Dismantling North Sea oil and gas rigs could cost UK taxpayers £60bn

Dismantling the North Sea's oil rigs could take a hefty toll on the pockets of British taxpayers, after it was revealed costs may rocket towards the £60bn mark.

According to a report by the Oil and Gas Authority (OGA), decommissioning gas and oil operations in the region would cost £59.7bn ($77.4bn), higher than the business department's previous estimate of £52bn and above a recent forecast compiled by industry experts Wood Mackenzie, which put the tally at £53bn.

While half of the sum will be paid for by oil and gas companies, the remainder will fall upon taxpayers through tax relief.

The decommissioning of oil and gas rigs has been underway for years. However, while only smaller rigs were affected to begin with, the sharp decline suffered by the industry means dismantling operations have begun on much bigger sites.

Last month, Shell removed the first of four rigs from its Brent field 100 miles north of Shetland, as it kicked off a multi-year project that will cost billions by itself. Along with fellow industry giant BP, the Anglo-Dutch company has sold interests in its North Sea operations to smaller competitors.

More worryingly for taxpayers, OGA warned that the worst case scenario could see the total bill amount to £82.7bn, although authorities have urged oil and gas firms to cut costs by 35% in a bid to ensure the final bill does not exceed £39bn.

"This report provides us with a starting-point cost estimate of £59.7bn to decommission UK oil and gas infrastructure," said OGA's operation director Gunther Newcombe.

"The challenge now is to save industry and the taxpayer money and achieve safe decommissioning for £39bn or less."

However, Newcombe added hitting the cost target set out by OGA would entail oil and gas companies implementing "significant change" to the way they currently deal with decommissioning work.

Because of their contribution to the Treasury during production years, firms in the industry receive between 40% and 75% tax relief on the cost of cleanup operations. However, tumbling oil prices and the cost of decommissioning rigs led to a drain net of £396m on public coffers last year.

Under current legislation, companies that have run an oil and gas operation and paid tax for years can claim tax relief, although the benefit is not transferable with a sale. However, earlier this year, the Treasury unveiled plans to attach the tax relief for dismantling operations to a particular asset - such as an oil rig, for example - rather than to a company.

However, a shift in the public perception of rigs could work to keep costs under control. A number of conservationists have thrown their weight behind the so-called "rigs to reef" approach, which consists in old rigs being left to become artificial reefs, rather than being completely removed.

Those who have lent their support to this strategy argue that the funds saved by not removing the rigs could be directed towards a fund aimed at protecting sea life.