12-05-04 Australian oil companies will be given new tax incentives to undertake expensive deepwater exploration as the hunt for new provinces to replace the declining Bass Strait is forced further and further offshore.
In a bid to stem Australia's falling oil production, the Government announced new concessions that will allow companies to claim 150 %, up from 100 %, of their exploration spending in designated areas as a deduction against their Petroleum Resource Rent Tax liability, which is levied at 40 % of taxable profit.

The cost to the budget will be negligible -- at about $ 17 mm over four years -- but the stakes are high. According to government agency GeoSciences Australia, the country's remaining economic reserves of crude oil and condensate are only sufficient to cover 11.3 years of consumption, based on how much was guzzled last year. Deep water is generally defined as beyond depths of 300-400 metres depending on conditions.
Falling production is also hurting government coffers. PRRT revenue is forecast to drop by $ 100 mm, or 8.3 %, in 2004-05. That will be partly offset by rising oil prices which will boost revenue from petroleum royalties levied on producers by $ 32 mm, or 5.7 %. Crude reached a 13-year high of $ 40 a barrel.

According to the Australian Petroleum Production & Exploration Association, by 2010 Australia's oil production will be sufficient to cover only half of the country's needs. APPEA executive director Barry Jones welcomed the initiative.
"The place where you are going to find a really big discovery is in the deepwater frontier," Mr Jones told.
Resources Minister Ian Macfarlane said Australia had 40 offshore geological basins that had the potential to host oil and gas, but half remained unexplored because of the high cost of drilling in deep water far offshore.
"This measure lowers the cost of petroleum exploration in frontier areas, thereby providing an incentive to explore in Australia's remote offshore areas and increasing the probability of discovering a new oil province," Mr Macfarlane said.

The tax concession will apply to exploration acreage released by the Government in 2004 through to 2008, so long as the acreage lies more than 100 km from any existing commercialised oil discovery and isn't adjacent to an area designated in the previous year's acreage.
But Mr Macfarlane will only be able to designate up to 20 % of each year's acreage release as eligible for the incentive. The incentive will also only apply to early stage exploration, and not for the cost of appraising discoveries. In addition to the 2004 exploration acreage released in March, the tax incentive will also apply to some existing permits in the Sorell Basin off Tasmania's west coast, the Exmouth Plateau and Perth Basin off Western Australia, and permit NT04-3 in the Timor Sea, 300 km north of Darwin.

Included in the budget was a $ 2.2 mm grant over three years to oil recyclers producing a light fuel oil. The grant is to fully compensate the industry for the removal ofits excise exemption in February.
The budget also included $ 7.5 mm over nine years for the Australia-China Natural Gas Technology Partnership Fund which promotes bilateral co-operation following Australia's $ 20 bn LNG sales agreement with Beijing in late 2002.