PRT: decommissioning - introduction
In oil industry usage, “Abandonment” and “Decommissioning” mean essentially the same, describing what happens to offshore installations and pipelines when the fields they serve have become fully depleted. “Abandonment” was never an entirely apt term as its legal meaning is the voluntary relinquishment of possession of property and the more precise “Decommissioning” is now generally used - particularly since technological developments give rise to the possibility of reusing installations. This manual therefore refers to “Decommissioning” except where quoting from legislation which uses the term “Abandonment”.
There are three provisions in OTA75\S3(1), all dating from FA91, which relate to decommissioning, namely
- OTA75\S3(1)(hh), acquisition of abandonment guarantees, see OT10300
- OTA75\S3(1)(i), closing down etc, see OT10050
- OTA75\S3(1)(j), restoration, see OT10150.
For details of the regulatory framework in which such expenditure is incurred, see OT01009.
Treatment of Decommissioning Losses
Allowable decommissioning relief will not necessarily just be incurred at the end of a field’s life, but probably the majority of it will be. Where on cessation of production the cost of decommissioning produces a loss, to the extent that the loss does not need to be carried forward under OTA75\S7(1) against any tariff and disposal receipts, it will be carried back under OTA75\S7(3), see OT16200. If there are insufficient assessable profits in earlier periods to absorb the loss, it may be possible to claim it as an unrelievable field loss in another field, see OT16250.