Calculating petroleum royalty

To calculate your petroleum royalty liability, you first need to establish the source of the petroleum.

Petroleum is disposed of when:

• it is sold
• ownership is otherwise transferred to another person
• it is flared or vented
• it is used.

Petroleum is produced when it is released or recovered to ground level from a natural underground reservoir.

Royalty rate

The petroleum royalty rate you use to calculate your liability is set out in section 147C of the Petroleum and Gas (Royalty) Regulation 2004.

The current royalty rate for petroleum and gas (including oil, condensate, natural gas, LPG and coal seam methane) is 12.5% of the wellhead value disposed of or produced in the return period. A rate of 11.25% applies for annual returns lodged for the return period ending 31 December 2019.

Calculating the correct amount of royalty is important as we will impose a royalty penalty of 75% of any understated liability.

Wellhead value

The wellhead value of petroleum disposed of or produced in a royalty return period is:

• the amount that the petroleum could reasonably be expected to realise if it were sold on a commercial basis
• minus
• the sum of the following
• • certain transportation and processing capital and operating costs between the wellhead and the first point of disposal (including depreciation)
  • any applicable negative wellhead value.

Read the royalty ruling on determining petroleum royalty (PGA001) for information on how to calculate wellhead value.

In certain circumstances (especially where the wellhead value of petroleum cannot be readily established by reference to arm's length transactions), we may determine the value of petroleum or the amount of certain deductible expenses through a petroleum royalty decision. If you wish to apply for a petroleum royalty decision, call the Office of State Revenue on 1300 300 734.

Depreciation arrangements

We will be reviewing the current depreciation arrangements, to reduce compliance costs and ensure that appropriate capital costs may be claimed.

We will adopt the following approach to claims for depreciation until a new model is ready:

• Except where noted below, we will not review depreciation claims for periods before 11 January 2016.
• Continue to calculate your depreciation deductions after 11 January 2016 on the same basis as before that date, unless we tell you differently.
• For any assets you acquire after 11 January 2016, calculate your depreciation deduction on the same basis as for similar assets before that date.
• We will review any changes you make to the way you calculate your depreciation deductions, and apply penalties if you make adjustments to benefit from these interim arrangements.
• If we have begun a review of your petroleum royalty liability before 11 January 2016, we will continue to review your depreciation claims. However, we will only make adjustments on a case-by-case basis if appropriate.
• We will continue to review your claims if we believe that you have engaged in royalty avoidance activities when making depreciation claims for past periods or during these interim arrangements.

Also consider...

• Find out about petroleum and gas tenures.
• Read the royalty ruling on the determination of petroleum royalty (PGA001).
• Learn about lodging royalty returns.
• Read the petroleum guide for OSRconnect.
• Find previous petroleum royalty rates.