Monthly Archives: February 2017

The north-west shelf project in Western Australia which the Tax Justice Network says pays high royalties. Photograph: Graeme Robertson for the Guardian

The Turnbull government must introduce a 10% royalty on all offshore oil and gas projects in Australia to ensure taxpayers start getting a fair return on their natural resources, the Tax Justice Network says.

The group has called for the petroleum resource rent tax (PRRT) to be overhauled, saying there were too many opportunities under its regime for offshore oil and gas companies to exploit transfer pricing, with direct impacts on PRRT credits and profits.

In a submission to the PRRT review, the Tax Justice Network said a 10% royalty ought to be applied to offshore oil and gas projects in commonwealth waters that were only subject to the PRRT.

It said a 10% royalty needed to be charged because the PRRT which was designed in the 1980s for crude oil projects, but which had failed to keep up with developments in the industry was failing to collect adequate revenue.

The treasurer, Scott Morrison, admitted last year that revenues from the PRRT had halved since 2012-13, and crude oil excise collections had fallen by more than half.

He announced a formal review of the PRRT regime in November after a rapid decline in revenues from the tax.

Jason Ward, from the network, said a 10% royalty would raise between $4bn and $6bn over the next four years.

He said the royalty system should be similar to existing state and Commonwealth royalties that already apply to all other oil and gas projects in Australia.

It should be deductible from PRRT, and the PRRT should remain as a backstop to collect additional revenue if and when prices increased substantially and when existing PRRT credits were exhausted.

With Australia poised to be the worlds largest exporter of LNG but projected to generate little direct government revenue for decades, there is a major problem that needs to be addressed, he said.

At the moment projects in commonwealth waters are getting millions of tonnes of LNG effectively for free.

No other industry, including coal, iron ore and onshore gas, get given the total cost of their investment (plus uplift) in free resources before they begin paying for that resource.

This policy will level the playing field across the oil and gas industry. At the moment projects in commonwealth waters are getting a competitive advantage over onshore projects and the north-west shelf who pay much higher royalties.

All of the major companies, Shell, Chevron, BHP, Woodside and BP, already pay under our proposed model through their ownership of the north-west shelf project. They have been happy to pay under this model for years without complaint. The north-west shelf shows they still make huge profits under this type of royalty regime.

Ward said mature oil projects, such as BHP in the Bass Strait who already pay PRRT, would not be affected given the royalty would be fully deductible from the PRRT.

This proposal we believe ensures a fair return to the Australian people while still encouraging investment by maintaining our royalty regime as one of the most generous in the world, he said.

We call on the industry to support this proposal to the commonwealth government.

The problems raised by the Tax Justice Network are similar to those raised by tax expert Dr Diane Kraal, from Monash University.

Her submission warned flaws in the PRRT regime meant Chevrons giant Gorgon gas project off WA would not pay the tax until at least 2030, despite decades of operation.

Kraal said her modelling showed $5bn in revenue would be raised from Gorgon alone by 2030 if royalties were reintroduced.

She said her research indicated other natural gas projects in commonwealth waters should also be subject to commonwealth royalties, including Chevrons Wheatstone, Woodsides Pluto LNG project, and Inpexs Ichthys project.

Woodside Petroleum used its submission to argue against any changes to the PRRT.

It said the PRRT had been operating as intended, despite declining revenues from the tax recently.

It said the regime had delivered $200bn worth of projects over the past decade, and Woodside had paid $2bn in PRRT since 2001.

As a profits-based tax, it is not unusual to have declining PRRT at a time of declining oil and gas prices and prior to these projects recouping their costs, its submission said.

Woodside pays billions of dollars of taxes in Australia. The PRRT is just one part of our tax contribution but increasing it could put other tax revenues at risk by making future projects unviable.

Woodside has an ownership stake in three of Australias major undeveloped gas resources. As the leading Australian gas producer, we want to develop these resources and deliver significant benefits to the Australian people.

We urge the PRRT review team to consider carefully the substantial impact of any changes to the current fiscal settings that could jeopardise existing and future investments.

Read more:

Coalition urged to charge 10% royalty on offshore oil and gas projects - The Guardian

What happened?

If you look at some of the news from offshore rig companies, it would look as though things are starting to look up for the business. The one exception is looking at Seadrill (NYSE:SDRL) as of late. Shares of Seadrill declined an incredible 45.2% in January. Compare that to Ensco (NYSE:ESV) and Noble Corporation (NYSE:NE), which both saw double-digit gains. The big reason Seadrill's stock declined sharply while others made some modest gains is that the company announced it is struggling with refinancing with some of its creditors.

Image source: Getty Images.

Let's start with the good news in the offshore rig industry: Producers are starting to show an interest in hiring offshore rigs again. Noble announced on its most recent fleet status report that two of its jack-up rigs had their contracts extended until 2022. Granted, Noble took a slightly lower day rate in the negotiation, but the two will add to the company's backlog of contracted work. Also, Ensco picked up a contract for one of its jack-ups in the North Sea that will mobilize in the spring, although no price has yet been given for the contract. Overall, considering how many rigs have gone off contract as of late, this is a pretty welcoming sign for offshore rigs.

Seadrill, on the other hand, wasn't so fortunate. The company did announce in late December that it had received a three-year contract extension for one of its jack-up rigs, but that news has been overshadowed. The real big event in January was when Seadrill announced that it was in discussions with its creditors to restructure its debt. Accord to CEO Per Wullf, those negotiations have taken longer than expected. The company has been making as many capital preservation moves as possible lately, such as delaying delivery of new rigs under construction, but the rapid decline in contract work for its fleet is leaving it with little cash flow to spend on preserving its fleet or paying down debt.

