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HMRC internal manual

Oil Taxation Manual

From
HM Revenue & Customs
Updated
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Field allowance: the total amount of field allowance available, new oil fields

The total field allowance available for a new oil field is:

  • Ultra heavy oil field: £800 million.
  • Ultra HP/HT field: the amount of the relief depends on the temperature, which must exceed 166 Celsius. The maximum relief of £800 million is available where the oil temperature is 176.67 Celsius or more, reducing on a virtual straight line basis to a figure of £500 million at 166 Celsius.
  • Small oil or gas field: the amount of the relief depends on the size of the field. For a transboundary field the reserve size of the whole field must be considered and the whole allowance is available to the UK licensees.

    • For fields whose development was authorised for the first time up to and including 20 March 2012 the allowance is £75 million if the field has oil equivalent reserves of 2.75 million tonnes or less. The allowance available reduces on a straight-line basis from £75 million to zero as the field size increases from 2.75 to 3.5 million tonnes. (2.75 million tonnes is broadly equal to 20 million barrels; 3.5 million tonnes is broadly equal to 25 million barrels).
    • For fields whose development was authorised for the first time on or after 21 March 2012 the allowance is £150 million if the field has reserves of 6.25 million tonnes or less. The allowance reduces on a straight-line basis from £150 million to zero as the field size increases from 6.25 to 7 million tonnes.
  • Deep water gas field: the amount of the relief depends on the length of the proposed new pipeline and on the number of deep water gas fields authorised on the same day. The maximum relief of £800 million is available where the pipeline length is 120 kilometres or more, reducing on a straight line basis to nil at 60 kilometres. Where more than two deep water gas fields are authorised on the same day, the maximum relief is £1,600 million divided by the number of those fields.
  • Large deep water oil field: the amount of the relief depends on the size of the field. The maximum relief of £3 billion is available where the reserves are 40 million tonnes or less. The allowance reduces on a straight line basis to nil as the reserves increase from 40 million tonnes to 55 million tonnes.
  • Large shallow water gas field: the amount of the relief depends on the size of the field and of any related field. The maximum allowance of £500 million is available where the reserves of gas of the field and any related fields total 20 billion cubic metres or less. The allowance reduces on a straight line basis to nil as the reserves increase from 20 bcm to 25 bcm. The allowance is prorated between the field and any related fields by reference to reserves.

If a field qualifies under more than one of the criteria it will benefit from the greater of the allowances available.

With the rate of supplementary charge at 32% a field allowance of £150 million for a small field can reduce a licensee’s tax liability by up to £48 million, while an allowance of £800 million can reduce a licensee’s tax liability by up to £256 million.