Summary of Royalty Provisions

The wellhead value of petroleum recovered is calculated by deducting, from the arm’s length gross value of the petroleum, post-wellhead costs as agreed or determined.
“Gross value” means the aggregate of the value of all sales products sold, transferred or otherwise disposed of during the period; and the value of the closing inventory of petroleum for that period less the value of the closing inventory for the preceding period.

“Post-wellhead costs” include such operating and capital costs that are incurred during the royalty period and are directly associated with the processing, transportation and storage of the petroleum product(s).

Post-wellhead costs can include:

• freight from the point of valuation to the point of sale;
• operating costs between the wellhead and point of valuation;
• the value of approved fuel used;
• allowance for overheads and depreciation of post-wellhead capital assets situated within the production unit; and
• allowance for interest on approved post-wellhead capital assets.

Capital expenditure relating to post-wellhead activities is depreciated on a straight line basis over the life of the field. The straight line method is applied for ease of calculation but may be revised should the field production curve warrant an accelerated rate of depreciation. This would apply where proven reserves were depleted at a greater rate than initially anticipated, hence reducing the overall field life.

Sales revenue in foreign currency is generally translated to Australian dollars using the mid-rate published by the RBA on the date of receipt. Where sales are made during a royalty period but no revenue is received, the mid-rate applicable on the 20th day of the month following shipment is provisionally applied and an adjustment is made upon receipt of the funds.

The maximum deduction that can be claimed against the gross revenue in any royalty period is limited to 50% of that gross revenue for an oil project, and 90% for a gas project. Deduction in excess of these ceilings may be carried forward indefinitely without any adjustment for inflation.

Royalty Reporting Requirements

The holder of a petroleum production licence is required to submit, on a monthly basis, a combined production report and royalty return.

Monthly Production Report

Within 15 days of the expiry of each month, the licence holder is required to submit a production report that shows for the preceding calendar month, the total of:

• liquid and gaseous petroleum, and water produced;
• liquid and gaseous petroleum used;
• gaseous petroleum flared or vented;
• liquid and gaseous petroleum, and water injected;
• liquid petroleum stored;
• liquid and gaseous petroleum delivered from the area; and
• the cumulative quantities of liquid and gaseous petroleum, and water, produced or injected as at the end of the month.

Royalty Return

Wellhead royalty returns and payments are due on the last working day of each calendar month, following the month of production, and penalties apply for late payment. The returns include details of sale revenue, stock movements and allowable deductions related to the relevant month.

Records

Records need to be maintained to give a true and complete indication of:

• the quantity of the petroleum product;
• any sale of the petroleum product; and
• all costs associated with the sale of the petroleum product.

All records must be kept for a period of seven years.

Access to Records

All source documents must be made available for inspection to substantiate royalty returns.

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