Taxation Guidelines for Worldwide

Decommissioning.

U.N. Dep of Economic and Social Affairs.

Tenth Session of the Committee of Experts on International Cooperation in Tax Matters
Geneva,Switzerland. 27-31 October 2014

Mr Olav Fjellså, Petrad, Norway Dr Brian Twomey,

www.petrad.no Reverse Engineering Services Ltd, UK
Olav.fjellsaa@no.bp.com www.platform-decommissioning.com
bgt@resleng.com

UN Committee of Experts on International Cooperation in Tax Matters, Tenth Session

30th October 2014, Geneva
Decommissioning Is the Last Phase in the
Life Cycle of Oil & Gas Production

1902 2009

UN Committee of Experts on International Cooperation in Tax Matters, Tenth Session

30th October 2014, Geneva
Worldwide Oil & Gas Field Closure
& Decommissioning

UN Committee of Experts on International Cooperation in Tax Matters, Tenth Session

30th October 2014, Geneva
Example of Abandoned Near Shore Facilities 1 (Nov 2013)

UN Committee of Experts on International Cooperation in Tax Matters, Tenth Session

30th October 2014, Geneva
Abandoned Near Shore Facilities 2 (Nov 2013)

UN Committee of Experts on International Cooperation in Tax Matters, Tenth Session

30th October 2014, Geneva
Adjacent Abandoned Onshore Facilities (Nov 2013)

UN Committee of Experts on International Cooperation in Tax Matters, Tenth Session

30th October 2014, Geneva
 Abandoned Onshore Facilities (Mar 2013)

Wooden Cased Well from 1882

UN Committee of Experts on International Cooperation in Tax Matters, Tenth Session

30th October 2014, Geneva
 Worldwide Mine Closure &
Decommissioning

UN Committee of Experts on International Cooperation in Tax Matters, Tenth Session

30th October 2014, Geneva
 Inappropriate Tailings Disposal Threatens Society and the Environment

Mining Tailings in SE Asia

Mining Tailings in Eastern Europe

Mining Pit Lake in SE Asia

UN Committee of Experts on International Cooperation in Tax Matters, Tenth Session
30th October 2014, Geneva
 Potential Water Contamination from Tailings & Waste from Closed Mines

Mining Tailings River Contamination Mining Tailings in USA

Mining Tailings in Europe Mining Tailings in Australia

UN Committee of Experts on International Cooperation in Tax Matters, Tenth Session
30th October 2014, Geneva
 Potential Water Contamination from Closed Mines

UN Committee of Experts on International Cooperation in Tax Matters, Tenth Session

30th October 2014, Geneva
Why is Decommissioning & Remediation
Required?

UN Committee of Experts on International Cooperation in Tax Matters, Tenth Session

30th October 2014, Geneva
 Why is Decommissioning & Remediation
Required?
Social Responsibility
The idea that companies should embrace its social responsibilities and not be solely focused on
maximizing profits. Social responsibility entails developing businesses with a positive relationship to the
society which they operate in.

Law & Regulation

International law and regulation require that the oil or gas field is remediated to defined standards.

Reputation
Reputation is the way a company is viewed by other companies, governments, people and by the
community and the way these people think of you and your organization.

Liability
Amount of a decommissioning liability associated with a legal obligation that an organization incurs
when it constructs or operates an oil or gas asset that must eventually be withdrawn from active
service.

UN Committee of Experts on International Cooperation in Tax Matters, Tenth Session

30th October 2014, Geneva
Key drivers;
 Politics, Public Concern and Reputation

 Legal Requirements

 Cost and Economics

 Taxation framework

 Technical Feasibility

 Health, Risk and Safety

 Environmental Impact

 Other Users of the land and the sea

UN Committee of Experts on International Cooperation in Tax Matters, Tenth Session

30th October 2014, Geneva
Scale Worldwide Oil & Gas Field
Operations

UN Committee of Experts on International Cooperation in Tax Matters, Tenth Session

30th October 2014, Geneva
 Worldwide Offshore Decommissioning

102

9 30+?
3
1
3759 ?
7 in State
Waters ? ?
6+? 105

8?
~83
?
2 7

UN Committee of Experts on International Cooperation in Tax Matters, Tenth Session

30th October 2014, Geneva
 Scale of Offshore Decommissioning Projects

“The Office”

“Decommissioning is A Multi Trillion Dollar Global Market over next 20 years”

UN Committee of Experts on International Cooperation in Tax Matters, Tenth Session
30th October 2014, Geneva
 Decommissioning Issues- Cost
 18th Sept 2011 London: Willis “Decommissioning are you Ready” seminar
Gerry Borghesi, Exxon Mobil UK & Netherlands Production Manager &
Chairman UK Oil & Gas Decommissioning Steering Group

 2012 Bergen: DECC UK Regulator admits 3 to 4 time cost over runs in 2011
 RESL work 2010 to 2013 on in North Sea, Asia Pacific, Africa & GOM (over
180 facilities & 1600 wells ) average under accrual in decommissioning
costs 4 times to a worst case 10.5 times
UN Committee of Experts on International Cooperation in Tax Matters, Tenth Session
30th October 2014, Geneva
 Provisions versus cost estimate

UN Committee of Experts on International Cooperation in Tax Matters, Tenth Session

30th October 2014, Geneva
 Taxation and Financial Security

Who is paying for the decommissioning and remediation costs ?

How much should each party pay ?

UN Committee of Experts on International Cooperation in Tax Matters, Tenth Session

30th October 2014, Geneva
Decommissioning and Remediation costs

 International laws do not specify

 Who pays and how much determineded by;

 National rules and regulations
 The Production Sharing Agreement
 JOA, unit agreement or other agreements

 Key stakeholders;
 Government (tax payer), operator, JVP,..

UN Committee of Experts on International Cooperation in Tax Matters, Tenth Session

30th October 2014, Geneva
Financial Security

 Current cash flow/existing operations.

 Parent Company guarantee.

 Bank guarantee.

 Letter of Credit.

 Insurance guarentee

 Decommissioning fund.

UN Committee of Experts on International Cooperation in Tax Matters, Tenth Session

30th October 2014, Geneva
Tax

 Decommissioning & remediation costs are in most countries considered a

business expence and tax system allow deduction from taxable income.

 The deductable share differes from country to country, and among

Production Sharing Agreements.

 Deduction may not be claimed before the decommissioning work take place.

 Allocation to cover future removal costs are often not deductible.

UN Committee of Experts on International Cooperation in Tax Matters, Tenth Session

30th October 2014, Geneva
Recommendations

 Clarify the sectorial and national law, regulation & guidelines

applicable to the extractive industries.
 Build flexibility in the legal framework & guidelines to quantify liabilities and to
develop the optimal solution.

 Clarify who and how much decommissioning costs each party

should contribute.
 Taxation
 Financial Security

 Is there a need to develop taxation guideline for worldwide

decommissioning?

UN Committee of Experts on International Cooperation in Tax Matters, Tenth Session

30th October 2014, Geneva
 Thank you for your attention

Any Questions ?

UN Committee of Experts on International Cooperation in Tax Matters, Tenth Session

30th October 2014, Geneva