OT05412 - PRT: valuation of non-arm's length disposals and appropriations - gas - valuation of light gases from 1 January 1994 - re-opening agreements

In long term UK gas contracts at present there is normally no provision for a price re- determination and the presumption would be that any agreement with the LB Oil & Gas would last the length of the inter-affiliate contract. There is no legislation imposing a particular price review period (no five year review for example) as there was in the election legislation.

This does not mean that the inter-affiliate contract can never be amended. Long term contracts between independent parties are amended from time to time as circumstances change. If for example the producer can increase the volumes or swing from the field by additional investment then the buyer may agree to pay a higher price. Conversely if the seller cannot meet the specifications in the contract the buyer may agree to an amendment in return for a lower price.

If therefore there are changes in circumstances either the participator or the LB Oil & Gas can seek an amendment to the prices agreed but the onus will be on the party proposing the change to prove that, in the particular circumstances of the case, the change would have been made in an arm’s length situation.

In the case of gas landed overseas different market circumstances may apply.