When does paragraph 2A of Schedule 3 to the Oil Taxation Act 1975 apply?

Paragraph 2A applies whenever the market value of oil needs to be determined under the standard valuation rules in paragraph 2 of Schedule 3 and the oil consists of or includes gas. It also applies where the market value of light gases falls to be determined under paragraph 3A.

Does the notional initial treatment adjustment automatically apply to gas under paragraph 2A?

No. The notional initial treatment adjustment does not apply automatically to gas. It only applies if the gas has actually undergone initial treatment carried out by or on behalf of the participator or a person connected with the participator, either before or after disposal or relevant appropriation.

How is gas valued when initial treatment separates it into different kinds?

Where initial treatment separates gas into different kinds that are normally transported and sold separately in commercial practice, such as methane, ethane and propane, each separated kind must be valued individually. Each product's market value is determined as if it were the only oil being valued at that time.

How does actual initial treatment affect the market value calculation for gas?

Where gas has been subjected to initial treatment by or on behalf of the participator or a connected person, the actual treatment carried out must be included as part of the appropriate initial treatment used in calculating market value. The valuation reflects real processing rather than purely hypothetical treatment.

Oil Taxation Act 1975 section Sch 3 para 2A

Definition of market value of oil

Paragraph 2A of Schedule 3 provides special rules for determining the market value of oil when that oil consists of or includes gas, particularly regarding the role of initial treatment in the valuation process.

The general market value rules in paragraph 2 are modified when the oil being valued consists of or includes gas, and similar modifications apply to the valuation of light gases under paragraph 3A.
The notional initial treatment adjustment used in the standard market value calculation does not apply to gas unless the gas has actually undergone initial treatment — either before or after disposal or relevant appropriation — carried out by or on behalf of the participator or a connected person.
Where gas has in fact been subjected to initial treatment by or on behalf of the participator or a connected person, the "appropriate initial treatment" used in the valuation must include that actual treatment.
Where the initial treatment process separates different kinds of gas that are normally transported and sold separately in commercial practice, each kind of separated gas must be valued individually as if it were the only oil whose market value needed to be determined.

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