BP’s planned North Sea exit raises alarm for UK to strengthen decommissioning regulation

For immediate release: Tuesday 4 August 2026

BP’s planned North Sea exit raises alarm for UK to strengthen decommissioning regulation

• BP likely to benefit from generous tax relief from selling ageing North Sea assets

• Taxpayers on the hook for clean-up costs if future buyer goes bust, experts warn

• Proposed sale another reminder for government to strengthen decommissioning regime

LONDON – The announcement that oil giant BP intends to exit the North Sea is a stark reminder for the UK government to strengthen its decommissioning regulation before any proposed sale, experts caution.

Under the current regulatory regime, BP is likely to benefit from generous tax relief from selling its ageing assets in the mature basin – where it has been operating for 60 years – even if they’re sold to a financially risky buyer.

Redwater Insights highlights how changes to UK regulation could reduce financial risks associated with oil and gas decommissioning liabilities, and lessen the burden on taxpayers if a future buyer defaults. Policy changes to ensure timely decommissioning can also deliver tens of thousands of jobs and create economic benefits, research shows.

Redwater Insights is a data-driven research group analysing the risks associated with oil and gas decommissioning liabilities. Redwater Insights Research Director Rob Schuwerk said:

“The North Sea is a mature basin. Its operators have saved only a fraction of the costs needed for the future decommissioning work they’re legally required to perform. As fields decline further, defaults are more likely, putting co-owners, former owners and eventually HM Treasury – and the taxpayer – at risk.

“BP has reportedly already begun abandonment of half its North Sea fields, with its decommissioning liability estimated at £2.6 billion. The risk here is that BP will sell its ageing assets to smaller, less capitalised operators.

“Because of decommissioning relief deeds, any defaults will result in HMRC paying the maximum allowable tax credits to responding parties, in a best case scenario. In the worst case, the UK foots the bill itself. The UK needs to ensure any potential buyer has the funds to pick up the decommissioning tab sold on by BP.”

Tax rewards for risky business

The UK’s ‘trailing liability’ regime requires past owners to pay the decommissioning bills when current owners default. This provides some measure of protection against the public assuming the entire decommissioning bill.

Under the current tax system for the oil and gas industry, the UK government pays a portion of decommissioning costs via tax credits, set against the Ring Fence Corporation Tax and Supplementary Charges. This is true for a company paying its own liabilities as well as those that come back to it through defaults.

The extent of the tax credits are capped by company profits, current and historic, so if every company paid its own decommissioning charges, the full potential credit would not be used. The problem is that the UK has also entered into decommissioning relief deeds (DRDs), which essentially guarantee the equivalent of the tax credit whenever a party must fulfill decommissioning obligations of a defaulted entity.

By selling these assets to another party – even one incapable of meeting its legal clean-up obligations – BP will be guaranteeing itself a maximum payout under the DRDs. Instead of forcing companies to save for retirement, DRDs guarantee tax credit returns to companies that sell assets to risky companies.

Recommendations

Treasury bears the industry’s default risk as the decommissioner of last resort. The government should strengthen the governance of asset and license transfers, and take every available measure to ensure the public are not burdened with any future clean-up costs.

Extracting itself from existing DRDs is a thorny matter, but BP’s planned North Sea exit should prompt government to stop entering into new deeds with other operators which would otherwise replicate the problem. Before BP’s planned sale, Redwater Insights also recommended the government:

• Introduce a tougher ‘fit-and-proper’ test on licence transfers; and,

• Require up-front pre-funding of decommissioning costs that is transferred with the asset.

Pre-funding would require licence holders to pay for part of their decommissioning costs up-front – rather than when the work is due – as a protection for taxpayers if an operator becomes insolvent before clean-up is complete. A tougher licence transfer test would include stronger financial-capability checks before a licence or controlling stake in an operator is transferred.

Redwater Insights highlighted the potential benefits from decommissioning the already overdue inactive wells in the North Sea. Recent research shows urgent clean-up work could:

• Support more than 25,000 UK jobs each year;

• Provide jobs for 15,000 current oil and gas workers currently facing the ‘cliff edge’ of unemployment; and,

• Generate £15 billion in economic benefit for the UK.

-ENDS-

Media contact: Redwater Insights: media@redwaterinsights.org

About Redwater Insights

Redwater Insights offers data-driven research and analysis on the financial and environmental risks associated with oil and gas clean-up and decommissioning liabilities. Our expert team combines financial, legal, data and regulatory analysis to provide sector-leading ARO insights across regulation and policy, audit and accounting, and data and analytics. We use this insight to inform and advise the industry, investors and policy makers with an aim of strengthening accountability and improving market integrity.