Introduction
In 2019, the Queensland Government commissioned a working group independently chaired by former South Australian Premier, Jay Weatherill, to undertake a review of the petroleum royalty framework in Queensland.
The review considered a variety of different models for a revised royalty framework and ultimately recommended that a volume based model be implemented.
The volume model
As of 1 October 2020, all petroleum royalties will be calculated pursuant to the new volume model. This will involve applying the rate prescribed by the Petroleum and Gas (Royalty) Regulation 2004 (Qld) (Regulation) to the volume of petroleum produced during a royalty return period.
The prescribed rate will be different for each of the following classes of petroleum:
- LNG Project Gas – all gas produced by an LNG project that is not domestic gas;
- LNG Supply Gas – gas supplied by a petroleum producer who is not part of an LNG project, either directly or indirectly through a relevant entity, to an LNG project;
- Domestic Gas – gas sold or transferred to a person who is not a member of an LNG project (but not gas sold or transferred as LNG), flared or vented, used for energy generation or disposed of by the producer (other than as LNG); and
- Oil – all petroleum that is liquid at standard temperature and pressure, and includes crude oil and condensate.
Different tiered royalty rates will be applied to each of the classes of gas. Those rate tiers are intended to reflect movements in the reference price for gas. Each of the reference prices will be individualised based on arm’s length sales prices for the gas sold during a return period. Alternatively, if no such sales prices are available, a benchmark price prescribed by the Regulation will be used.
Importantly, liability for royalties on petroleum produced will arise on production, not when the petroleum is sold.
Petroleum measurement will also be of practical importance. The volume model requires determination of the petroleum produced, however, it is acknowledged that sometimes petroleum is not measured at the point of production and may be measured at a later point after processing to remove impurities has been completed.
The OSR will be given the power to determine the measurement of petroleum if it is not satisfied with the measurement made by the producer.
Submissions
The OSR has released a consultation paper (which can be found by clicking here) intended to provide industry with an opportunity to comment on the implementation of the volume model.
Written submissions are invited from industry by 24 June 2020 to be sent to Mr Daniel Fielding, Director Royalty at Daniel.fielding@treasury.qld.au.
