A system of allowable deductions for the gas companies reduces the actual average royalty payments to around 3% and can conceivably go down to 0%.
A discussion paper released in November 2017 for public comment by the Department of Treasury and Finance spells out very clearly how this works.
All the costs for processing, refining and transporting are deducted from the “wellhead price”. This is known as a “net-back” method and when applied, has the potential to make the royalty payment to the government zero.
This “net-back” method can be administratively complex, and requires guidelines and agreements between the Territory and the individual producer, says the paper.
“Under current arrangements, producers are able to deduct the costs of running the petroleum [or gas] from the well into processing facilities, processing, storage, pipeline tariffs, the costs of transporting the petroleum to the refinery or the first point of sale, and depreciation of field production assets.
“A key drawback of the net-back approach arises if the scope of deductible costs is too broad as it can technically result in a negative value of the petroleum. This is at odds with a value-based scheme and the concept that petroleum has an inherent value.
“Although the Territory imposes a 10% royalty, the actual petroleum royalty received by the Territory since 2010 is less than 4% on the value of the petroleum at its first point of sale, and has averaged about 2%,” says the discussion paper.
http://www.alicespringsnews.com.au/2018/04/29/will-gas-royalties-save-the-nt-read-the-fine-print/
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