Decommissioning: what’s the current situation?
UKCS decommissioning liabilities total some £35 billion.[i] The UK government provides 50% tax relief (75% for PRT-paying fields) but if the field operator defaults, it must cover any shortfall to ensure compliance with international obligations (UNCLOS 1982,[ii] OSPAR 98/3[iii]). Something of a Mexican stand-off exists; the government worries that it could acquire default liabilities whilst the operator worries that tax relief could disappear in future. The UK government sought to address the former by Decommissioning Security Arrangements (DSAs i.e. savings provisions) and the latter via Decommissioning Relief Deeds (DRDs i.e. tax relief guarantees). In the meantime, both government and industry choose to delay decommissioning as it defers expenditure and supports new tie-backs via mature infrastructure.
UPDATE (December 2014): In October 2014, Shell announced the end of production from two its platforms (Alpha, Bravo) in Brent field signalling the beginning of a significant decommissioning programme.[iv]
What happens after independence?
Most liabilities could transfer to Scotland post-independence even though the assets’ lifetime tax revenue was paid to the UK Treasury. To maintain industry confidence, the Scottish Government has pledged similar contractual certainties to DRDs[v] although this could prove a burden if it cannot secure a contribution from the UK. In 1995, both the UK government and Shell were in full legal compliance over the proposed offshore abandonment of the Brent Spar.[vi] Significant public opposition nevertheless ensued, including a Greenpeace occupation.[vii] Similar conflicts cannot be discounted, especially where derogations (allowing difficult structures to remain in-situ) are proposed.
Is there an upside?
Government and industry recognise that decommissioning offers major engineering (including employment) opportunities.[viii] On Shetland, Lerwick has positioned itself as a hub for UKCS activities[ix] whilst technology and experience developed there has major export potential.