxes. By providing tax relief on decommissioning we are attracting continued investment into our reserves, supporting jobs and further boosting the economy.
“We are working with industry to minimise costs and recently launched a call for evidence on how we will seize the £80 billion export opportunity to turn the UK into a global hub for the decommissioning.”
A spokesperson from the OGA added: “The Oil and Gas Authority welcomes the PAC’s report and will work with government on the relevant recommendations.
“Decommissioning activity is progressing well with many operators already going beyond the 35% industry cost reduction target. The OGA has implemented a robust, probabilistic annual evaluation of total UKCS decommissioning costs. First published in June 2017, the then total estimated UK decommissioning cost of £59.7 billion had reduced 7% on a like-for-like basis by the time of the 2018 report, due to a combination of cost-effective practice, benign market forces, and better-understanding/reduced-uncertainty of costs.”