Map: WA
Part of $5 billion in royalty deductions claimed by the giant North West Shelf oil and gas project off the north coast of WA are not legitimate, a federal audit has found.
A report on the joint venture project, operated by Woodside, concluded the Department of Industry, Innovation and Science had not been efficient or effective enough in collecting royalties.
The Australian National Audit Office said "the existing assurance arrangements do not effectively address key risks to the accurate calculation of royalty payable".
North West Shelf producers reported $19.7 billion in revenue from petroleum sales between July 2014 and December 2015. The joint venture partners are Woodside and BHP Billiton, BP, Chevron, Japan Australia LNG and Shell.
A total of $1.9 billion in royalties was collected, including $600 million for the Federal Government and $1.3 billion for Western Australia.
More than $5 billion worth of deductions were claimed against that petroleum revenues in the same 18 months, including claims for operating costs, depreciation, cost of capital and joint venture participant costs.
But the audit office found "the Royalty Schedule does not permit all the deductions currently being claimed".
"On this basis, the ANAO has doubts about the eligibility of deductions claimed for the cost of debt and equity funded capital, excise paid on crude oil and excise paid on condensate," it said.
The North West Shelf operator's control procedures for royalty calculations has not been audited for 17 years.
Woodside said all the claimed deductions were allowable, and it had worked openly and in a cooperative manner on previous audits and reviews.
It also noted the report stated "the maximum potential underpayment of royalties is suggested to be in the order of $11.6 million, if all such deductions were found to be non-compliant". Outdated royalty schedules
The Department of Industry, Innovation and Science (DIIS) relies on the WA Department of Mines and Petroleum's (DMP) compliance checks on deductions and does not further verify that only eligible deductions have been claimed.
"DIIS has not set out the level of assurance it requires for royalty collections or agreed with DMP the specific administrative arrangements that would support a conclusion that the correct amount of royalty is being collected," the report found.
It also concluded there were "significant shortcomings" in the framework for calculating North West Shelf royalties — including a royalty schedule that had not been updated for a decade and no review of cost deductions since 2006.
The department has agreed to all the report's recommendations for improving royalty calculation and collection to ensure "the operational responsibilities of the Australian and Western Australian governments are clearly articulated".
But the DMP said it did not accept many of the comments in the report relating to its processes.
"[The department's] North West Shelf royalty revenue verification processes are robust and adequate, and the Commonwealth and State governments can be confident that royalties are being accurately assessed and collected," it said.
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Photo: The North West Shelf joint venture project is operated by Woodside. (Supplied: Woodside Energy)
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