Graham Lloyd, 13 April 2016

Oil and gas giant BP will be able to deduct 150 per cent of the cost of its planned $1 billion Great Australian Bight deepwater drilling program from tax and royalty payments under special conditions extended to the “frontier project”.

The generous tax arrangements are believed to include the full cost of the $750 million Ocean Great White exploration rig being built in South Korea for the deepwater drill program in the Bight.

Under the deal, if the drilling does not proceed to production, BP may be able to claim 150 per cent of the exploration money spent from its Petroleum Resource Rent Tax liabilities on its other Australian operations.

A spokesman for BP said the company’s planned activity in the Great Australian Bight was “an exploration program, and is in its very early stages”.

“It would only become subject to PRRT if we find something, a ­licence is applied for and granted, and we invest to produce oil and gas,” the spokesman said.

“Any exploration costs incurred in the GAB exploration program cannot be transferred to reduce excise or royalties on other BP activities in Australia.”

However, an analysis of the tax arrangements says the deduction would be transferable if certain conditions were met. The tax arrangements are outlined in public documents and are expected to be scrutinised in a Senate inquiry, which is due to begin later this month.

The Senate inquiry will look at the potential risks in the deep water drilling program and the quality of federal government oversight that approved it.

Former Labor resources minister Martin Ferguson extended the special “frontier” tax arrangements to three of BP’s four exploration permits in the bight. The special provisions were introduced by Mr Ferguson’s Liberal predecessor Ian Macfarlane in 2004 but were restricted to Western Australia and Tasmania.

Public documents show exploration expenditure can include “carrying on or providing operations and facilities involved in or in connection with exploration for petroleum in the eligible exploration or recovery areas”.

The list of approved deductions includes operations and facilities involved in oil recovery, moving petroleum to or between any storage or processing area, storage and treatment, provision of services and employee amenities.

Expenditure excluded from the tax break includes borrowing costs, hire purchase agreements, dividends, repayment of equity and administrative costs. The company spokesman said: “BP considers transparency an important requirement to increasing trust in tax systems around the world.”

Green groups are planning to highlight BP’s tax affairs at the company’s annual general meeting in London tomorrow where the board is facing a list of complaints over executive pay, financial results and environmental performance.

Shareholders are angry that BP chief executive Bob Dudley’s salary rose 20 per cent to $US19.6m in a year the company reported a record loss of $6.4bn and laid off more than 5000 workers.

The company last week agreed to a historic $US20bn settlement over its Deepwater Horizon oil spill in the Gulf of Mexico.

More than $US15bn of the cost of the Deepwater Horizon settlement will also be tax deductible for the company’s US operations.

Extracted in full from The Australian.