Illustration purposes only (Image courtesy of Woodside) The Australian government is making changes to the Petroleum Resource Rent Tax (PRRT) expecting to raise A$6 billion ($4.32 billion) over the next decade.
The government sees the oil and gas industry is a valuable economic contributor, recording nearly $40 billion in export earnings in 2017-18, with continued growth forecast. Over the past decade, the industry estimates it has invested more than $300 billion into the Australian economy.
Since the PRRT was introduced in 1988 the nature of petroleum production has changed, shifting 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 gas production has increased over sevenfold, a statement by the Australian treasurer Josh Fridenberg reads.
In 2016, the Australian government initiated a review of the PRRT to see whether it is operating as it was originally intended and to address the reasons for the rapid decline of Australia’s PRRT revenues.
Following the findings of the review, the government will introduce changes such as lower uplift rates, limiting the scope of excessive compounding of deductions. It will also remove onshore projects from the PRRT regime and will review gas transfer pricing regulations.
Once the changes come into force from July 1, 2019, the treasury will commence a review into the regulations that determine the price of gas in integrated LNG projects for PRRT purposes.
Responding to the decision, the Australian Petroleum Production & Exploration Association stressed the changes need to be assessed carefully.
APPEA chief executive Malcolm Roberts said, “the independent Callaghan Review confirmed the PRRT is an effective profits tax which delivers, over the life of projects, a higher return than royalties,” adding that “investors will now need to assess what the proposed changes will mean for future investment in Australia.”
He noted that, while the LNG industry has attracted significant investment over the last decade, further investment in Australia’s LNG industry is “far from guaranteed.”