Roman Webber, UK head of oil & gas tax at Deloitte, the business advisory firm, comments on decommissioning initiatives announced in the 2012 Budget.

"Measures announced today will allow UK North Sea companies to enter into contracts with Government, which should offer long term certainty on future decommissioning cost tax relief. This will remove a major fiscal risk for UK North Sea investors and release significant funds for investment if companies can move to post-tax decommissioning guarantees. In the longer term this measure should also increase the tax take for the Government. Whilst much work remains to be done to work out the detail and legislation is not expected until 2013, this is a very positive development. Deloitte Petroleum Services Group estimates that the UK North Sea decommissioning costs for the remainder of the life of the UK North Sea will be around £27-30bn ($44-$48bn).

"The Government has also announced various targeted incentives including allowances and measures to stimulate investment in areas such as small fields, Brownfield development and technically challenging areas such as West of Shetland area.

"These proposed changes are the result of intense dialogue between Government and industry. They will go some way to restoring trust which had been shaken by last year's oil tax increase. Work done by the Deloitte Petroleum Services group showed that levels of exploration and drilling activity on the UKCS during 2011 were 34% lower than during 2010, and the lowest since 2003. To date, the levels in 2012 have been comparable to same period in 2011. The measures announced today show willingness of Government to work with industry to create an environment where the maximum economic recovery of hydrocarbons from the UK North Sea can be achieved in the future.

"Deloitte anticipates that proposed measures will incentivise and encourage higher exploration and appraisal activity levels, Brownfield and new field developments and overall investment in the UK North Sea. It may also trigger further confidence in the financial markets to support UK oil and gas investment plans. It is likely that asset transfers and deal flow will increase especially for smaller and medium independents looking to tap into mature producing assets."

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