Offshore oil and gas producers in Australia, including Woodside Energy, Santos and Chevron, will be hit by proposed changes to the controversial Petroleum Resource Rent Tax (PRRT) that will see more revenues collected earlier to help the nation’s economy.
The changes, revealed by Treasurer Jim Chalmers ahead of the 9 May budget, are intended to add an extra A$2.4 billion (US$1.63 billion) to Australia’s coffers over the next four fiscal years.
Chalmers said the changes to the PRRT relating to offshore gas projects would raise “more tax, sooner” from companies, adding it had been apparent for some time that the current taxation system “isn’t up to scratch”.
“That’s something most Australians would agree with, including the former government that initiated the review,” Chalmers said.
“They also deliver a fairer return to the Australian people from the resources they own, provide certainty to industry and ensure Australia remains a reliable trade and investment partner.”
However, US supermajor Chevron, which operates the producing Gorgon and Wheatstone liquefied natural gas projects, believes there was nothing wrong with the existing tax regime.
“We do not believe changes to PRRT were necessary because the prevailing settings were working as intended and Chevron was always forecast to pay PRRT once it had recovered its initial investment on its projects in Western Australia,” a Chevron spokesperson in Perth told Upstream.
Chevron and its partners have invested more than A$80 billion in these two LNG projects — expenditure that was made because of the companies’ confidence in the prevailing fiscal regime.
“We make long-term and large-scale investments on the basis of a commitment to a stable fiscal and regulatory environment. Fiscal and regulatory certainty is key for countries such as Australia to remain an attractive place to invest and compete with other energy producing countries,” the spokesperson added.
On top of any PRRT that becomes due, Chevron (in Australia) expects it will pay A$3.7 billion in company income tax for the 2022 financial year.
The Woodside-operated North West Shelf (NWS) project is not impacted by the proposed PRRT changes, in recognition of the significant federal royalties and excise payments it makes.
However, the operator’s Browse and Scarborough mega-gas developments would be.
“Woodside is already a significant Australian taxpayer: We paid A$2.7 billion in Australian tax and royalties in 2022, including A$720 million in PRRT. We also spent US$3.6 billion on goods and services from Australian suppliers in 2022. We pay our way,” a company spokesperson told Upstream.
“We will continue to engage constructively with the government on ways to support a functioning market and a positive investment climate for industry to deliver the energy Australians need.”
Under the proposed PRRT changes, the federal government will adopt most recommendations of a Treasury review — initiated by a previous government — of gas transfer pricing rules, including limiting how much PRRT assessable income on LNG projects can be offset by deductions to 90% from 1 July.
The current legislation allows companies to claim back 100% of reimbursable costs before any PRRT becomes liable.
Historically, PRRT at a rate of 40% only became due when offshore projects turn cash flow positive — and typically this takes years, or if not longer. Companies are also hit with a corporate income tax of up to 30% on their profits.
The proposed changes also envisage equalising the treatment of notional upstream and downstream entities so losses will be split evenly rather that attributed entirely to the upstream entity, Reuters reported.
Australian Petroleum Production & Exploration Association (APPEA) chief executive Samantha McCulloch said: “The changes aim to get the balance right between the undeniable need for a strong gas sector to support reliable electricity and domestic manufacturing for decades to come and the need for a more sustainable national budget.
“The announcement… provides greater certainty for our industry to consider the future investment required to maintain both domestic and regional gas supply security for our customers.”
She noted that PRRT revenues are already at their highest level ever, forecast to deliver revenue of more than A$11 billion over the forward estimates.
“The PRRT changes are forecast to deliver an additional A$2.4 billion over the forward estimates at current forecast commodity prices,” McCulloch said.
She added that gas companies were among the biggest taxpayers in Australia — an APPEA financial survey last month showed a near-tripling of the industry contribution to state and federal budgets this year.
“This financial year alone, the gas industry is set to deliver A$16.2 billion to Australian governments, including corporate income tax, PRRT, state royalties and excise,” McCulloch said.
The proposed changes to the PRRT effectively bring to an end the long-running Callaghan Review of the tax, which included public consultation, that was instigated by the previous government.
However, the Labor government’s proposed changes will need the backing of other parties to be passed and the Greens do not appear impressed.
Greens Treasury spokesperson Senator Nick McKim claimed the changes “have been designed by the gas industry”.
“The government considered two models that would likely have brought in more revenue and discouraged more gas development. But the gas industry didn’t like these models, so the government came up with a third model which the gas cabal loves,” McKim said.
“Under Labor’s proposed changes the more profits gas corporations make, the less extra tax they pay, and… are also designed to encourage more investment in gas.
“These changes are less than the bare minimum and will continue to fuel the breakdown of the planet’s climate.”
Undaunted, Chalmers said the PRRT changes would “make a meaningful contribution to the budget that we hand down on Tuesday night, helping to support our efforts to get the nation’s finances back on track, fund vital services and provide responsible cost-of-living relief”.
The treasurer is expected to announce that Australia has a budget surplus for the first time in 15 years when he makes his official announcement at 7.30pm local time today.
Updated to include comment from Woodside.
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