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HMRC internal manual

Oil Taxation Manual

Capital gains: valuation of oil assets including shares: rebasing to 31 March 1982 for prospects

These areas produce a number of problems for valuation.

The Wood MacKenzie analyses provided cashflow information only about fields in, or close to, production. Written analyses and estimated NPVs were provided for certain prospects along with lists of discoveries, but the information is not comprehensive. The possible presence of oil may range from prospects, not drilled and no known oil, to discoveries with possible reserves, but still to be fully evaluated and those where development was impending, but for which firm decisions had yet to be taken.

While it may be reasonable to base cashflows and NPVs on the basis of the available data, there is unlikely to be an independent source of information available for these areas to test its accuracy.

Where the reserves were fairly well known but no development had started, then in creating the cashflow projections at 31 March 1982 it is necessary to determine when development would be expected to start. If the buyer holds only a minority interest in the licence and the major participants hold differing views on whether and when to proceed with development, it is reasonable to assume that development might be expected not to proceed as quickly.