“If the government also comes through with some positive tax changes, then I think this is about as good as the industry is going to get from a government that is not going to be directly involved in exploration,” one commentator told EnergyReview.Net.
“On the surface it is very positive. However, the focus must be on new ideas, rather than re-hashing the same old concepts. Basin prospectivity must be seen to be credible by explorers, though I would like to see more emphasis on discriminating between high risk and low risk exploration in tax treatment,” said a second.
The Petroleum Exploration Association of New Zealand was a little more circumspect, however. “On first reading the package is encouraging, but Peanz is disappointed that some of the more critical measure we have been asking for over the past year or so are not included,” Peanz executive officer Mike Patrick told ERN.
“One of those measures is the removal of the current claw-back of tax deduction for an exploration well once it becomes a production well. The extra money for new seismic is a good move, however, putting us more in line with Australia.”
Revenue Minister Michael Cullen, Energy Minister Pete Hodgson and his associate Harry Duynhoven jointly announced the possible NZ$100 million package of incentives, saying refinements to the petroleum taxation regime could have long-term impacts, while proposed royalty regime changes applied to the five-year window “to encourage a burst of exploration activity”.
Hodgson said the suite of royalty regimes changes - to take effect from June 30 until the end of 2009 - would encourage exploration for the new gas reserves that were critical to meeting New Zealand’s future energy needs with the forecast depletion of Maui. The royalty incentives would also apply to coal bed methane gas.
The proposals include reducing the ad valorem royalty rate from 5% to 1% for gas discoveries (oil will remain at 5%); and reducing the accounting profit royalty from 20% to 15% on the first NZ$750 million gross sales of petroleum offshore and the first NZ$250 million for onshore discoveries.
There will also be a deduction of exploration and prospecting costs, and a carrying forward of such costs with interest, in relation to the APR on production from discoveries. The proposal is for deductible costs to be carried forward with annual interest at a rate equal to the 10-year government bond rate, plus one percentage point.
As well, specific changes to the petroleum tax regime will be considered including: reviewing the tax treatment of offshore operators (drilling rigs and seismic survey ships); clarifying the GST treatment on sale of permit interests and on the costs of site restorations; and reviewing the amortisation rates for capitalised development costs.
Temporary adjustments to the petroleum royalty regime could be worth about NZ$80 million, with another NZ$20 million going to Crown Minerals for the acquisition of new geological and geotechnical information and the international promotion of New Zealand exploration opportunities. It is believed petroleum taxation changes will be announced early next year as part of an overall business tax package.
Duynhoven said “an exploration boom” should now be anticipated in New Zealand during the next few years as the two key factors influencing investment decisions – the attractiveness of the fiscal regime and perceptions regarding geological prospectivity - had been addressed.
“Each item targets a key issue raised by Peanz during our consultation with industry and submissions from industry have played a key role in the shape of the package. Industry will have a further opportunity to comment on these proposals during consultation on the Minerals Replacement Program, due to be released later this month.”
The ministers also said that Australia - which faces declining domestic oil reserves - and New Zealand now offered comparable petroleum incentives, with Australia recently offering tax incentives for “frontier” exploration activities and an additional data program.
Crown Resources announced the review at the March 2004 NZ Petroleum Conference, when manager Adam Feeley conceded that without urgent action to promote further exploration there was a real likelihood that indigenous gas would only play a limited role in New Zealand’s energy future.
