Ann: Quarterly Report for Period Ended 31 Decembe, page-28

re: Ann: Quarterly Report for Period Ended 31... Royalties - Dargie, EL is correct. There is no "if the project is profitable do this and if not do this".

It is the higher of 5% of Net Revenue or 20% of Accounting Profits.

An example

Year 1
Revenue $100
Total Project costs $110

Royalty is the higher of AVR or Accounting Profits

1. 5% of Revenue = $5

or

2. 20% of Zero accounting profit* = $0

*no profit because the company can subtract $100 of the total $110 project costs.


Year 2
Revenue $120


Again higher of AVR or Accounting profits

1. 5% of $120 = $6

or

2. 20% of ($120 - $10** - $50***) = 12


** project cost remaining not deducted
*** Opex of say $50


So unless your opex goes through the roof or the oil price is very low from year 2 onwards in this example the company will pay 20% of accounting profits. In the first year they only pay 5% of Revenue.