Revenue Note for Guidance

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Revenue Note for Guidance

696 Valuation of petroleum in certain circumstances


This section provides rules for the valuation of petroleum which is disposed of otherwise than by sale at arm’s length or is appropriated to use in activities falling outside the ring-fence (for example, where it is appropriated by a production company for its own refinery).


(1) Petroleum disposed of, otherwise than by way of sale at arm’s length, is to be treated as disposed of for a consideration equal to its market value at the time of the disposal.

(2) Provision is made to meet the case of petroleum extracted by a person or to which the person is entitled under a right to a royalty in kind. Petroleum which is “relevantly appropriated” for use in activities outside the person’s ring-fence activities without being disposed of is to be treated, for the purposes of the ring-fence activities and the activities to which it is appropriated, respectively, as having been sold and bought for a price equal to its market value at the time it is so appropriated.

A “relevant appropriation” is the appropriation of petroleum to refining or to a use other than its use for extraction activities, and “relevantly appropriated” is to be construed accordingly.

The use of petroleum for “petroleum extraction activities” (as defined in section 684) would include the use of petroleum for —

  • drilling or production operations in a relevant field,
  • transportation of petroleum to dry land where the relevant field is an offshore field, or
  • the initial treatment of the petroleum.

(3) The market value of petroleum at any time will be the price which petroleum could be expected to fetch on a sale on the open market at that time.

Relevant Date: Finance Act 2021