Understanding Cross Field Allowance (Oil and Gas): A Legal Overview
Definition & Meaning
The Cross Field Allowance (CFA) is a tax provision that allows oil and gas companies to receive immediate relief of up to ten percent on qualifying field development costs. This allowance is applicable when a company involved in a new taxable development has, or anticipates having, Petroleum Revenue Tax (PRT) profits from another taxable field. Essentially, it is designed to provide financial support for companies investing in new developments while they are also generating profits from existing fields.
Legal Use & context
The Cross Field Allowance is primarily used in the context of oil and gas taxation under the Petroleum Revenue Tax framework. It is relevant for companies engaged in exploration and production activities, as it directly impacts their financial planning and tax obligations. Legal professionals may encounter this term when advising clients on tax strategies related to field development costs. Users can manage related forms and procedures through legal templates available on platforms like US Legal Forms.
Real-world examples
Here are a couple of examples of abatement:
Example 1: A company developing a new oil field incurs costs of $1 million. If the company has PRT profits from an existing field, it could claim a Cross Field Allowance of up to $100,000 (ten percent) on those costs.
Example 2: (hypothetical example) A gas exploration firm anticipates profits from a neighboring field. As they begin development on a new site, they apply for a CFA to offset some of their initial costs, allowing them to reinvest in further exploration.