End of condensate tax holiday sparks questions

THE Federal Government's move to end the excise exemption on condensate production has raised questions about its willingness to shift the goal posts without consulting the oil and gas industry.
End of condensate tax holiday sparks questions End of condensate tax holiday sparks questions End of condensate tax holiday sparks questions End of condensate tax holiday sparks questions End of condensate tax holiday sparks questions

"Governments have a responsibility to consult with industry on major issues such as this. On this occasion there was no consultation on changes to arrangements which we considered to be binding," Woodside chief executive Don Voelte said.

He said the relief from condensate excise was among a range of measures between the North West Shelf participants and the Commonwealth and Western Australian governments that underpinned the economic viability of the project, while guaranteeing early financial returns to the Government.

"This is not a loophole which is being closed, or a free ride which has come to an end. This is a negotiated fiscal arrangement which formed the basis of Australia's largest resource development," he added.

"We have lived up to our commitments under this arrangement."

"The North West Shelf Venture is a major contributor to the nation's gross domestic product and any changes to the fiscal regimes under which existing major projects such as this operate should be considered extremely carefully," Voelte said.

His comments were echoed by APPEA chief executive Belinda Robinson, who said the industry was surprised by the sudden change in terms and was concerned at the absence of any prior consultation.

"Given the magnitude of the investments involved and the important contribution of this industry to the Australian economy, a strong partnership between industry and government is critical," she said.

"Investment decisions are made on the basis of certainty that fiscal frameworks agreed with governments will underpin the long term economic viability of projects."

However, StockAnalysis owner Peter Strachan told PetroleumNews.net the Government's move to remove the exemption was long overdue and brought the fiscal arrangements for the NWSV back in line with the Australian regime.

Woodside said the treatment for condensate was originally part of a larger fiscal package to facilitate the development of the North West Shelf in which the participants agreed to pay both royalty and excise from first production, despite incurring large capital costs which would take years to recover.

It added the arrangements resulted in revenues to government flowing from first production, many years before the project had recouped its costs. This contrasts with the current petroleum resource rent tax regime, in which tax is only paid once a project has recouped its costs.

Despite questions also being raised about the impact of the Government's decision on future oil and gas investment in Australia, Western Australian Premier Alan Carpenter maintained it would not compromise investment in WA.

"People are knocking the door down to get into Western Australia," he told ABC News.

"I don't think that this relatively minor change, which applies only to condensate which is a by-product as part of the LNG gas process, will have any impact."

The excise on condensate is expected to hit Woodside the hardest, with JPMorgan Research analyst Mark Greenwood saying it is likely to reduce Woodside's net profit by $60 million in 2008 and $86 million in 2009.

He added that Santos and Beach Petroleum would not be affected by the change as gross condensate production rates in the Cooper Basin are below the threshold level where excise is applied.