Petroleum royalties

Key Legislation: Petroleum Acts (various state/territories) Petroleum (Submerged Lands) Acts (various states/territories) Commonwealth Petroleum (Submerged Lands)(Royalty) Act 1967

Federal Government royalties are applied to licence areas in offshore waters that are not subject to PRRT (production sourced from exploration permits WA-1-P and WA-28-P). The states and Northern Territory also apply royalties on the production of petroleum under their respective Petroleum and P(SL) Acts.

Royalties are generally assessed as a percentage of the wellhead value of production. This is calculated by subtracting from the sales value of all petroleum products sourced from the well, the cost of transportation and processing involved in bringing the raw products from the wellhead to a point at which marketable products are sold.

Deductions from the sales that which are allowed when determining the wellhead value include:

• crude oil production excise (for Commonwealth royalties only);
• a proportion of the platform costs;
• certain processing and transportation costs, including costs associated with shipping liquefied natural gas (LNG) from the North West Shelf to Japan;
• interest on the depreciated value of capital items (the cost of debt and equity capital); and
• specified depreciation and operating expenses.

Royalties are levied at a rate between 10 and 12.5 per cent of the wellhead value (depending on the jurisdiction involved). In general, the states and Northern Territory retain all royalties collected under the respective legislative provisions. But in some instances, royalties collected from submerged lands that were previously covered by Commonwealth titles are shared with the Federal Government. At present, this sharing of royalty revenues is limited to some projects covered by the provisions of WA Petroleum (Submerged Lands) Act 1982.

For Commonwealth royalties, the Federal Government retains a basic 4 percentage points of the royalty, while the remainder (between 6 and 8.5 percentage points) is paid to Western Australia.