OT60080 - Transferable Tax History - Uplifted Decommissioning Costs Estimate

The Uplifted Decommissioning Costs Estimate (UDCE) is calculated by doubling the estimated decommissioning costs (the ‘net cost amount’) associated with the TTH asset, after making any such adjustments as may be required in accordance with paragraph 9 of Sch 15 to FA19.

The ‘net cost amount’

The net cost amount is the estimate of the decommissioning costs of the field at the time of the election, based on the estimate in a relevant decommissioning security agreement (DSA). There are a number of different types of DSA, including ones between some or all of the licensees in a particular field, and bilateral DSAs between a current and former licence holder agreed at the time of the licence sale. Broadly, any commercially agreed DSA which provides an estimate of decommissioning costs and provides for security to be posted in respect of the parties’ obligations to decommission the field can be a qualifying DSA.

For a DSA to be a “qualifying” DSA for TTH the seller must be a party to the agreement and at least one of the other parties must not be associated with the seller and the underlying estimates of decommissioning costs are reasonable.

Where there is only one DSA for the TTH asset, and provided this DSA was prepared within the 12 months prior to the transfer, the most recent approved estimate of decommissioning costs in that DSA should be used.

Where there are multiple DSAs, then the lowest estimate of decommissioning costs in any of those DSAs prepared within the 12 months prior to the transfer should be used.

If a field does not have a DSA, or no estimate of decommissioning costs has been made in the 12 months prior to the transfer, the parties to the transfer may agree to make one at the time of the transfer, allowing them to use this figure as the net cost amount. If they do not agree a DSA, or an estimate of the decommissioning costs within the 12 months prior to the transfer, the net cost amount is nil. Therefore, the DSA cap will be nil, and so no TTH can be transferred.