OT30130 - Capital Gains

Consideration Other Than Cash. Introduction. TCGA92\s17.

Valuing non-cash elements of the consideration given for farm-outs of licence interests is complex and there are no rigid guidelines. On the contrary, appropriate weight must be given to the actual and particular facts. These include the precise arrangements and the rights and obligations under various agreements (including the JOA) which will need careful scrutiny.

TCGA92\s17 provides that if an asset is disposed wholly or partly for a consideration which cannot be valued, the disposal is deemed to be for a consideration equal to the market value of the asset. However, despite valuation difficulties, it is unlikely that the non-cash elements of consideration given in a farm-out will be incapable of valuation.

The following pages discuss some of the factors to be borne in mind when considering valuations. In any given case due regard must be had to the precise terms.