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You all know this anyway

But a little paperette about how oil companies aren’t subsidised by the tax system.

16 thoughts on “You all know this anyway”

  1. Couldn’t happen at a better time. The UK deserves the politicians it voted for and the colossal financial mess that’s coming.

  2. Damifino what the decommissioning system is in Oz. But I’ve noticed that the states have imposed huge tax rises on the coal and gas producers. In addition to making it difficult for them to drill for more gas. And just about impossible to open more coal mines. After all it’s all gotta be shut down to achieve Net Zero you know.

    So the Japs, South Koreans etc are whinging that they won’t be able to rely on Oz to provide their fossil fuel. And snuggling up to the Middle Easterners.

    Looks to me like there’ll be a colossal fuckup. But we can’t expect anything else from the green nonsense.

  3. “This is a surprising thing for a professor of accounting practice to say.”

    Oh no it isn’t!

    In fact he’s the pantomime professor.

    He’s behind you!

  4. A good piece, Mr Tim. I’ve always wondered about the means by which political morons have persuaded themselves that taxpayers pay vast and billowing subsidies to evil oilcos. You’ve answered it: the cretins believe what they read in the Guardian.

  5. When I’ve tried to explain this to people, I stumble on the first step due to the dogma of the audience:
    “So, an entity’s operating costs are their, well, operating *costs*, so that reduces the total money they make that is taxed…”
    “No, that’s not right! How dare they! That must be banned!” etc.

  6. It would seem an ample demonstration that government is only ever interested in maximising revenues in the now. The future doesn’t much interest them. Which would seem to drive the final nail into the coffin of the utility of Carbon Taxes. They will be/are used to maximise revenue, not optimise the use of fossil fuels.

  7. Bloke in Aberdeen

    “However, this does not happen in the North Sea, because oil companies are forbidden from setting money aside in this way”

    Is this really true Tim? Companies can enter into a DSA (Decommissioning Security Agreement) to put aside letters of credit or cash.

  8. Presumably there is some reason why an oil company cannot form a subsidiary for each oil well and let it go bankrupt when decommissioning costs actually arise.

    More fairly, an oil company should try to negotiate an agreement whereby it pays the extra tax in return for passing the obligation to decommission to the state.

  9. If I was in charge of decommissioning I’d order the platforms to be cut off 15 metres below sea level and the rest left in situ.
    Voila! A marine reserve. At negative cost.
    Trawlermen have been raping the seabed for too long already. The North Sea had mussels over a metre thick back in the day, so if they lose their nets it’s their own fault. Having an occasional Russian submarine bump into an abandoned platform would just be a bonus.

  10. @ Bloke in Aberdeen
    Companies are not actually forbidden to set aside money for decommissioning costs – they are merely required to publish accounts pretending that they do not do so and pay tax on the basis of that fiction.
    Just like Gordon Brown ordered banks to ignore the possibility of bad debts occurring/crystallising more than 12 months in the future when submitting tax returns. [One side-effect was the ridiculous/offensive level of bonuses paid due to the over-statement of profits since the bonus systems had been contractually agreed when the banks were allowed to publish honest profits.]

  11. @Charles- yes. You need permission to transfer ownership of an asset, and part of that permission is an assessment about financing decommissioning. If there government isn’t convinced, the transfer can still happen, but the selling company retains liability for decom if the buying company can’t afford it.

    @John 77
    Big company accountancy always seemed strange to me. I do know that oil companies are obliged to estimate their decommissioning liabilities, which presumably sits on their books somehow.

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