The rationale for the proposed tax, outlined by Mr Rudd at the time of the announcement and throughout the 54-day war of words that ensued, was simple – “an RSPT would ensure Australians get a fair share from our valuable non-renewable resources.”

Based on recommendations made in the Henry Tax Review, a fair share was calculated to be a 40 per cent tax on profits from resource projects after allowing for extraction costs and recouping capital investment.

The proposed tax was to apply to all companies, partnerships and trusts directly involved in mining and petroleum projects with the exception of projects already covered by the Petroleum Resource Rent Tax (PRRT).

Concern regarding the proposed tax was voiced from industry, business and government.

Taxing gas

Following the announcement, Deutsche Bank published a report, Australian Energy Sector: Implications of the Henry Tax Review, which found that the potential “biggest losers” under the proposed RSPT would be coal seam gas to LNG projects.

Australian Petroleum Production & Exploration Association Chief Executive Belinda Robinson said “A particular concern is the impact of the new tax on projects at critical stages of planning. These include Queensland’s LNG projects to be developed from CSG and investments in domestic gas projects for the supply of energy to our capital cities.”

On 7 May Santos Chief Executive David Knox announced that there may be a delay in making a final investment decision on its GLNG Project, located in Queensland, following the announcement of the RSPT.

Later in May Woodside Petroleum’s Chief Executive Officer Don Voelte said that Woodside had modelled the hypothetical impact of the proposed 40 per cent RSPT on its Western Australia projects, finding that the Pluto Gas Project would not have gone ahead under the new tax scheme.

Wood Mackenzie Lead Upstream Analyst for Australasia Craig McMahon said that “the timing of the RSPT announcement and the uncertainty it has created could not have come at a worse time” for the three CSG to LNG projects worth a combined $50 billion that are hoping to make a final investment decision within the next 12 months – the QCLNG Project, the GLNG Project and the APLNG Project.

New PM, new proposal

When Julia Gillard took leadership of the Australian Labor Party on 25 June, one of her first actions was to announce flexibility on the Federal Government’s proposed RSPT in her first press conference as Prime Minister.

“I am throwing open the Government’s door to the mining industry and I ask that in return, the mining industry throws open its mind,” said Ms Gillard.

On 2 July Prime Minister Julia Gillard announced that the proposed RSPT will be replaced by an extended Petroleum Resource Rent Tax (PRRT) and a Mineral Resource Rent Tax (MRRT).

The existing PRRT will extend to cover onshore oil and gas projects in Australia.

Origin Energy Managing Director Grant King said “PRRT is a regime we have operated under and contains a number of provisions to ensure the tax only applies after a reasonable return on investments has been achieved.

“Origin supports the Government’s decision to calculate the starting point capital value for the application of the PRRT on the basis of market value of the project assets including oil and gas rights, rather than book value as originally proposed under the RSPT regime.”

Icon Energy Managing Director Ray James said “While details are still to be finalised, this initiative is encouraging, as Icon is comfortable in principle to operate under the new proposed tax regime.”

Chief Executive of the Queensland Resources Council Michael Roche said “BG group has indicated the new arrangements will keep the company on track to recommend its Queensland Curtis Island LNG Project to its board for sanction later this year.”

APPEA Chief Executive Belinda Robinson said that the proposed changes represented an improvement on the original RSPT proposal, but that fundamental details of the proposal still needed to be worked through.

“What many oil and gas players have woken up to today is a higher tax rate, two lots of resource taxes, an increased compliance and administrative burden and no guarantee that they would fall within any small producer exemption threshold as has been extended to the mining sector,” Ms Robinson said.

The Federal Government said in its release regarding the new proposed tax regime “This agreement provides certainty to the resources industry, to mining communities right around the country, and to the broader Australian economy.

“It sends a very clear message to the world that the Australian resources sector is strong and its future is secure.”