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HMRC internal manual

Oil Taxation Manual

PRT: valuation of non-arm's length disposals and appropriations - gas - valuation of light gases from 1 January 1994 - fixed price sales

Traditionally this was the prevailing method of pricing gas and even with the establishment of daily published prices and the International Petroleum Exchange gas contract (as of 2005 the Intercontinental Exchange or ICE), gas may still be sold with an initial fixed price, with escalators to amend the price in subsequent years. Increasingly we are seeing companies determining the initial price by reference to published prices. Our approach to fixed price sales has remained the same throughout, but we may now use published prices, as do companies, to inform the valuation process.

Example:

Assume a company has deliveries into Bacton, Theddlethorpe and St Fergus. It has decided to sell its gas to its marketing subsidiary under three annual contracts. The terms of the sale are detailed below:

LOCATION  BACTON  THEDDLETHORPE  ST FERGUS 
       
SWING  150% 130% 100%
TAKE OR PAY  90% 90% 100%
DAILY QUANTITY  100,000 100,000 100,000
ANNUAL PRICE FOR FLAT GAS AT BACTON  15 PENCE 15 PENCE 15 PENCE

As the published prices are for delivery of gas with no swing and 100% take or pay it is necessary to adjust the published prices to reflect the differences in the actual contracts.