The Australian Commonwealth Changes announced changes to the petroleum resource rent tax (PRRT), in order to collect increased taxes from oil and gas operators.
The changes are in response to PRRT review undertaken by economist Mike Callaghan AM PSM, which was released in April last year.
The petroleum resource rent tax (PRRT) is a tax generally on profits generated from the sale of marketable petroleum commodities (MPCs).
MPCs include:
- stabilised crude oil
- sales gas
- condensate
- liquefied petroleum gas
- ethane
- shale oil
- any other product declared by regulation to be an MPC.
The introduction of the PRRT regime was in 1988 and since then the nature of petroleum production has changed. It has shifted from crude oil and condensate to a more significant role for LNG. In fact, over the past 30 years, oil and condensate production has nearly halved and LNG production has increased by more than seven times. Australia is most likely to replace Qatar as the world’s top gas exporter by 2020.
The Australian Government initiated the Callaghan Review in November 2016, to provide advice as to whether the PRRT is operating as it was originally intended and to reveal the reasons for the decline of PRRT revenues.
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The Callaghan Review received significant input from a wide range of industry and other stakeholders, and was released by the Government in April 2017.
The Review findings were that while the PRRT remained the preferred way to achieve a fair return to the community without discouraging investment.
Changes should be made to PRRT arrangements to make them more compatible with the developments that have taken place in the Australian oil and gas industry.
A statement from the review.
The changes, to be introduced from 1 July 2019, include:
- Lower uplift rates: These changes will limit the scope for excessive compounding of deductions. For example the uplift rate on exploration expenditure will be reduced from Long Term Bond Rate (LTBR)+15 percentage points to LTBR+5. Existing investments will be respected.
- Onshore projects excluded from the PRRT regime: Since onshore projects were brought into the PRRT in 2012, no revenue has been collected and that was expected to remain unchanged into the future. In practice, it has been used to transfer exploration deductions to profitable offshore projects reducing PRRT payable. This change will simplify the system and strengthen its integrity.
- Review of Gas Transfer Pricing Regulations: Treasury will commence a review into the regulations that determine the price of gas in integrated LNG projects for PRRT purposes. Treasury will consult closely with the industry and community.
The new uplift rates and removal of onshore projects are expected to raise $6 billion over the next decade, to 2028-29.
On a different approach, the Australian Petroleum Production & Exploration Association (APPEA) with a media release expressed the opinion that the Australia’s oil and gas industry must assess carefully the PRRT changes.
Attracting investment in natural gas and oil production has never been more important for Australia. The global gas market is highly competitive and we are not a low cost producer.
APPEA Chief Executive Dr Malcolm Roberts stated.