Oil & Gas Corporate News

Max Petroleum (LON:MXP) (BUY, £0.50) (MXP, 15.75p, ? (7.35%)) announced today that the Court of Cassation, an appellate court of the Republic of Kazakhstan, has upheld a tax claim brought against the Company by local Kazakh tax authorities regarding the timing of certain tax deductions made by the Company prior to 1 January 2009. The Tax Claim resulted from a routine tax audit of the Company for calendar years 2005 to 2008 and involves a dispute over the timing of recovery (i.e. depreciation) of the Company's costs capitalised to its oil and gas properties for tax years prior to Kazakhstan's adoption of a new tax code in 2009. In summary, the Company began depreciating its capitalised costs when it began producing crude oil in accordance with the terms of its subsoil use licence and the Kazakh legislation in place at the time the licence was executed. The local tax authorities, however, have asserted that the Company should only begin depreciating its capital costs upon the formal declaration of a commercial discovery to the Kazakh authorities. As a result, the local tax authorities have disallowed a total of $35 million in depreciation deductions taken by the Company during calendar years 2006 through 2008, resulting in an assessment of additional taxes, interest and penalties of $15.6m.

Comment: The cash flow impact of an immediate payment of US$15.6m would be covered by the Macquarie debt facility and if it were not to be recovered it would have a -1p impact on our risked NAV. However even if the Supreme Court rules against the Company this immediate tax liability would be mostly offset by the gains that future depreciation would generate. In any case the Company will file an application to the Supreme Court of Kazakhstan in the next week or two and should get a ruling within 2-6 months. We understand that in a similar case the Supreme Court has overruled the local tax authorities recently. Clearly the stock could do with a better news flow; however we leave our Buy rating and target price unchanged.

Caza Oil & Gas (LON:CAZA) (CAZA, 8.88p, ? (42.08%)) announced that it has successfully farmed out part of its 65% working interest in the Bongo Prospect to two partners, Australian-based Investment company Verus Investments Limited and Singular Oil & Gas, Inc. Following the farmout Caza will maintain a…

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