MacFarlane is calling for a “flow through” shares scheme for exploration to reduce tax liabilities for junior companies, by allowing their tax deductions to be transferred to individual shareholders.

MacFarlane said he would lobby cabinet for the tax breaks in next year’s budget.

This move appears to be generating a lot of enthusiasm in the industry. Arc Energy CEO Eric Streitberg told the Australian Financial Review that the scheme would make a “huge difference to the amount of money available” for exploration in frontier areas of Australia.

Since 1999, Australia’s annual crude oil production has dropped by about 12% per year. In the 2004-05 financial year, national crude output fell 13% despite a 25% increase in higher world oil prices.

At Woodside’s AGM, petroleum chairman, Charles Goode, told shareholders that explorers were shifting exploration budgets overseas because they “have been finding better returns elsewhere over the past decade or so.”

Meanwhile, MacFarlane said he was now confident Australia would exceed its biofuels target of 350 million litres by 2010, following a meeting between with oil refiners.

Caltex, BP and Shell have committed to investing in ethanol, while Mobil was still considering it, said McFarlane at a meeting with ethanol and oil industry stakeholders in Canberra this week.

But he said it was the independent petrol stations who were leading the pack with ethanol blended petrol.

Macfarlane said ethanol’s excise-free status meant that E10 (10% ethanol) blends should be four cents a litre cheaper than standard petrol and this should drive significant growth in the sector.

The minister also asked Mobil during the meeting to resume production at the southern Adelaide refinery, which closed in 2003 when it was no longer profitable.

At the time, the company said it hoped to reopen the facility towards the end of this decade.

An agreement with the South Australian Government means Mobil must decide by July 2006 whether it will reopen Port Stanvac or announce its permanent closure.

While Mobil has said it would discuss the matter with MacFarlane, the company claims it does not have any immediate plans to reopen the refinery, adding that it could take up to two years before Port Stanvac was ready to resume production again.