Oil Taxation Act 1975 section 5

Allowance of abortive exploration expenditure

Section 5 provides relief for petroleum revenue tax purposes where a participator in an oil field has incurred expenditure on searching for oil that proved unsuccessful and cannot be claimed as allowable expenditure against any specific oil field.

• Exploration expenditure incurred between 1 January 1960 and 15 March 1983 that was spent wholly and exclusively on searching for oil in the UK, its territorial sea or a designated area may qualify as abortive exploration expenditure, provided it is not allowable (and is unlikely to become allowable) against any oil field under the normal expenditure provisions of sections 3 or 4.
• Where expenditure was incurred on acquiring or creating an asset that was subsequently used for oil exploration and that asset has a useful life extending beyond twelve months, only a proportionate daily fraction of the expenditure qualifies — calculated by dividing each day's use for exploration by the total number of days from when the expenditure was incurred to the end of the asset's expected useful life.
• Any sums received by the person who incurred the expenditure (or a connected person) that arise from the allowable expenditure — for example, proceeds from selling an exploration asset — must be deducted from the amount that would otherwise be allowable, and expenditure already allowed under Schedule 7 cannot be claimed again under this section.
• A company participator may claim expenditure incurred by an associated company, where one was a 51 per cent subsidiary of the other (or both were 51 per cent subsidiaries of the same third company) throughout the relevant period, being the period from just before the expenditure was incurred to the end of the later of the earliest chargeable period in which the participator held its interest and the chargeable period in which the expenditure arose.