Australian Federal Audit Finds NWS JV Underpaid Royalties

The Australian National Audit Office, the federal auditor, said November 28 that North West Shelf joint venture paid reduced royalties by claiming deductions to the tune of A$5bn (US$3.73bn) during the period July 2014 and December 2015 in areas of operating costs, depreciation, cost of capital, depreciated asset disposal, crude oil excise, condensate excise, processing tariffs and joint venture participant costs.

“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,” the report said.

Northwest Shelf project (Credit: NWS)

Revenue reported by producers from NWS petroleum sales during the period was A$19.7bn. From this, A$1.9bn in royalties was collected. The Australian government retained A$0.6bn and the remaining A$1.3bn was paid to Western Australia.

The ANAO concluded that administration of the collection of NWS royalties has not been sufficiently efficient or effective as the existing assurance arrangements do not effectively address key risks to the accurate calculation of royalty payable. It further added that there are some significant shortcomings in the framework for calculating royalties. “There has been limited scrutiny of the claimed deductions. Some errors in the claiming of deductions have been identified, but the available evidence indicates that the problems are much greater than has yet been quantified.”

ANAO recommended that an appropriate accountability framework with the Western Australian Department of Mines and Petroleum should be implemented that clearly sets out the roles and responsibilities of each party; and developing a procedure manual that covers all aspects of its responsibilities in relation to the collection of North West Shelf royalties.

The North West Shelf project commenced in the early 1970s with the discovery of natural gas off the north-west coast of Australia, located some 1260 kilometres north of Perth. The NWS petroleum exploration and recovery operation accounts for more than one-third of Australia’s oil and gas production. It is a joint venture project between seven major international companies led by Australian Woodside.

Shardul Sharma