UK CROSS FIELD PRT RELIEF FAVOURS SMALLER FIELDS
The "cross field allowance" relief on
Petroleum Revenue Tax (PRT) announced by U.K. Chancellor of the
Exchequer Nigel Lawson this week will favour smaller non-PRT
paying fields, according to stockbrokers Wood Mackenzie and Co.
    The cross field allowance offsets up to 10 pct of
qualifying spending on a new oil field against PRT liability of
other fields. It is restricted to new offshore developments
outside the southern basin and yet to gain Annex B approval.
    A report by the stockbrokers said that on a new field not
paying PRT due to its small size, the relief would directly
benefit in PRT saving on an existing field.
    "The cross field allowance will mainly benefit participators
in those fields which have no PRT liability," the report said,
adding that the timing of development of such fields may be
advanced.
    The government would in effect be subsidising these
developments at 7.5 pct of capital expenditure before
corporation tax, the report said.
    On fields likely to pay PRT in the future, the benefit is
of timing. Although liabilities on other existing fields will
be reduced immediately, liabilities on larger new fields will
rise in the future due to the loss of offsets, it said.
    In a study on probable fields, the report said that when
the rates of return are examined, the rise for a PRT-paying
field such as Miller, the largest undeveloped oil field in the
U.K. North Sea, is from 18.7 to 19 pct, while the rise for a
small non-PRT paying field such as Kittiwake is 15.9 to 17.9
pct.
    The report added that in fields which pay PRT, there will
be a cost in being able to have this early relief. Not only
will these costs be unavailable for offset against the field's
future profits, but uplift of some 35 pct on these costs will
be lost.
    Thus, a saving of PRT of 100 when field development starts
will have to be matched by a rise in PRT of 135 at a later
time.
 Reuter