It's ultimately going to come down to a large issuance of equity. Management has already warned investors that it thinks it needs to raise about $1 billion in debt, and that it may result in "significant shareholder dilution."

One important lesson investors should have learned during this market downturn is that balance sheets matter. Seadrill's balance sheet was in rough shape during this most recent downturn, while Noble and Ensco's financial statements looked much more respectable. So, as cash flows have dried up, Seadrill has perpetually been trying to pare down its expenses and its debt load to survive. With a need for $1 billion to keep things going, that's likely going to mean investors are going to get hurt, here, one way or another.

For investors looking at offshore rig stocks other than Seadrill, now may be an intriguing time to put them on your radar. Both Noble and Ensco are trading well below their tangible book values. It will likely be a long payback period, but there looks to be a lot of value in these shares for investors who have the patience.

For Seadrill, though, there is a little more uncertainty. Until the company announces the final results of its debt restructuring and how it impacts the equity in the company, it's probably best to stay away.

Tyler Crowe owns shares of Seadrill. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Shares of Seadrill Went in the Exact Opposite Direction of Other Offshore Drillers in January - Motley Fool

The Offshore World Championship 2018, a World Sailing sanctioned event, will take place in the Hague, specifically from the port of Scheveningen, in July 2018. An innovative solution will be used for the first time to unite the two largest offshore racing fleets.

Racing using a handicap or rating system is a way for yachts of different size, shape, age and performance profiles to compete together equitably on the same race course at the same time. There are many handicap and rating systems in use around the world but the two most successful in terms of numbers of subscribers are ORC and IRC. Together the two have rated over 15,000 boats in over 50 countries worldwide in 2016.

There have been World Championships run since 1999 for yachts handicapped under the Offshore Racing Congress' IMS and ORCi rating systems, while for the first time since being sanctioned as an International Rating system by World Sailing in 2003, IRC scoring will be used in a World Championship.

A pragmatic and innovative solution now opens the door to allow an offshore fleet derived from ORCi and IRC-rated boats to assemble and compete for their discipline's ultimate title, 'World Champion'. By using a combined scoring system, this combined fleet will, in 2018, be able to compete on the water against each other for the first time using both systems.

The compromise reached at the sport's international federation (World Sailing) conference in Barcelona last November calls for each boat entering the world championship to have a measurement certificate from each of the two systems, ORCi and IRC. ORC had previously approved the proposal bid from organizers from The Hague to be hosts for the World Championship based on the ORC's standard week-long championship format, however the details of format and scoring will be re-examined by a Working Party formed from IRC and ORC to examine the options.

Stan Honey, chairman of World Sailing's Oceanic and Offshore Committee said, "It was really important to come up with a solution to find a way for the two most important fleets of offshore yachts to compete for a world title. By using both systems conjointly for the event's scoring neither group is compromised and both groups benefit from the dual system solution that we agreed upon in Barcelona last month. I'm looking forward to the return on experience from this event in 2018. I'm sure it will be a popular and successful event."

Based on the experience from this exciting new cooperation between these two systems, further evolutions and convergence are envisaged in the future.

Marcel Schuttelaar, Chairman of The Hague Offshore Sailing World Championship 2018, "We are extremely pleased that the two major rating systems of the world are agreeing to make our event a pioneer in future cooperation for the World Championship. Our venue location is ideally suited to attract a strong turnout from both cultures, so we look forward to working closely with ORC and IRC on building the framework for a successful championship event."

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ORC and IRC unite offshore racing fleets for 2018 World ... - International Sailing Federation

Tullow finds 'live oil' offshore Ja

Steven Jackson

Senior Business Reporter

Oil and gas company Tullow Oil disclosed this week that it found 'live oil' off the coast of Jamaica in its latest search.

The company has since extending its 2D seismic mapping by hundreds of kilometres to determine the full scope of the find.

"In Jamaica, following the completion of a drop core and seep study in the Walton Morant blocks that identified a live oil seep, Tullow will acquire a further 680 kilometres of 2D seismic data before considering the acquisition of a 3D seismic," said Tullow in its annual report released on Wednesday.

A Jamaican engineer who worked on oil rigs off the coast of Gabon told the Financial Gleaner that live oil seeps are evidence of oil flowing to the surface, which provide the first indication of petroleum systems in the basins surveyed. Requests for comment from Petroleum Corporation of Jamaica (PCJ) and Tullow Oil were unanswered up to press time.

Tullow, which is based in the United Kingdom, posted a US$600 million net loss on US$1.3 billion in revenue for its December 2016 year end, due to write-offs and impairments. The company, which operates in 18 countries, holds net debt of US$4.8 billion and free cash flow of $1 billion.

In November 2014, the PCJ signed a production-sharing agreement with Tullow for oil and gas exploration in Jamaica's offshore areas. It includes 10 full blocks and one part block in shallow water to the south of the island.

Last year, Tullow completed a bathymetry survey over the 32,056 square km Walton Morant Blocks. Also, it completed a 2D seismic survey in the first quarter of 2016 to delineate potential plays in shallow water.

Tullow previously reported that there have been oil or gas shows in 10 of the 11 onshore and offshore wells drilled in Jamaica.

The offshore area to the

south of the island has been identified as having good frontier exploration potential, encompassing three geological provinces: the Pedro Bank carbonate platform and the Walton and 'Southern' sub-basins, which offer tertiary-aged clastic and carbonate reservoir targets in both structural and stratigraphic settings. Multiple leads have been identified on existing seismic data which lie in 25m to 2,000m depths.

Canadian company Sagres Energy, which previously held the rights in 2010, exited Jamaica in 2012 as it was unable to find a drilling partner. Sagres, instead, chose to focus on opportunities in Colombia.

steven.jackson@gleanerjm.com

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Tullow finds 'live' oil offshore Jamaica - Jamaica Gleaner