Can the Transfer of Tax History Enhance Later Field Life Transactions in the UKCS?

60 Pages Posted: 15 Sep 2017

See all articles by Alexander G. Kemp

Alexander G. Kemp

Aberdeen Centre for Research in Energy Economics and Finance, University of Aberdeen

Linda Stephen

University of Aberdeen - Business School

Date Written: July 28, 2017

Abstract

To maximise economic recovery from the UK Continental Shelf it is generally agreed that assets should be in the hands of those investors who are best willing and able to achieve this. Transactions in mature fields in the UKCS should therefore not be discouraged by the tax system. This study compares the post-tax remaining net present value of mature fields from the perspective of both potential sellers and buyers with emphasis on the comparative tax relief for decommissioning costs. The economic modelling was conducted on (1) a set of representative model fields, and (2) a set of representative real fields. It was found that when the asset transactions took place in late field life the effective decommissioning tax relief for the buyer was often less than that for the seller, resulting in the remaining NPV of the buyer being less than the remaining NPV of the seller, thus discouraging the asset transaction. Transfer of the tax history of the seller to the buyer as an element in the transaction can remove this discouraging feature.

Keywords: Financial simulation modelling, Economic limit, Decommissioning tax relief, Transfer of tax history

JEL Classification: D21, G17, G18, Q35, Q47

Suggested Citation

Kemp, Alexander G. and Stephen, Linda, Can the Transfer of Tax History Enhance Later Field Life Transactions in the UKCS? (July 28, 2017). Available at SSRN: https://ssrn.com/abstract=3036379 or http://dx.doi.org/10.2139/ssrn.3036379

Alexander G. Kemp (Contact Author)

Aberdeen Centre for Research in Energy Economics and Finance, University of Aberdeen ( email )

Edward Wright Building
Dunbar Street
Old Aberdeen AB24 3QY, Scotland AB24 3QY
United Kingdom
(0)1224 272168 (Phone)
(0)1224 272181 (Fax)

Linda Stephen

University of Aberdeen - Business School ( email )

Edward Wright Building
Dunbar Street
Old Aberdeen AB24 3QY, Scotland AB24 3QY
United Kingdom

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