XOM Exxon Mobil Corp

   By Robb M. Stewart 
 

MELBOURNE, Australia--Australia's government, squeezed by a rapid decline in oil and gas revenue, will examine its regime for resources taxes and royalties.

The Petroleum Resource Rent Tax, crude-oil excise and other federal royalties will be reviewed to ensure companies are paying the right amount of tax on their activities in the country, Treasurer Scott Morrison said on Wednesday.

A review team will report back to Prime Minister Malcolm Turnbull's conservative government by April and its findings and recommendations will form the basis for reforming the petroleum tax, Mr. Morrison said.

"We will ensure that the PRRT provides an equitable return to the Australian community from the recovery of petroleum resources without discouraging investment in exploration and development that is vital to the industry," he said.

The launch of the review comes days after the Australian National Audit Office found errors in the deductions claimed for the North West Shelf oil and gas venture off the west coast, which reduced royalties paid by the companies. More than 5 billion Australian dollars (US$3.7 billion) worth of deductions were claimed against sales revenue in the 18 months to last December, some of which it questioned, and A$1.9 billion in royalty was collected by the federal and Western Australia state governments, the government agency said in a report released Monday.

Australia is set to leap ahead of Qatar as the world's leading exporter of liquefied natural gas in the coming years after international and local energy companies invested about A$200 billion over the last decade building massive production facilities. But revenue from these projects has been hit the past two years by the slump in oil and LNG prices, although there has been a recovery in 2016.

A study released this month by the International Transport Workers' Federation, an umbrella for about 700 unions around the world, warned Australia's royalty regime had failed to keep up with global norms. It found Malaysia's government collected almost three times the Australian revenue from oil and gas output despite production being less than 30% above Australian levels, while Indonesia's revenue was more than double Australia's while production was about 50% higher.

Mr. Morrison said the integrity of Australia's tax base was paramount, and the review was aimed at advising on whether taxes and royalties were operating as intended and would draw on international experience.

Money collected through Canberra's PRRT--which is applied to a project's profits, rather than production volumes--has halved to about A$800 million since the 2013 financial year and crude-oil excise has also declined by more than half, Mr. Morrison said Wednesday. There have been no changes to the tax since 2012.

Woodside Petroleum Ltd., which operates the North West Shelf project and is Australia's biggest independent oil and gas company, said it would cooperate fully with the review.

"The oil and gas industry is under significant financial pressure from low commodity prices, therefore stability in tax arrangements is essential for our shareholders to support investment in uncertain business environments," the company said in a statement.

Canberra has for almost 30 years used PRRT as a "super profits" tax, encouraging investment by only taxing projects when upfront costs had been recovered and profit exceeded a benchmark rate, said Malcolm Roberts, chief executive of the Australian Petroleum Production & Exploration Association, which represents the country's oil and gas industry.

"When these conditions are met, the PRRT, in conjunction with the company tax regime, applies an effective tax rate of 58 cents in every dollar of profit," he said. "When projects are not profitable, usually because prices are depressed or upfront costs have not been recovered, the commonwealth still applies a 30% company tax to revenue."

The Australian energy industry paid more than A$5 billion in taxes during the 2014-15 year despite recorded a collective net loss for the year, the association calculated.

Speaking at an event hosted by the American Chamber of Commerce in Australia, Richard Owen, chairman of Exxon Mobil Corp.'s Australian business, said the review offers another opportunity to talk about the economic contributions of the company's Bass Strait operation off southern Australia.

- Mike Cherney in Sydney contributed to this article.

Write to Robb M. Stewart at robb.stewart@wsj.com

(END) Dow Jones Newswires

November 30, 2016 00:08 ET (05:08 GMT)

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