Provision of Decommissioning Security

Oil & Gas UK, working closely with BERR, has developed a standard commercial agreement to be used for decommissioning known as the Decommissioning Cost Provision Deed (DCPD). Whilst this document was only completed in 2007, it is fast becoming the standard protocol to be used across the UKCS. It provides a robust legal structure and a systematic means of apportioning and securing decommissioning liabilities. It is designed to cover all affected parties within a field development, but has options which provide flexibility and allow its use in bilateral arrangements. It is, therefore, to the benefit of all involved and both BERR and Oil & Gas UK actively support its use across the industry.

Currently the only effective instrument for the provision of financial security is a Letter of Credit from a bank. This lack of alternative means of providing security is seen as an obstacle by both industry and BERR, with the increasingly diverse range of companies now investing in or seeking to enter the UKCS. It can be foreseen that the availability of Letters of Credit for companies with limited assets may well diminish at the same time that decommissioning liabilities start to materialise which would prove to be counter productive. Industry considers that a wider range of securities is required. This can best be resolved by allowing companies to opt to provide for future decommissioning costs via dedicated trust funds, with deposits being allowable for taxation purposes at the time of alienation. This would greatly increase the means of providing security available to investors and better protect the government’s position in the long term. In particular, this measure would be fundamentally beneficial to smaller investors who may not have sufficient assets outside the field in which they are investing to be able to cash collateralise a Letter of Credit on a pre-tax basis.