How does Schedule 3 paragraph 2 of the Oil Taxation Act 1975 define the market value of oil?

Market value is the price oil could reasonably fetch in a hypothetical arm's length sale to a willing buyer. The oil must have undergone appropriate initial treatment and be delivered at or near the place of extraction. The Board's regulations prescribe how the price is calculated using published prices, averaging methods, and specified time periods.

What is the difference between Category 1 and Category 2 oil under Schedule 3 paragraph 2?

Category 1 oil is designated by the Board because its price reports are published and widely available. Category 2 oil is any oil not so designated. For Category 1, the hypothetical contract involves a single standard cargo with a three-day loading window. For Category 2, delivery timing reflects normal market practice for that grade.

What happens when the Board cannot determine oil market value using the standard regulatory method?

If the Board finds it impracticable or inappropriate to apply the normal regulatory pricing method — due to insufficient contracts, published prices, information, or market conditions — it may determine the price using alternative contracts or published prices for a different kind of oil, applying regulatory averaging principles, or any other method considered suitable.

How is the delivery location determined for the hypothetical arm's length oil sale?

For onshore UK oil, delivery is at the place of extraction. For offshore oil, delivery is at the place in the UK or another country where the seller could reasonably be expected to deliver it. If multiple such places exist, the nearest location to the extraction point is used. The oil must have undergone appropriate initial treatment before delivery.

Oil Taxation Act 1975 Schedule 3 paragraph 2

Definition of market value of oil

Schedule 3 paragraph 2 sets out how the market value of oil (excluding light gases) is to be determined for petroleum revenue tax purposes, distinguishing between two categories of oil and providing rules for hypothetical arm's length sale contracts.

Oil is split into Category 1 (kinds with publicly available price reports) and Category 2 (all other kinds), with the Board specifying which oils fall into Category 1 by regulation
Market value for both categories is based on the price that would be achieved in a hypothetical arm's length sale to a willing buyer, with oil delivered at or near the place of extraction after appropriate initial treatment
The Board makes regulations prescribing how the price is calculated, including which published prices, contracts, averaging methods, time periods, and price differentials to use
Where the Board considers it impracticable or inappropriate to apply the normal regulatory pricing method, they may use alternative contracts, published prices, or any other method they consider appropriate

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