TaxTMI 
TaxTMI 
Clarification regarding treatment of Farm-in expenditure incurred by the Oil Exploration and Production(E&P) Companies
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....ion regarding treatment of Farm-in expenditure incurred by the Oil Exploration and Production (E&P) Companies - reg. Over the life cycle of an Oil & Gas block, E&P companies generally buy ('Farm in') and sell ['Farm out') their participating interests (PI) in the 'Production Sharing Agreement' (PSC). 'Farm-in' expenditure is incurred when an entity in this line of business acquires a PI from an....
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....ns in Oil & Gas blocks and in India under a PSC with the Gol. Typically, owing to the large investments required and the risks involved, multiple E&P companies execute the PSC with the Gol in which each member has its agreed and defined PI. 3. Section 42(2) of the Act provides that in the event of a farm out, the unamortized expenditure is allowed as a deduction and the surplus is taxed in the ....
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....nting rules for Oil & Gas followed in Australia, Indonesia, UK etc. also require that such acquisition cost to be capitalized and depreciated. A perusal of the Model PSC's {as per the website of the Director General of Hydrocarbon (DGH)} indicates that participating interests are share in rights and obligation to explore, exploit and sell petroleum under the PSC along with related licences, permit....
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....respect of his or its share of income, as the case may be, in the same status in which the person enters into the agreement with the Central Government. 6. Thus, as persons participating in an E&P contract are assessed individually in respect of their share of income, the sum expended on acquisition of whole or part of such 'Participating Interest' in an E&P contract where such acquisition is a....