On 30 March 2011, the Department of Energy and Climate Change (“DECC”) issued its consultation on charging a fee in respect of decommissioning programmes for offshore oil and gas installations and pipelines.

The Petroleum Act 1998 gives the Secretary of State the power to charge a fee when a decommissioning programme is submitted or a request is made for the revision of a programme.  Currently, DECC does not charge the oil and gas industry such fees.  DECC now intends to charge a fee for providing this function rather than passing the costs onto the taxpayer, which it states would be consistent with the “polluter pays” principle of environmental law.  According to DECC, the objective of the proposed fee is to ensure that those who are responsible for offshore oil and gas installations and pipelines pay an appropriate fee, which will enable DECC to recover its costs which it believes would be fair to both industry and the taxpayer

Proposed Charging Options

DECC has set out four options for calculating the proposed fee for submitting a decommissioning programme.

  1. Type of Facility

This will involve establishing three charging bands depending on the type of facility, with band (a) attracting the highest fee:

(a)    Derogation candidates/large platforms (concrete installation/steel installation with a jacket weight greater than 10,000 tonnes).

(b)    Other platforms with a jacket weight less than 10,000 tonnes and subsea installations (manifold, well head protection structure(s) etc.).

(c)    Pipelines, which would attract the lowest fee.

  1. Field Production

This will involve setting three categories based on the level of production.  For example, 0-49 million barrels of oil equivalent (“mmboe”), attracting a lower fee; 50-149.999 mmboe, associated with a medium fee; and 150 mmboe upwards, associated with a higher fee.

  1. Man Hours Spent

This charging option is based on the amount of DECC resource used in relation to a particular installation/pipeline.  However, DECC does recognise that this option would place an administrative burden on licensees and therefore increase the overall cost.

  1. Flat Rate Fee

This option is based on looking at historical evidence to estimate the number of decommissioning programmes that are likely to be approved for the following year and then dividing the costs of the Offshore Decommissioning Unit (“ODU”) by the estimated number of programme approvals, or, by estimating the number of programmes likely to be approved over a set period (e.g. the next 5 years) and then dividing ODU’s costs for the next 5 years by the number of programme approvals for the same period.

As regards the fee for revising a decommissioning programme, DECC’s proposes to charge a small flat rate fee.  

Comment

There is no indication as to what the fees will actually be, but according to the impact assessment, the cost to the ODU to approve/revise decommissioning programmes is £800,000 a year.  There is currently one decommissioning programme under consideration.  In 2011, one programme was approved.  In 2010, three programmes were approved, and in 2009, one programme was approved.  Information on DECC’s website showing the number of decommissioning programmes that have been approved going back to 1988 indicates that on average, approximately two programmes are being approved each year, and during that time, only one programme was submitted for revisal.  Therefore, if DECC’s preferred option was to charge a flat rate fee (option 4), then an operator and its partners would be required to pay in the region of £400,000 for submitting a decommissioning programme.  It would seem unreasonable to expect one or two applicants to bear the entire costs of the department, although the cost on this basis would presumably fall over the medium term as the number of decommissioning programmes is expected to rise substantially. Whichever approach is taken, DECC should probably seek to balance its budget over the medium rather than the short term.

The closing date for responses to the consultation is 22 June 2011.  Please click here for the full consultation document