OT05410 - PRT: valuation of non-arm's length disposals and appropriations - gas - valuation of light gases from 1 January 1994 - net back pricing agreements

Under a net-back pricing agreement the value of the gas is determined by deducting various charges - transportation, administration, selling cost for example - from the final selling price. LB Oil & Gas has examined various net-back pricing methodologies. The only hard and fast rule that would be applied is that the valuation has to be under-pinned by a floor price. The reason for this is that in a third party sale it would be unlikely for the producer to take the risk of the buyer having no obligation to sell at the maximum price. If any company wishes to enter into such an arrangement with an affiliate it is encouraged to discuss the proposals with LB Oil & Gas at an early stage.

It is important to remember that the above represents a snap-shot of current approaches. It is not meant to be, and cannot be, comprehensive as the market is changing and gas is sold in very many differing ways. Companies are advised to approach LB Oil & Gas with their proposals before sales commence.