Tax jeopardises vital oil, gas search

Oil and gas companies fear vital exploration could be dropped and development costs driven up by a new ruling from the Australian Taxation Office.

With the Australian Petroleum Production & Exploration Association annual conference starting today in Perth, _ WestBusiness _can reveal there are deep industry concerns that hundreds of millions of dollars of exploration could be at risk if tax laws change.

The tax office last year issued a draft ruling on the petroleum resource rent tax in which it signalled a change to treatment of front end engineering and design.

Previously FEED spending, which often includes preliminary works but also covers some exploration projects, has been generously treated under tax law.

Firms have been able to use FEED spending to offset PRRT and company tax liabilities.

But the proposed changes would treat some FEED spending as ordinary spending.

This has raised substantial industry concern that tax liabilities that had been used to offset expenditure early in their operations will be lost.

There are also concerns that the changes undermine the purpose of the PRRT, which is supposed to help firms get off the ground while maximising tax revenue when oil and gas fields are at their most profitable.

Of biggest concern is that the change will affect projects before a company reaches a final investment decision.

Two of the biggest LNG projects under way in WA went through at least one FEED process before the company took an investment decision.

One industry insider warned that some boards may take a "deep breath" before making a final investment decision if the tax office pushes ahead with its proposed change.

"Some of the projects are looking at hundreds of millions of dollars if there is a change in their tax treatment," one person said.

Another said the tax office plan came on top changes to condensate excise, the super profits resource tax and the minerals resource rent tax.

The West Australian

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