OT05396 | PRT: valuation of non-arm's length disposals and appropriations - gas - valuation of light gases from 1 January 1994 - fixed price sales

Traditionally this was the prevailing method of pricing gas and even with the establishment of daily published prices and the International Petroleum Exchange gas contract (as of 2005 the Intercontinental Exchange or ICE), gas may still be sold with an initial fixed price, with escalators to amend the price in subsequent years. Increasingly we are seeing companies determining the initial price by reference to published prices. Our approach to fixed price sales has remained the same throughout, but we may now use published prices, as do companies, to inform the valuation process.

Example:

Assume a company has deliveries into Bacton, Theddlethorpe and St Fergus. It has decided to sell its gas to its marketing subsidiary under three annual contracts. The terms of the sale are detailed below:

As the published prices are for delivery of gas with no swing and 100% take or pay it is necessary to adjust the published prices to reflect the differences in the actual contracts.