Fossil fuel multinational Shell’s recent financial accounts show the company believes no resource tax will ever be paid on gas produced from Australia’s biggest offshore project, Gorgon, a senior tax office official has told parliament.
The ATO second commissioner, Jeremy Hirschhorn, told an estimates hearing on Wednesday much of the $280bn in credits against payment of petroleum resources rent tax (PRRT) accumulated by the oil and gas industry was “trapped” in projects that would never be profitable enough to pay the tax.
PRRT is payable based on the profitability of individual projects. The costs run up building the projects are allowed to be carried forward, with interest, until it is operational.
The tax has been controversial because it has failed to produce much revenue despite a boom in gas exploration and production. The government has reduced the interest, or “uplift” rate, in order to lower the threshold before tax is paid, but this does not affect credits that have already been accumulated.
Hirschhorn said he was aware of Guardian Australia’s report in April that, based on Shell’s accounts, the company expected it would never pay PRRT on its 25% share of the Gorgon project.
The field, which sits off the north-west coast of Western Australia, is the country’s biggest gas project, developed at a cost of US$55bn.
In Shell’s annual report, the company said it had US$39.4bn ($51.7bn) in “unrecognised losses for petroleum resource rent tax in Australia” – tax that it expects it will not have to pay.
Greens senator Nick McKim asked Hirschhorn on Wednesday what Shell’s statements meant for PRRT from Gorgon.
“They are effectively saying they cannot recognise this as an asset because they do not think it will be used in the future,” Hirschhorn said. “It is effectively Shell saying that it has $40bn … in, effectively, that trapped bucket.”
Chevron, which owns 47.3% of Gorgon and operates the project, has not made any similar declaration in its financial statements.
Hirschhorn said there was about $280bn worth of PRRT credits in existence but the usable amount was “significantly less”.
“Some of that carry-forward expenditure is trapped, effectively lost, carry-forward expenditure,” he said.
“So that is carry-forward expenditure which will, on a particular investment, never be recouped. A particular project could have had a lot of expenditure spent on it, it will never recoup that amount of investment plus uplift that has been put into it.”
He said he could not quantify how much carry-forward expenditure was trapped.
PRRT revenue is not expected to flow into government coffers until the 2030s.
