Capital Allowances Act 2001 section 167

Oil production sharing contracts

Section 167 defines what constitutes an oil production sharing contract and sets the scene for the special capital allowances rules that apply to contractors who provide plant and machinery under such contracts.

• A production sharing contract is an agreement between a contractor and the government of an oil-producing country, under which the contractor provides plant and machinery for oil-related activities that must be transferred to the government
• Plant or machinery has an "oil-related use" if it is used for exploring, accessing or extracting oil, for initial storage or treatment, or for purposes ancillary to oil extraction
• Without these special rules, contractors would not qualify for capital allowances because ownership of the plant and machinery passes to the government, and the transfer itself would trigger a disposal event
• Sections 168 to 170 build on this definition to grant allowances and prevent the mandatory transfer from being treated as a disposal event