$4.5bn loss for oil and gas industry

Australia’s oil and gas industry logged a combined 2015-16 underlying net loss of $4.5 billion, a survey shows.

Dr Malcolm Roberts of APPEA

The huge impact of the OPEC oil cartel’s battle with US shale producers has been starkly revealed in a national industry survey that says Australia’s oil and gas industry logged a combined 2015-16 underlying net loss (excluding writedowns) of $4.5 billion.

The results of the Australian Petroleum Production & Exploration Association’s 29th annual survey, to be released today, show the biggest, and only the second, net loss since the survey started in 1987-88.

This is despite record production of 488 million barrels of oil equivalent as new LNG ­production came on line.

But APPEA members paid $4.25bn in taxes and royalties, ­although this was down from $5.24bn the previous year.

The first time in the past 29 years that the Australian industry had a combined loss was 2014-15, when a $600m net loss was logged.

That year, in November, OPEC leader Saudi Arabia refused to cut production to bolster prices as US shale oil flooded the market, sending prices plummeting from more than $US100 a ­barrel to below $US50, where they remain today.

APPEA says the widening loss serves as a timely reminder of challenges facing the highly ­capital-intensive industry, which remains under threat of higher taxes and export restrictions ­despite low prices.

“Tax payments have remained high — dispelling the myth that the industry is not paying its way,” APPEA chief Malcolm Roberts said.

Liberal Party MP Scott Morrison’s recent move to review the Petroleum Resource Rent Tax did not result in a feared May budget tax grab, with the ­Treasurer instead focusing on the banks.

But the industry has been firmly in the sites of the Australian Taxation Office over transfer pricing and there remains concern that expected low takings from the PRRT, because of low oil prices and depreciation on $200bn of LNG plant spending this century, will spur future cash grabs.

“Comparing the years 2014-15 and 2015-16, the industry saw the average price it received for the sale of oil and gas fall from $69.10 to $48.63 on a barrel of oil-equivalent basis,” Mr Roberts said.

“The fall in realised prices, coupled with a reduction in Australian oil and condensate production, creates a challenging framework for the industry,” he added.

Total revenue fell from $29.99bn to $23.73bn, the lowest since 2006-07 as received prices sank to their lowest since 2003-04.

The combined losses include hefty non-cash depreciation and amortisation costs that have jumped in recent years because of the massive boomtime capital development that is set to see Australia become the world’s biggest exporter.

So operating cash profits were still coming in, even after interest and tax payments were made.

When non-cash depreciation and amortisation costs are taken out, the industry made an after-tax profit of $5.11bn in 2015-16, down from $9.83bn in 2014-15 and the lowest since 1999-2000.