Santos Welcomes Equal Status of Onshore, Offshore Oil, Gas Under New Tax

Royal Dutch Shell Plc, among companies planning more than $40 billion of investment in Queensland gas projects, said Australia’s revised resources tax offers the appropriate benefits for the public and companies.

Prime Minister Julia Gillard, 48, reached a pact with mining companies on the tax proposals, ending a dispute that cost her predecessor Kevin Rudd his job. As part of the change, the 26-year-old Petroleum Resource Rent Tax will be extended to cover onshore as well as offshore oil and gas projects.

The petroleum tax “is a regime under which the oil and gas industry has been operating since the 1980s,” Ann Pickard, Shell Australia chairman and executive vice president for oil and gas exploration and production, said in an e-mailed statement. It “strikes a balance” between returns on natural resources for Australians and for companies that develop them.

BG Group Plc and Santos Ltd. are due this year to make final decisions on whether to build projects in Queensland that will convert gas extracted from coal seams into liquefied natural gas. The change keeps a 2010 development decision “on- track” for its gas project, BG said in a separate statement.

“Fiscal certainty” will allow BG and Santos to proceed with final development decisions on their projects, Nik Burns, an analyst at RBS Morgans in Melbourne, said in an e-mailed response to questions. “There are still a number of issues we await clarity on, such as the payment of state royalties and transitional arrangements for existing projects.”

‘Treated Equally’

Santos, which has declined 13 percent since the start of the year, dropped 14 cents, or 1.1 percent, to A$12.22 in Sydney. That compares with a 0.3 percent increase in the benchmark S&P/ASX 200 Index. Origin, which plans an LNG venture with ConocoPhillips, rose 1.4 percent to A$14.83.

“We’ve argued since the start that all oil and gas companies, whether they are onshore or offshore, needed to be treated equally,” Santos spokesman Matt Doman said by phone from Adelaide. “That’s been achieved, so we welcome that.”

The tax reforms will apply from July 1, 2012, Gillard said in a joint statement with Treasurer Wayne Swan and Resources Minister Martin Ferguson.

The government exempted most commodities, raised the threshold and cut the tax to 30 percent on coal and iron ore earnings, compared with a previous plan to collect 40 percent of all resource profits.

Under the petroleum tax, levied at 40 percent, money spent on exploration, development and production is deductible and the scheme doesn’t take effect until revenue exceeds costs.

‘Full-Steam Ahead’

“This is great news for Queensland and the Queensland economy,” the state’s, Premier Anna Bligh, said in an e-mailed statement. The LNG projects proposed for development at the port of Gladstone can now move “full steam ahead,” she said.

Coal-seam gas is mostly methane found on the surface of coal. The gas can be extracted when pressure on the seams is reduced, usually by removing water. LNG is natural gas chilled to liquid form for transport by ship to destinations not connected by pipeline.

While the change is an improvement on the original proposal, Australian Petroleum Production and Exploration Association Chief Executive Belinda Robinson said it’s not clear how smaller businesses will be affected.

“Australia’s oil and gas sector, however, goes beyond large companies and includes many small explorers and producers who will be struggling to see how this reform will not lead to them being worse off,” Robinson said in a statement posted on the lobby group’s website.

More than A$50 billion ($42 billion) of spending is planned for the Queensland coal-seam gas industry, which is expected to generate 20,000 jobs, Santos Chairman Peter Coates said May 6.

Deutsche Bank AG estimates the development by Santos with partner Petroliam Nasional Bhd. of two processing plants with a capacity to export 7.2 million metric tons of LNG per year will cost A$16.4 billion. The partners are yet to update an initial capital cost of A$7.7 billion.

To contact the reporter on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net

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