The Treasury is to carry out a review of North Sea tax rules in order to find ways of encouraging greater investment in UK oil and gas assets — and spreading the multi-billion-pound cost of decommissioning between industry and the Government.

An expert panel will examine how to make it easier to buy and sell North Sea oil and gas fields, with the aim of keeping them in production for longer.

Oil and gas companies are allowed to claim tax relief on the cost of plugging wells and dismantling infrastructure when fields cease production. However, the value of these benefits depends on how much tax the operator has paid during the life of the asset.

Industry leaders say these rules deter the trading of oil and gas fields, because the buyer cannot claim relief on taxes paid by the previous owner.

Industry analysts say that removing this blockage to deal-making has become a more pressing issue as many older North Sea fields approach the end of their productive lives, while producers are having to deal with high costs and low oil prices.

There are said to be 10-20 billion barrels of recoverable oil and oil equivalent remaining beneath the North Sea, compared with 43 billion barrels extracted since production started in 1967.

Derek Leith, an oil and gas specialist at Ernst & Young says that, if new investment fails to materialise, “the North Sea basin could fall into a spiral of declining production and costly decommissioning.”

Claire Angell, KPMG’s oil and gas tax partner, says that the Treasury is willing to consider the transfer of existing tax relief, but it is determined to avoid taking on a bigger share of the decommissioning bill.

“The Treasury is saying: ‘we understand the problem’, but it has also made clear that any solution will have to be achieved without increasing the cost for the Exchequer.”