The Queensland Government has announced that a new volume-based model will be implemented for the calculation of petroleum royalty. The new petroleum royalty model will apply from 1 October 2020.
As part of the 2019-20 Queensland Budget, the State Government announced a review of the design of Queensland’s petroleum royalty regime.
The primary objectives of the petroleum royalty review (PRR) were to ensure greater certainty, equity and simplicity for all parties and identify opportunities to simplify the current regime, while providing an appropriate return to Queenslanders from their valuable non-renewable resources.
A working group independently chaired by The Honourable Jay Weatherill was formed to undertake the PRR. Mr Weatherill provided two reports to government, in December 2019 and February 2020.
Following the consideration of those reports, Treasurer and Minister for Infrastructure and Planning, Cameron Dick, announced a new petroleum royalty liability model on 8 June 2020.
Currently, the petroleum royalty rate is imposed at 12.5 per cent of the wellhead value of all petroleum disposed of by a petroleum producer during a return period.
From 1 October 2020, the basis on which petroleum royalty is imposed for all petroleum will change to a volume-based model. The volume-based model will see royalties calculated on the volume of gas produced and will include a sliding rate scale and producers’ sales revenue.
The Treasurer said the new volume-based model would support affordable supply for domestic customers, appropriate returns for Queenslanders and fairness for gas producers.
“Queensland’s gas industry continues to do the heavy lifting in supplying the gas for domestic markets in Eastern states, while also meeting the needs of international customers,” he said.
“The model is transparent, equitable, administratively simpler and locked in for five years.”
“Importantly, the new model supports the Queensland Government’s commitment to create more jobs in more industries,” Mr Dick added.
Santos Limited and Senex Energy Limited were among those to welcome the announcement.
Managing Director and CEO of Senex, Ian Davies, said Senex and its partners had invested $400 million in Queensland over the past 18 months and was keen to secure and develop more acreage for the domestic gas market.
“We congratulate Queensland’s Treasurer Cameron Dick on his decision to create a more equitable and transparent system for the calculation of petroleum royalties,” Mr Davies said.
“This new approach will make investment decisions easier. On top of that, five years of royalty stability will enhance the attractiveness of investments that support jobs in rural and regional Queensland.”
Santos Managing Director and Chief Executive Officer, Kevin Gallagher, commented that the new royalty model provides a clean break from the administrative, technical and legal challenges of the past, as well as delivering the longer-term certainty that is critical for new investments.
He noted that the new royalty model addresses past equity and integrity issues with industry participants now on a level playing field.
“The new royalty model is simple, efficient, equitable and transparent,” Mr Gallagher said.
“It provides certainty to encourage ongoing investment in new gas supply and it will incentivise producers to innovate and reduce their cost of supply, which in turn will help put downward pressure on gas prices.”
More information on the Queensland Petroleum Royalty Review can be found here: www.treasury.qld.gov.au/petroleum-royalty-review