By OGJ editors
HOUSTON, June 16 -- The government proposed incentives to its already attractive royalty and tax regimes in an effort to encourage what it called "a burst of exploration activity."
In documents to be posted for public consultation near the end of June, the government proposed to reduce to 1% from 5% the ad valorem royalty (AVR) on gas from discoveries made from June 30, 2004, through the end of 2009. The AVR on oil remains at 5%.
Another change would reduce to 15% from 20% the accounting profit royalty (APR) on gas and oil from discoveries made during the same period. The incentive would be limited to the first $750 million (NZ) offshore and the first $250 million (NZ) onshore. The rate would be 20% for production beyond these quantities and for production from later discoveries.
A permit holder is required to pay the higher of the AVR or APR in any year.
The government would also extend the cost deductibility of prospecting and exploration costs under the APR to include amounts spent anywhere in New Zealand. The current rule provides for deductibility only of costs incurred on the mining permit and preceding exploration permit.
Other proposals involve reviewing the tax treatment of offshore contractors such as drilling rig and seismic vessel operators, clarifying the GST treatment on sale of a permit interest by a person in a joint venture and on site restoration costs, and reviewing amortization rates for capitalized development costs.
The government plans to explore the funding of precompetitive data acquisition, facilitation/coordination of multiparty work programs, and the providing of information to facilitate exploration. It would suspend its Acceptable Frontier Offers program for 3 years to allow orderly assessment of areas where new data will be acquired and bid rounds will be held.
The government also proposed to hike funding for its Crown Minerals unit to acquire new geological and geotechnical information and promote exploration opportunities.
The country's gas reserves are insufficient to meet projected demand for electricity generation past 2015. The market is evidently responding, but the speed and extent of the response is uncertain and may not be sufficient to elicit new discoveries in the medium term, the government said.