Coal gas price for RSPT in dispute
Thursday, 17 June 2010 16:30
Another Australian Financial Review article by John Kehoe showing design flaws and complexity in the super tax. The article suggests the asset value of an Australian gas producer would be slashed by 70 per cent once the super tax is factored in.
There are thousands of kilometres of piping and then processing required for GSG before its in transportable LNG form. As Access Economics pointed out, its very hard to separate the costs of mineral/gas from the costs of extraction. And few of the Australian gas fields would have been exploitable without acquisitions and equity from global players. Indeed every major project out of the Surat and Gladstone has required international buy in. The Coal Seam Gas and LNG projects in Queensland are slated for up to $50 billion in investment and hundreds of thousands of direct and downstream jobs.
Coal gas price for RSPT in dispute
PUBLISHED: 17 Jun 2010 12:05:00 PRINT EDITION: 17 June 2010
John Kehoe
The value of Arrow Energy’s coal seam gas assets could be slashed by 70 per cent under the resource super profits tax accounting rules, underliningwhy the sector is locked in serious discussions with the government over transition arrangements.
Resources Minister Martin Ferguson hinted yesterday the government could move to allay the coal seam gas industry’s concerns, including ensuring the taxing point for projects was close to the well head, where methane gas is valued at about $3.50 a gigajoule, compared with about $12 on world markets after being processed into liquefied natural gas (LNG).
Royal Dutch Shell and PetroChina have bid $3.45 billion for Arrow Energy, but the book value of the assets carried into the resource tax would only be about $1 billion, according to accountants familiar with the company’s accounts.
Other leading players in emerging coal seam gas-fed LNG projects in central Queensland, including BG Group, Origin Energy and Santos, face similar problems with shifting recently acquired projects into the resource tax regime at book values.
Sources close to the coal seam gas sector, which has $50 billion worth of projects on the drawing board inQueensland, said the issue was a key concern raised by companies in their talks with Mr Ferguson.
Prime Minister Kevin Rudd, Treasurer Wayne Swan and Mr Ferguson all spoke of ensuring “generous” transition arrangements yesterday. The Resources Minister singled out the coal seam gas sector as being of particular interest. The suggestion raised industry hopes that projects forced into the resource tax would be recognised at closer to market value, to take into account the value of potential reserves.
Under the current proposal, the book value would only take into account mine development and improvement costs, not acquisition expenses. Coal seam gas players have not undertaken a large amount of mine expenditure, because the industry is only finding its feet, as strong demand from Asia drives up LNG prices to make projects economically viable. Companies want the costs of acquisitions, of which there have been many in recent years, to form part of their capital base.
In effect, the government would acquire its 40 per cent share in projects at a higher price, defer tax to later in the project’s life and allow more generous depreciation claims. The government wants to tax commodities as close as possible to the well head or mine gate, to ensure only the value of the natural resource is taxed – not the added value through processing and refinement.
However, because no saleable price exists before the coal seams are fractured and the gas pumped by water to the surface and piped to Curtis Island to be converted to LNG, it will be difficult to ascertain a market or arms-length value of the raw resource.
A “net back” rule used for the petroleum resource rent tax to discount the value-add component has been mooted by Treasury. There is disagreement between Treasury and the industry over how much value is added in the processing and refining stages.
Resources and energy companies are also concerned that more efficient and cost-effective refinement would be penalised under the net-back approach. A final decision has not been made for any of the $50 billion gas projects planned for Queensland’s Surat Basin.
The Australian Financial Review
