OT05305 - PRT: valuation of crude oils and products - general principles

As far as is practically possible, what LB Oil & Gas is trying to achieve for each kind of oil is a series of daily market values, throughout the chargeable period, that reflect the fluctuating prices of crude oils seen in commercial markets. A daily price is sought because, given the volatility that has emerged in oil markets since 1987, the method laid out in FA87\S62 and FA87\Sch11 is no longer appropriate.

A daily value for every day of the chargeable period cannot be achieved for every kind of oil - for some there is insufficient trade, so the first step is to split oil into two categories. Daily market values can be calculated for the first category, but generally cannot be achieved for the second category.

Category 1

Oil with widely commercially available price assessments (obtained from recognised Price Reporting Agencies).

Category 2

All other oils (including LPGs and Condensates).

The main legislative tool is the concept, introduced by FA 2006, of valuing each NAL delivery\appropriation or closing stock volume around a Notional Delivery Day (immediately shortened to “NDD”).