British taxpayers face £24bn bill to close North Sea oilfields

Oil rig by Steven Straiton via Flickr

British taxpayers are facing a £24bn bill for decommissioning oil and gas fields in the North Sea, according to new estimates.

Energy research group Wood Mackenzie, which carried out the projections, said decommissioning costs threatened to wipe out remaining tax revenues from the industry.

The figure, based on the cost of plugging wells and dismantling platforms and pipelines, is 50 per cent higher than the Treasury’s forecast of a £16bn public liability.

Wood Mackenzie’s forecast says that oil companies are expected to spend £53bn to wind down operations, with around half recouped from the Treasury through tax relief.

Fiona Legate, an analyst at the group, told the Financial Times that the North Sea would become “a significant annual expenditure for government, rather than a provider of income” in years to come.

That conclusion is a blow to nationalist politicians who have repeatedly argued that Scotland should take control of its own oil revenues.

The decommissioning process is expected to take 40 years, although Wood Mackenzie predicted that around a fifth of spending would take place within five years, suggesting a cost of nearly £5bn to the Treasury by the end of 2021.

This is due to a rule, designed to stimulate investment in North Sea oil, that stipulates decommissioning costs are subsidised through tax relief. The bill currently stands at nearly £6bn.

Record low oil prices last year meant that the cost of tax relief exceeded revenues for the first time.

Official figures forecast for the deficit to grow to £500m this year, before returning to most surplus in the next five years.

Scotland’s share of North Sea oil revenues was £60m last year, down from £9.6bn in 2011-12.

According to industry group Oil & Gas UK, there are between 10 billion and 20 billion barrels remaining in the North Sea.