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HMRC internal manual

Oil Taxation Manual

PRT: valuation of crude oils and products - category 2 - valuation of condensate

Condensate sales are valued under the same rules as crude oil and LPG and the market value is determined by the application of the principles to be found in SCH3\PARA2.

However condensate valuation produces particular difficulties because there is no homogeneity between the product produced from different fields and no published arms length price for condensate. A further problem arises because of the limited market in comparison with other hydrocarbon products.

Given these problems it is unrealistic to define a valuation method to cover all condensates and in practice each field’s production is valued individually following the statutory valuation method as far as practicable and appropriate.

The first step is to consider the pricing mechanism used in arm’s length sales. Typically the mechanism is based on the published price, usually Platts, for the nearest analogous products (naphtha, kerosene and gasoil) with a differential for quality. The next step is to consider the composition of the condensate to be valued and compare it with the published analogues. For example one condensate may be valued off the naphtha price, that being a more closely analogous product, whereas another may be priced off a combination of naphtha, kerosene and gasoil which more closely reflects its composition.

As the typical contract uses CIF prices there is a need to netback the value to arrive at the FOB price. This can be achieved by contract information where CIF costs are shown separately or by published freight rates.