Can the Transfer of Tax History Enhance Later Field Life Transactions in the UKCS?

To maximise economic recovery from the UK Continental Shelf it is generally agreed that assets should be in the hands of those investors who are best willing and able to achieve this. Transactions in mature fields in the UKCS should therefore not be discouraged by the tax system. This study compares the post-tax remaining net present value of mature fields from the perspective of both potential sellers and buyers with emphasis on the comparative tax relief for decommissioning costs. The economic modelling was conducted on (1) a set of representative model fields, and (2) a set of representative real fields. It was found that when the asset transactions took place in late field life the effective decommissioning tax relief for the buyer was often less than that for the seller, resulting in the remaining NPV of the buyer being less than the remaining NPV of the seller, thus discouraging the asset transaction. Transfer of the tax history of the seller to the buyer as an element in the transaction can remove this discouraging feature