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resource tax favours csg sector

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    Resource tax favours CSG sector

    [from Business Spectator: Published 10:02 AM, 2 Jul 2010 Last update 11:25 AM, 2 Jul 2010]

    Reuters

    The federal government's compromise deal with the mining industry on a new resource tax structure is a win for the fledging coal-seam gas (CSG) sector, which will have to pay less tax than originally feared.

    Under the amended structure, the CSG sector will be taxed under terms similar to the current petroleum resource rent tax (PRRT), which has a much higher threshold before the super tax kicks in and allows for companies to cover their full capital costs before paying the tax.

    The petroleum tax would allow companies to recoup their full capital costs upfront before they pay the tax, thereby allowing companies to pay off debts earlier and significantly reduce the cost of financing projects.

    Having coal-seam gas projects subject to the same regime as offshore energy projects will create a level playing field in the industry and improve the sector's ability to compete with other offshore LNG developments for project funding, a major determining factor on whether these massive developments can get a greenlight.

    The favourable tax regime would pave the way for some $30 billion worth of liquefied coal-seam gas export projects, owned by global energy majors such Britain's BG Plc, Malaysia's Petronas and US ConocoPhillips, to be swiftly approved later this year.

    Out of the three projects targeting investment decision later this year, BG's Queensland Curtis liquefied natural gas (LNG) project is seen by analysts as being the most certain to get the final go-ahead, as it has already locked in buyers for all of the project's output capacity and has started to receive a number of environmental approvals from the government.

    For gas projects that have not yet secured customers, the tax revamp would remove a major stumbling block that has hampered negotiations.

    The Gladstone LNG project owned by Santos Ltd and Petronas could be the immediate beneficiary, with analysts at CLSA expecting the venture to be able to quickly wrap up negotiations with prospective buyer Sinopec, which could see the Chinese major buy LNG and invest about $1 billion to buy up to 19.9 per cent stake in the development.

    Santos shares added 1.21 per cent to $12.51 at 1125 AEST. against a 0.23 per cent improvement in the benchmark index.
 
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