WATCHING THE WORLD DIFFERENT AUSSIE VIEWS

Within days of each other, partners in Australia's Bass Strait oil and gas fields reported profits for 1990-91 and provided two surprisingly different insights into a successful trading period.

Bass Strait operator Esso Australia Ltd. reported net profits for the year ending Dec. 31, 1990, of $463 million Australian ($356 million U.S.), up from $214 million Australian the previous year, reflecting higher prices for crude oil, petroleum products, LPG, and natural gas. Esso's partner in the offshore operation, BHP Petroleum Pty. Ltd., also was in good financial shape with a 65% increase in profits to $650 million Australian for the year ending on May 31, 1991.

RRT ASSESSMENTS

While results for both companies were excellent, their comments about the extension of Australia's Resource Rent Tax (RRT) to Bass Strait effective July 1 last year, replacing the old system of excise duty, showed sharply differing views about the new regime.

In comparing BHP's record results with the previous best performance, $436 million Australian in 1986, Chief Executive Officer Peter Willcox was enthusiastic about the new tax.

Prices last year were 15% less than those in 1986, but in the intervening 5 years the share of proceeds retained by the company from each barrel jumped to 64% from 28%.

Willcox said the steady increase in the share of selling price accruing to BHP came from a phased reduction in the top marginal excise rate from 87% of the selling price to 75% by 1989-90 and increasing production from the Timor Sea, where the profit based RRT applied.

In addition to introducing the RRT on Bass Strait, last year's budget changes allowed the cost of offshore exploration to be offset against RRT from any source and allowed abandonment costs as an offset against income tax.

Willcox figures the budget changes added $215 million Australian in unusual profits in 1991 and in the longer term will help shield BHP's profits from oil price fluctuations, boost Bass Strait production, and ensure that a higher share of BHP's exploration dollar is spent in Australia.

Esso Australia, on the other hand, is in a period of exceptional change. Refining and marketing operations were sold to Mobil Australia and the company is moving its exploration and production operations to Melbourne from Sydney.

John Schubert, chairman and managing director, took a more measured view of 1990 results that represented a return of 12.9%, in his view "only adequate for such a high risk industry."

Higher crude prices driven by the Middle East crisis were largely responsible for the 1990 results. Schubert said a way should be found to achieve satisfactory results when prices are not affected by unusual constraints on world oil supplies.

THE COST TO ESSO

Schubert said imposition of RRT on Bass Strait production in 1990 was a major disappointment because the change will cost Esso $250 million Australian during 20 years. Esso's unhappiness stems from inclusion in the RRT regime of gas, previously exempt from excise duty, and the fact that recent Bass Strait satellite field developments, which were exempt from excise duty, have been caught in the RRT net.

Esso, as operator, is running a review of the effect of RRT on possible new Bass Strait developments. Reaction of the partners to the results of the review should be interesting.