UK CROSS FIELD PRT RELIEF FAVOURS SMALLER FIELDS

  The "cross field allowance" relief on
  Petroleum Revenue Tax (PRT) announced by U.K. Chancellor of the
  Exchequer Nigel Lawson this week will favour smaller non-PRT
  paying fields, according to stockbrokers Wood Mackenzie and Co.
      The cross field allowance offsets up to 10 pct of
  qualifying spending on a new oil field against PRT liability of
  other fields. It is restricted to new offshore developments
  outside the southern basin and yet to gain Annex B approval.
      A report by the stockbrokers said that on a new field not
  paying PRT due to its small size, the relief would directly
  benefit in PRT saving on an existing field.
      "The cross field allowance will mainly benefit participators
  in those fields which have no PRT liability," the report said,
  adding that the timing of development of such fields may be
  advanced.
      The government would in effect be subsidising these
  developments at 7.5 pct of capital expenditure before
  corporation tax, the report said.
      On fields likely to pay PRT in the future, the benefit is
  of timing. Although liabilities on other existing fields will
  be reduced immediately, liabilities on larger new fields will
  rise in the future due to the loss of offsets, it said.
      In a study on probable fields, the report said that when
  the rates of return are examined, the rise for a PRT-paying
  field such as Miller, the largest undeveloped oil field in the
  U.K. North Sea, is from 18.7 to 19 pct, while the rise for a
  small non-PRT paying field such as Kittiwake is 15.9 to 17.9
  pct.
      The report added that in fields which pay PRT, there will
  be a cost in being able to have this early relief. Not only
  will these costs be unavailable for offset against the field's
  future profits, but uplift of some 35 pct on these costs will
  be lost.
      Thus, a saving of PRT of 100 when field development starts
  will have to be matched by a rise in PRT of 135 at a later
  time.
  

