Oz State Tax Counterproductive: E&P Industry

The Queensland government's announcement that it will hike the petroleum royalty rate by a quarter threatens ongoing investment in one of the very sectors which can underpin the state budget over the coming decades, the upstream lobby group Australian Petroleum Production & Exploration Association (Appea) said June 11.

Treasurer Jackie Trad announced an across the board retrospective increase in the petroleum royalty rate from 10% to 12.5%, effective July 1, on all gas produced in Queensland.

Queensland is home to three LNG plants, fed by coalbed methane fields. The gas is sold mostly to Asian markets and exports last year reached a record 21mn metric tons.

Appea CEO Andrew McConville said there was "no justification for the arbitrary decision to penalise an industry that had invested over A$70bn ($48bn) in Queensland, employs thousands of Queenslanders and has underpinned the state’s domestic gas needs."

The budget papers forecast that the industry will deliver at least A$2.5bn in royalties to the people of Queensland over the next four years. While the industry welcomes the decision to conduct a review of the operation of the present royalty regime, the announcement of a significant increase in the royalty was made without any consultation with industry.

“Increases in royalty rates, however structured, increase the cost of gas production and undermine the long-term stability that is needed to continue to attract investment in Queensland,” McConville said. “An announcement with no consultation, as we have seen today, will be very carefully reviewed by current and prospective investors.”

Raising the rates will limit the gas available to the domestic gas market, at a time when that market is already under pressure from falling output from Bass Strait and political barriers to resource development in southern states, he said. Victoria, for example, has imposed a moratorium on hydraulic fracturing.

McConville said the industry would seek to work with the government "in what must be a genuinely independent policy and operational review of the existing royalty provisions."