SolvedOT05050 | PRT: computation - received or receivable (including term and entitlement contracts)
From HM Revenue & Customs · Oil Taxation Manual
PRT is charged on the “positive amounts” less the “negative amounts” OTA75\S2(2). The positive amounts include at OTA75\S2(5)(a)
the price received or receivable for so much of any oil won from the field and disposed of by him crude in sales at arm’s length as was delivered by him in the period.
The amount “receivable” ensures that the full contractual entitlement is assessed. It counters various arrangements that give the participator the benefit of the contract in other forms. Examples include
early payment discounts which have the effect of giving the seller part of the contractual value in the form of early use of the money,
where the seller assigns the right to receive payment to someone else,
where the seller makes arrangements for his own debts to be settled by the customer.
Where, as a matter of fact, the amounts actually received differ from the assessed “receivable” figure, LB Oil & Gas practice is to substitute the amount actually received for the amount receivable.
The PRT charge on sales at arm’s length thus arises when the oil is delivered: the section does not set a time frame in which the amounts must be received, it is sufficient that the oil has been delivered in the period.
The impact of this is most commonly seen in term contracts that allow the buyer to anticipate or delay lifting of the monthly entitlement without recourse to the seller. In such contracts the seller receives a monthly payment based on the expected entitlement to crude or other products from the field notified to participators by the operator.
Example
The example below illustrates the difference between the receipts under the entitlement contract and the PRT charge.
| Date | Entitlement (bbls) | Crude Price ($) | Payment Received | Lifted (bbls) | Crude Price ($) | PRT Charge |
|---|---|---|---|---|---|---|
| Jan - 96 | 10,000 | 20.00 | 200,000 | 8,000 | 20.00 | 160,000 |
| Feb - 96 | 10,000 | 20.00 | 200,000 | 11,000 | 20.00 | 220,000 |
| Mar - 96 | 10,000 | 20.00 | 200,000 | 10,000 | 20.00 | 200,000 |
| Apr - 96 | 10,000 | 20.00 | 200,000 | 9,500 | 20.00 | 190,000 |
| May - 96 | 10,000 | 20.00 | 200,000 | 10,000 | 20.00 | 200,000 |
| Jun - 96 | 10,000 | 20.00 | 200,000 | 10,500 | 20.00 | 210,000 |
| - | 60,000 | - | 1,200,000 | 59,000 | - | 1,180,000 |
| Jul - 96 | 10,000 | 20.00 | 200,000 | 11,000 | 20.00 | 220,000 |
| Aug - 96 | 10,000 | 20.00 | 200,000 | 10,000 | 20.00 | 200,000 |
| Sep - 96 | 10,000 | 20.00 | 200,000 | 7,000 | 20.00 | 140,000 |
| Oct - 96 | 10,000 | 20.00 | 200,000 | 11,000 | 20.00 | 220,000 |
| Nov - 96 | 10,000 | 20.00 | 200,000 | 11,000 | 20.00 | 220,000 |
| Dec - 96 | 10,000 | 20.00 | 200,000 | 11,000 | 20.00 | 220,000 |
| - | 60,000 | - | 1,200,000 | 61,000 | - | 1,220,000 |
| Overall | 120,000 | - | 2,400,000 | 120,000 | - | 2,400,000 |
As can be seen the PRT charge is generated by the physical deliveries.
1H1996 the charge lagged behind the payments received because the buyer delayed liftings.
2H1996 the buyer lifted more than the entitlement and the PRT charge matched this. Usually entitlement contracts have balancing provisions either at 6 monthly or yearly rests. It is not uncommon however for the difference to have a PRT effect
Strictly, all adjustments to price should be made in the period in which the original delivery was made. In practice, if no tax is at stake and the amounts are not otherwise material, adjustments may be made in the period in which they are received or in a later period agreed between the participator and LB Oil & Gas.