taxation guidelines for worldwide decommissioning
TRANSCRIPT
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UN Committee of Experts on International Cooperation in Tax Matters, Tenth Session30th October 2014, Geneva
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 MattersGeneva,Switzerland. 27-31 October 2014
Mr Olav Fjellså, Petrad, Norway [email protected]
Dr Brian Twomey, Reverse Engineering Services Ltd, [email protected]
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UN Committee of Experts on International Cooperation in Tax Matters, Tenth Session30th October 2014, Geneva
Decommissioning Is the Last Phase in the Life Cycle of Oil & Gas Production
1902 2009
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UN Committee of Experts on International Cooperation in Tax Matters, Tenth Session30th October 2014, Geneva
Worldwide Oil & Gas Field Closure & Decommissioning
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UN Committee of Experts on International Cooperation in Tax Matters, Tenth Session30th October 2014, Geneva
Example of Abandoned Near Shore Facilities 1 (Nov 2013)
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UN Committee of Experts on International Cooperation in Tax Matters, Tenth Session30th October 2014, Geneva
Abandoned Near Shore Facilities 2 (Nov 2013)
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UN Committee of Experts on International Cooperation in Tax Matters, Tenth Session30th October 2014, Geneva
Adjacent Abandoned Onshore Facilities (Nov 2013)
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UN Committee of Experts on International Cooperation in Tax Matters, Tenth Session30th October 2014, Geneva
Abandoned Onshore Facilities (Mar 2013)
Wooden Cased Well from 1882
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UN Committee of Experts on International Cooperation in Tax Matters, Tenth Session30th October 2014, Geneva
Worldwide Mine Closure & Decommissioning
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UN Committee of Experts on International Cooperation in Tax Matters, Tenth Session30th October 2014, Geneva
Inappropriate Tailings Disposal Threatens Society and the Environment
Mining Pit Lake in SE Asia
Mining Tailings in Eastern EuropeMining Tailings in SE Asia
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UN Committee of Experts on International Cooperation in Tax Matters, Tenth Session30th 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
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UN Committee of Experts on International Cooperation in Tax Matters, Tenth Session30th October 2014, Geneva
Potential Water Contamination from Closed Mines
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UN Committee of Experts on International Cooperation in Tax Matters, Tenth Session30th October 2014, Geneva
Why is Decommissioning & Remediation Required?
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UN Committee of Experts on International Cooperation in Tax Matters, Tenth Session30th October 2014, Geneva
Why is Decommissioning & Remediation Required?
Social ResponsibilityThe 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 & RegulationInternational law and regulation require that the oil or gas field is remediated to defined standards.
ReputationReputation 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.
LiabilityAmount 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.
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UN Committee of Experts on International Cooperation in Tax Matters, Tenth Session30th 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
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UN Committee of Experts on International Cooperation in Tax Matters, Tenth Session30th October 2014, Geneva
Scale Worldwide Oil & Gas Field Operations
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UN Committee of Experts on International Cooperation in Tax Matters, Tenth Session30th October 2014, Geneva
102
3759
7 in StateWaters
105
8 ?
9
?
?
?
3 30+?
6+?
Worldwide Offshore Decommissioning
~83
72
1?
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UN Committee of Experts on International Cooperation in Tax Matters, Tenth Session30th October 2014, Geneva
Scale of Offshore Decommissioning Projects
“The Office”
“Decommissioning is A Multi Trillion Dollar Global Market over next 20 years”
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UN Committee of Experts on International Cooperation in Tax Matters, Tenth Session30th October 2014, Geneva
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
Decommissioning Issues- Cost
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
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UN Committee of Experts on International Cooperation in Tax Matters, Tenth Session30th October 2014, Geneva
Provisions versus cost estimate
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UN Committee of Experts on International Cooperation in Tax Matters, Tenth Session30th October 2014, Geneva
Who is paying for the decommissioning and remediation costs ?
How much should each party pay ?
Taxation and Financial Security
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UN Committee of Experts on International Cooperation in Tax Matters, Tenth Session30th 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,..
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UN Committee of Experts on International Cooperation in Tax Matters, Tenth Session30th October 2014, Geneva
Financial Security
Current cash flow/existing operations.
Parent Company guarantee.
Bank guarantee.
Letter of Credit.
Insurance guarentee
Decommissioning fund.
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UN Committee of Experts on International Cooperation in Tax Matters, Tenth Session30th 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 amongProduction Sharing Agreements.
Deduction may not be claimed before the decommissioning work take place.
Allocation to cover future removal costs are often not deductible.
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UN Committee of Experts on International Cooperation in Tax Matters, Tenth Session30th 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 worldwidedecommissioning?
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UN Committee of Experts on International Cooperation in Tax Matters, Tenth Session30th October 2014, Geneva
Thank you for your attention
Any Questions ?