Senate Economic References Committee Opening Statement
Thank you Chair
My name is Nigel Hearne, I am the Managing Director of Chevron Australia. I have been in this role for almost a year. I have with me Michael Fenner, who has been Chevron Australia’s Tax Manager for the past 11 years.
I do want to make a short opening statement about the Petroleum Resources Rent Tax (PRRT).
We welcome the release of the Callaghan Review this morning. We agree with the main conclusions of the Review, particularly that the PRRT has worked as intended encouraging major investment.
In our case, it has underpinned two major projects, Gorgon and Wheatstone, which have already delivered a range of benefits to Western Australia and Australia. They include:
- $60 billion in local content;
- 600 Australian companies supported during construction;
- 19,000 construction jobs created; and
- new domestic gas supply representing about 50 percent of the current WA market.
And despite the claims you hear Chevron Australia doesn’t pay its taxes, we have paid around $4.5 billion in state and federal taxes since 2009.
After reaching full production, forecasts show Chevron Australia will pay $2 billion to $3 billion a year in taxes by early to mid-2020s. That is before we pay PRRT.
We agree with the Callaghan Review’s finding against reverting to a royalty system. The PRRT should be retained, as it delivers a range of advantages to this nation. They include:
- Australia benefits through higher tax revenues;
- the community benefits from local employment, local contracts and domestic gas; and
- companies like Chevron Australia benefit through profitable investments.
Australia will ultimately receive more tax revenue from a profits-based tax than a royalty.
Yes, there is a delay in payment – this has been deliberately designed so investors get to recover the cost of each project. But after that point, the PRRT hits at 40 percent, which together with company tax, gives the taxpayers a super-charged return at an effective tax rate of 58 percent.
To demonstrate this, let me put our current PRRT forecasts on the table. Based on a range of price and other assumptions, Chevron Australia is expecting to first pay PRRT somewhere between 2029 and the mid-2030s and expecting to pay a quantum of between $60 billion and $140 billion over the life of the projects.
That is significant number and I would like to restate it– we expect to pay $60 billion to $140 billion in PRRT. But it is of course heavily dependent on commodity price assumptions and our investment cycle.
So don’t judge the PRRT by what it has generated in the first years of this LNG boom – judge it by the tax to be paid over the lifecycle of the projects.
A profits based tax also generates more revenue because it also encourages more investment.
At Chevron, we have plans to spend billions more in Australia, with a focus on two areas – expanding gas production off the Pilbara coast; and our search for oil in the Great Australian Bight, which could be Australia’s next Bass Strait.
If Australia wants major companies to continue to invest in exploration and development, and further provide for Australia’s energy security, then fiscal stability matters. Adverse changes to PRRT could discourage such future projects.
The Review has recommended some prospective changes to some elements of the PRRT. We will be happy to work with the Government on these details. But any changes, the Government or this committee is considering to the PRRT, should meet a strict test:
- they should encourage future investment;
- they should not retrospectively impact project economics;
- any changes should not compromise Australia’s international competitiveness; and
- any changes to individual elements of the PRRT must be considered as a whole. Changing one part of the PRRT can easily have unintended consequences.