Decommissioning and rehabilitation: funding models
Kenneth WeeDeloitte, Level 9, Brookfield Place – Tower 2, 123 St Georges Terrace, Perth, WA 6000, Australia. Email: kwee@deloitte.com.au
The APPEA Journal 61(2) 526-529 https://doi.org/10.1071/AJ20180
Accepted: 22 March 2021 Published: 2 July 2021
Abstract
Decommissioning oil and gas facilities and rehabilitating a petroleum operation area involve complex, lengthy and costly processes. Funding the liability for the decommissioning and rehabilitation phase of a petroleum project is determined by the juxtaposition of a matrix of three fundamental and closely interdependent policy decisions on:
whose obligation it is (the proponent, the state or both) to carry out decommissioning,
whose liability it is (the proponent, the state or both) to pay for decommissioning and
which decommissioning funding model is appropriate for the proponent and/or the government (if there is state participation). Proponent models may include funding with or without security or contributions to a decommissioning fund. Government funding models are inextricably linked with the imposition, collection and appropriation of the fiscal take applying to the oil and gas sector.
There are therefore many variants in the responses to, and stance taken, on the above policy issues. It is, however, universally accepted that the state should not be inadvertently left with the ultimate obligation and/or the liability for decommissioning and rehabilitation. The preferred policy choice involves finely balancing the interests of the state without disincentivising private sector investment in the development of the petroleum resource. This study will review the pros and cons of the main alternative funding models typically used internationally, the status of Australia’s decommissioning funding and associated fiscal policies, whether and to what extent the Australian government participates in the funding of decommissioning and rehabilitation undertakings and proposed improvements to the policy design settings.
Keywords: decommissioning, floating production, storage and offtake facility, income tax, Petroleum Resource Rent Tax (PRRT), rehabilitation, remediation, tax relief.
Kenneth Wee is a Principal in the Business Tax division of Deloitte’s Perth office and specialises in providing advice on Australian corporate tax and Petroleum Resource Rent Tax to clients in the oil and gas industry. He holds a Bachelor of Commerce degree and is both a chartered accountant and chartered tax adviser, with more than 18 years of experience. Kenneth’s expertise encompasses advising on corporate and international tax, restructures, mergers and acquisitions, and financing and capital management matters. He has also worked extensively in the areas of tax audits/reviews, rulings, tax law policy and design advocacy, and managing tax controversies and disputes. |
References
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