Projects, jobs under threat with tax change: Gas giants

SANTOS, Shell Australia and Origin Energy all say changes to the Petroleum Resource Rent Tax could pose serious risks to future projects.

The three companies are among 68 parties to comment on a review into the design and operation of the PRRT.

The Federal Government announced the review late last year, with the aim to "help better protect Australia's revenue base and ensure that companies are paying the right amount of tax on their activities".

Stability of the PRRT is needed for project and jobs creation, say Santos, Shell and Origin.
Stability of the PRRT is needed for project and jobs creation, say Santos, Shell and Origin. Brenda Strong GLA310513TOUR

As part of the consultation process, all interested parties were invited to comment on what were identified as "key design and administration issues".

Now, Santos, Shell and Origin submit the PRRT is already operating effectively.

All three of these mining giants have stakes in the three Curtis Island liquefied natural gas plants.

"The declining revenues are a function of changes to the industry and current commodity prices, rather than changes or faults in the original design or PRRT," Santos managing director and CEO, Kevin Gallagher wrote.

"The stability of the PRRT system is critical to maintaining ongoing investment in the petroleum sector."

Origin Energy CEO Frank Calabria agreed PRRT stability was needed.

"In order for new projects to proceed, with all the job creation and other economic benefits they bring, a stable fiscal regime is needed," Mr Calabria said.

"Any new imposts or adverse changes to the PRRT will only increase the oil price at which these potential new projects will become economic to develop."

Mr Calabria said any changes to the PRRT should not be made retrospective.

"To (make retrospective changes) would create sovereign risk and damage the potential for new projects to be brought to market," he said.

A Shell Australia submission echoed those of Santos and Origin, saying changes to the PRRT would harm the industry.

"Changes to the PRRT at a time when the industry is under considerable pressure from a depressed global market will be detrimental to existing and future projects, and will undermine Australia's global competitiveness and perceived sovereign risk," the Shell submission said.

Santos's Mr Gallagher said the integrity of the PRRT should not be attacked to compensate for tax losses elsewhere.

"The contribution of the petroleum industry to the Australian community should not be measured narrowly at any one point in time by reference to a single factor such as the PRRT," he said.

"It is important to remember the conceptual strengths of PRRT.

"It must be assessed through the full exploration, feasibility, development and production cycle, and not merely in the early stages of large, long-life projects facing a low price environment, and its integrity should not be eroded in order to replace declining collections of other taxes."

Origin's Mr Calabria said lower PRRT payments received by the government in recent years reflected the economic environment.

"The projects in which Origin has an interest are already subject to corporate tax, and in many cases state royalties which, even if there is an absence of economic rents, still work to provide substantial compensation for the extraction of Australia's non-renewable resources," he said.

Shell said short term revenue gains should not come at the cost of jobs and economic growth from future investment in Australia's oil and gas industry.

"Low commodity prices have impacted the profitability of current PRRT paying projects," the Shell submission said.

"This short-term volatility is fully accounted for within the design of the PRRT, with compensating revenue flows evident when commodity prices are high.

"Perceptions of government receipts being lower than some expect is further compounded by the inevitable and unavoidable gap between huge expenditure of capital during the exploration, development and construction phases and the creation of profits many years after these costs have been accounted for.

"New projects will provide significant economic benefits to investors, governments and the Australian community, through taxation, employment and local procurement for many decades to come."

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