OT27005 - Abandonment and Decommissioning

Meaning of Abandonment, Decommissioning and Demolition

Prior to 7 August 2000, the statutory definition of ‘Abandonment Expenditure’ restricted the scope of relief to the cost of demolition of the relevant machinery or plant.

‘Demolition’ had no technical meaning in the oil industry and OTO adopted a broad interpretation based on its everyday meanings. Dictionary definitions suggested two basic meanings – destroying and making an end of.

A list of qualifying activities, the costs of which would be regarded as demolition, appears in the old Ring Fence CT Manual at para 5.2. The scope of demolition included plugging wells, dumping or toppling rigs, purging and sealing pipelines, removal of debris and restoring sites. It did not include removal for reuse rather than scrap, nor did it cover the burying of a pipeline on the seabed.

Many of the costs which OTO would formerly have regarded as not being incurred on demolition and thus not eligible for relief will now be treated as qualifying under the new definitions of decommissioning ( OT27011) and decommissioning expenditure ( OT27031).

It should be noted that the decommissioning process may take place over an extended period of time. For example, a well may be plugged several years before a platform is dismantled or removed. This does not affect eligibility for relief provided all the relevant conditions are met.

It will be important in applying the new legislation to determine whether any expenditure claimed does in fact fall within the statutory definitions of decommissioning and decommissioning expenditure and satisfies the other conditions for relief. Any matters of doubt should be referred to an Assistant Director.