Decommissioning—decommissioning relief deed
Produced in partnership with Isla Stewart of Matheson
Decommissioning—decommissioning relief deed

The following Energy guidance note Produced in partnership with Isla Stewart of Matheson provides comprehensive and up to date legal information covering:

  • Decommissioning—decommissioning relief deed
  • Oil and gas taxation—the need for a DRD
  • Legislative framework of the DRD
  • Payments under the DRD
  • Making a claim under a DRD
  • Anti-avoidance
  • Applying for a DRD

The Decommissioning Relief Deed (DRD) is a contract between the UK government and a 'Qualifying Company' which operates in the oil and gas exploration and production market in the UK or on the UK Continental Shelf (UKCS).

It aims to provide certainty on the tax relief a Qualifying Company will receive at the time of offshore oil and gas decommissioning and, in certain circumstances, may render a payment from the UK government to the Qualifying Company.

The DRD is in a prescribed format published by the UK government and cannot be amended.

For more information on decommissioning in the oil and gas sector, see Practice Notes:

  1. Decommissioning—legislative background

  2. Decommissioning—International Law and UK Government Policy

  3. Decommissioning—planning for decommissioning

Oil and gas taxation—the need for a DRD

The oil and gas industry has had a tumultuous relationship with the government in respect of taxation. The industry pays traditional corporation tax on all profits but also pays additional corporation tax (ring fence corporation tax (RFCT) and supplementary charge (SC)) on profits derived from oil and gas exploration and production activities. Older fields also pay an additional field tax (petroleum revenue tax (PRT)). At one point, taxes reached the heights of an effective rate of 81% for PRT paying fields, and 62% for non-PRT paying fields. Tax relief is granted to the industry for decommissioning activities through