Several key features announced 3 min read
The Federal Government has been responsible for maintaining the Northern Endeavour floating storage and production facility and the associated Laminaria-Corallina fields since February 2020, when the owners were placed into liquidation. The Government has started the process of decommissioning and remediating the assets and has considered a number of different mechanisms for recovering the related costs. There has also been significant industry debate as to which parties should bear the cost.
In the 2021-22 Federal Budget the Government announced the introduction of a temporary levy on offshore petroleum production to recoup the decommissioning and remediation costs. This is designed to ensure that industry bears the costs and not taxpayers. The levy will apply as of 1 July 2021 and will be administered by the ATO.
Implementing legislation is still being developed and will come into effect following consultation with industry on the levy's design. However, a number of key features of the levy have already been announced.
Overview of the levy
- The levy is payable by all entities with an ownership interest in an Offshore Petroleum and Greenhouse Gas Storage Act 2006 (Cth) petroleum production licence.
- All partners of a joint venture will be individually liable for the levy in proportion with their interest in the joint venture.
- The levy applies at a rate of $0.48 per barrel oil equivalent (BoE) produced, measured at the wellhead. The Department of Industry, Science, Energy and Resources is currently seeking feedback on the levy design, including its interaction with existing data and operational processes and what to take into account when using a rate per BoE equivalent.
- Entities must provide evidence of annual gross physical production of petroleum at the wellhead on a BoE basis for each title area. Operators of JVs will be responsible for providing information to JV partners to allow those partners to calculate their respective liability.
- The levy will be calculated and paid in arrears each financial year. So, the levy for the 2021-22 financial year will be payable in the first half of 2022-23.
- Entities will only need to make one levy payment a year to cover all of that entity's interests in petroleum projects.
- The levy will not be deductible for the purposes of any other form of federal taxation.
- The levy will terminate on 30 June of the year in which all of the decommissioning costs have been recovered. It is not clear when this will be. Estimates of the relevant costs range from between $200 million to $1 billion.
Actions you can take now
- Interested stakeholders can send feedback on the levy and responses to the Department of Industry, Science, Energy and Resources' discussion questions to offshorelevy@industry.gov.au.
- Industry participants should ensure they are up to date with government announcements regarding the draft legislation, levy design and time period of the levy.
- Operators should ensure they distribute relevant production information to JV partners to enable them to calculate their levy payments.
- Parties entering transactions involving offshore petroleum production licences should factor the levy into their due diligence and commercial negotiations, and consider how liability for the levy should be allocated following completion of their proposed transaction.
Other significant changes
The Government has also opened up consultations on a revised policy framework for the offshore oil and gas industry to ensure project developers and operators can safely decommission offshore projects in the future. See our April 2021 Insight for further details: What does the new Decommissioning Bill mean for you?