(EnergyAsia, April 16 2012, Monday) — The Australian government should clarify the country’s business taxation system for the upstream oil and gas industry as it is being threatened by speculation and fears over imminent changes.
In making this call, the Australian Petroleum Production & Exploration Association (APPEA) said the speculation is “creating investor uncertainty” that could delay or raise the cost of new projects under consideration.
APPEA chief executive David Byers said media reporting of changes being considered in the upcoming budget and the tax reform process is causing concern to companies that need to make significant exploration and development decisions in the oil and gas industry.
The industry has already committed more than A$180 billion in capital investment to develop the nation’s gas resources. (US$1=A$0.96).
He said: “The current speculation is creating investor uncertainty. The impact is greatest on projects under consideration, but not yet sanctioned, together with future exploration decisions.
“Unfortunately, Australia is developing a damaging propensity for continually fiddling with the fiscal regime on which long-term investment decisions are founded. The government should not underestimate the depth of concern in the oil and gas industry on this issue.”
He said that over the past three years, the government has introduced resource taxation changes, a new carbon price from July 1 2012, fuel tax changes and imposed new costs on the industry from general changes to the income tax regime.
Mr Byers said: “This sends very damaging signals to local and overseas investment markets about Australia’s fiscal stability and reputation as an investment destination.
“While the industry understands the budgetary challenges that currently confront the government, it is important to recognise that future investment remains the fundamental building block that will support the growth of the Australian economy. The significant undermining of global investor confidence is clearly no long term solution to this challenge.
“The industry has worked closely with the government over the past 12 months in relation to implementing the details of the decision to extend the petroleum resource rent tax regime to onshore Australia. The mature process that has underpinned that decision seems to have been lost in the current round of speculation.
“Perhaps more importantly, the ability of the taxation system to strike the right balance between ensuring the community obtains a fair return for the development of its resources and investors’ need for a certain and predictable fiscal system, is under threat.
“APPEA calls on the government to engage in meaningful discussions with industry to assess the importance of the current fiscal settings to ensure continued investment in an industry that is clearly important to Australia’s future economic wellbeing.”
With the 2012-2013 budget due out in May, the government is under political pressure to make good on its promise to turn the forecast underlying cash deficit of A$22.6 billion for the year to June 30, 2012 into a surplus.
Mr Byers said: “Unfortunately, Australia is developing a damaging propensity for continually fiddling with the fiscal regime on which long-term investment decisions are founded. The government should not underestimate the depth of concern in the oil and gas industry on this issue.
Australia is enjoying a boom in oil and gas development, particularly in the export LNG sector, which has already attracted eight projects worth almost A$180 billion.
The current wave of investment began in 2009 when Chevron approved the development of its 15 million mt/year Gorgon project on Western Australia’s Barrow Island. The pace of investment accelerated from late 2010 after BG Group approved the world’s first coalseam gas-to-LNG project, with a capacity of 8.5 million mt/year, on Curtis Island in Queensland state.