Australian Govt to Tax Condensate; Reaps A$2.5B in 4 Years

CANBERRA (Dow Jones Newswires), May 13, 2008

The Australian government will start taxing some condensate production by removing the fuel's current exemption from a crude oil excise, Treasurer Wayne Swan announced Tuesday.

This measure, which will take effect at 1400 GMT, has an ongoing net revenue gain of an estimated A$2.5 billion through to the end of fiscal 2011-2012, partly offset by an increase in net outlays of A$69.9 million over the same period, Swan said.

"The measure will increase the return to the Australian community from allowing private interests to extract non-renewable energy resources in the North West Shelf project area and onshore," he said in a statement issued with the government's annual budget.

Condensate is a light crude oil extracted from natural gas.

Under the new arrangement, all condensate production from fields in the North West Shelf project area and onshore will be subject to the excise, which is levied as a percentage of the value of crude oil produced from a field, he said.

Condensate will be subject to the same excise rate as crude oil from fields discovered after Sept. 18, 1975. The top crude excise rate that applies once annual production reaches more than 5 million barrels a year is 30%.

The first 30 million barrels of crude produced from a field is exempt from the excise. Past production of condensate from a field will contribute towards meeting this threshold before the excise becomes payable, he said.

Under the arrangement, the federal government will provide the Western Australian state government with ongoing compensation for the loss of offshore petroleum royalty revenue resulting from imposing the excise on condensate, because excise payments are a deductible expense for calculating the offshore petroleum royalty, he said.

As a result, an initial A$80 million will be paid to Western Australia this fiscal year ending June 30, 2008, with payment in subsequent years adjusted to equal the impact of removing the condensate exemption on royalty payments to the state, which is estimated to cost A$406.6 million through to end fiscal 2011-2012, he said.

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