Chaney says benefits of tax reform clear

Woodside Petroleum chairman Michael Chaney has said there’s a risk that major energy players may be dissuaded from investing into Western Australia if company tax reform is stalled, as the business closes in on a tolling deal for gas from the Browse field.

The federal government’s flagship economic policy to reduce business taxes from 30 per cent to 25 per cent of profits has partially passed through parliament, but cuts for the businesses most likely to make large investments have stalled in the Senate.

At his last annual general meeting after an 11-year stint as chairman, Mr Chaney said there had been an erosion of public trust in the role of politicians.

He said it was blindingly obvious that a lower business tax rate would attract investment, leading to higher wages and government revenue.

“It’s a bit like saying if the oil price were higher would you be more likely to develop the project,” Mr Chaney said.

“It’s a very simple fact; if you have a high tax rate, you're less likely to develop than if you have a lower tax rate.

“All of these projects have partners in them, who operate in other jurisdictions.

“And some of the partners are the largest oil companies in the world, that have choices about where they develop.”

Woodside chief executive Peter Coleman gave an example of how a big tax cuts package recently passed in the US, reducing the rate from 35 per cent to 21 per cent, changed the economics of one potential project.

Mr Coleman said the Trump administration’s tax cuts improved the rate of return for a potential Woodside project by 1 to 1.5 per cent.

When a project had a rate of return of about 10 per cent, that was a significant increase, Mr Chaney added.

Mr Chaney said it was a sovereign risk issue because investment decisions were made based on after-tax returns.

Drawing on his time as a petroleum geologist with Woodside in 1972, when it was a small explorer, he took a swipe against proposals to nationalise other parts of the energy industry.

“When I think back to my early days with the company, I recall how the outlook for the industry was shaped by political forces at the time," Mr Chaney said.

“Shortly after I joined, the Whitlam government came to power in Canberra and Rex Connor was appointed energy minister.

“He soon made statements about Woodside that seemed to threaten the company’s rights to develop the North West Shelf gas it had discovered.

“In early 1973, Woodside wrote to Minister Connor asking for clarification of his policy.

“The response, from his department, consisted of just one sentence, stating bluntly that the government would buy all of the gas at the well-head and arrange its downstream distribution.

“Woodside fought back against this de facto nationalisation policy but Connor would not budge.

“As a result, expenditure on exploration in Australia all but dried up.

“It is no different today, statements and decisions by our politicians shape business conditions.”

Browsing possibilities

Mr Coleman said the company had achieved alignment between five of the six partners at the North West Shelf Venture for a tolling arrangement to allow gas from the Browse project to fill excess capacity that will form in the 2020s.

“We’ve gathered a lot of momentum over the past couple of months,” he said.

“We’re working hard to get the sixth one on board.

“We’re targeting internally among the partners to complete internal reviews by the end of the second quarter of this year …  and then of course it will go through their own external approvals.”

The sixth partner was keen to make sure there was potential for other fields to be piped into the facility in future, Mr Coleman said.

He said he was not sure what the catalyst had been for the pace of agreement to pick up so rapidly.

It may have been rising LNG demand from China, Mr Coleman said, or may have been the acquisition of the Scarborough project and decision to send that gas through Pluto.

But Browse had not been de-prioritised, he said.