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An M&A lifeline in the North Sea

Assets that cut tax bills could be a blessing for UKCS operators looking for a bargain

Deferred tax assets (DTAs)—assets on the balance sheet that can be used to reduce taxable profits—can be a valuable prize for a prospective buyer of an oil and gas company on the UK Continental Shelf (UKCS). Oil and gas companies operating in the UKCS typically accrue substantial DTAs in their exploration, development and early producing years. This is because significant capital expenditure is normally needed for exploration and development, which can result in capital allowances—the UK tax equivalent of depreciation. This spending is generally funded, at least in part, through debt. Interest on that debt may be deductible in calculating UK taxable profits. DTAs can be valuable to a buyer

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