rrt - the age

From the Age:

Coal seam gas sector fears blowout from RSPT
MATHEW MURPHY
May 4, 2010

QUEENSLAND'S coal seam gas sector, the darling of the resources sector, could come crashing back to earth. Analysts expect it to be one of the hardest hit under the federal government's resource super profits tax.

John Hirjee, of Deutsche Bank, said coal seam gas to liquefied natural gas could be the biggest loser from the proposed changes.

He said the new tax regime might reduce the net present value of Santos's and Origin's planned projects in Gladstone by as much as 40 per cent. The tax might also add to the risks associated with unconventional LNG projects and dissuade international buyers.

''We believe Santos and Origin are the most at risk as we see their Gladstone LNG and Australia Pacific LNG projects as losers from a [resource super profits tax],'' Mr Hirjee said. ''Arrow Energy is also highly exposed to the CSG sector but remains under a takeover bid from Shell/PetroChina. With a 14-month consultation process prior to a possible July 1, 2012, implementation date, the CSG to LNG sector will face further short-term uncertainty.''

Belinda Robinson, chief executive of the Australian Petroleum Production and Exploration Association, said its modelling presented a similarly grim scenario.

''There is no doubt it will be negative for the sector at a time when none of these projects have gone to final investment decision and some are seeking investment partners,'' she said.

Ms Robinson said it was critical that if the tax did apply that it be calculated as close to the extraction point as possible.

Figures from Deutsche showed that an upstream tax would alter its estimates of net asset value on Santos's GLNG project by 9 per cent and the company as a whole by 2.7 per cent.

However, an integrated tax scenario, calculated after processing, when the gas was worth much more, would hit GLNG by 40 per cent and Santos by 11.6 per cent.

''We note that the current petroleum resource rent tax regime effectively takes the upstream approach,'' Deutsche said.

Backing the case that investment could go offshore as a result of the resource super profits tax, companies judged winners under the new regime are those with projects overseas, such as Woodside Petroleum.