23 Sep 2013

Decommissioning Deeds

Now for the tricky bit!

Now that the pro forma Decommissioning Relief Deed is in its “final” form we understand the Government intends to enter into the Deed with the first batch of companies in a four day window starting on Monday October 14th. In order to be able to do this various details supporting a company’s entitlement and capacity to enter into the Deed have to be provided to HMT by 27th September.

The Treasury have indicated that it will be difficult at this time to accommodate companies who did not volunteer to be within the first batch. It is unclear what the timetable will be for other companies but a company would need to consider applying a soon as practical if it intends to be able to take advantage of the Deed and post Security on a net of tax basis for 2014 given that we understand the security arrangements have to generally be agreed by the end of November.

Buyers of licence interests who have had to post security in connection with the purchase of those interests should also be revisiting those agreements as soon as practical to determine whether there is an immediate need to sign up to the Deed.

Of course companies in a field group have two potentially conflicting requirements. They will be keen to ensure that the cost of security they are obliged to provide is minimised whilst trying to secure that other partners provide as full protection as possible.

For fields which have paid PRT, other than perhaps those which have been fully PRT paying for all partners for many years, evaluating the potential impact PRT will have on the level of security is likely to be complex. For example the level of security required by each partner will turn very much on that partner’s capacity as well as that of their predecessors. The fact that one can choose whether to utilise one’s own capacity or that of the defaulter will also be relevant and it is therefore also possible that the relative level of security required in respect of a potential default by one company will vary depending on the identity of the non defaulting party. Negotiations within the field group to agree an acceptable level of security could be protracted for certain field groups.

These potential difficulties mean that it is important that companies obtain as much detail of the “field position” as soon as is practical and that companies carefully map out and evaluate the matrix of possible outcomes.

For fields which are outside the scope of PRT or have never paid PRT the process of amending the DSA to reflect the Deed should be more straightforward, although even here care will be needed. For example, the timing of when monies are released from security to fund decommissioning may be crucial in ensuring effective security where post tax security has been given.

Please let us know if you would like to discuss any aspect of the process.

23 September 2013


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