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ensuring that the fiscal terms in operation at the start of a contract will not be changed for 20 years or the duration of the financing period, whichever is less. However, from 2003 onwards, companies benefiting from fiscal stability terms will be subject to an additional 2% income tax. 6.0 OIL AND GAS EXPLORATION Oil was first discovered at Vailala in Gulf province in 1911 but commercial discovery was not until the 1980s. The first well commenced drilling at Kariava in Gulf Province in 1941. A number of major international oil and gas companies since then entered the country to explore for oil and gas including Oil Search, BP, Chevron and Mobil. A number of discoveries were made since then. Oil production only started at Kutubu in 1991 followed by gas production at Hides with the Hides Gas to Electricity project in 1992 and LNG production in 2014. The table (below right) summarises PNG’s oil and gas discoveries so far with their reserves. Note that oil reserves stated are only the remaining reserves as of December 2019. 6.1. Exploration There are a number of international oil and gas companies actively involved in exploration and production of oil and gas in PNG. Currently, there are 25 exploration companies exploring for oil and gas in 48 Petroleum Prospecting Licences (PPLs) and five companies carrying out appraisal activities in 13 Petroleum Retention Licenses (PRLs). ExxonMobil, Total and Santos (then Oil Search) are the current major players. BP, Chevron, Mobil and other international oil and gas companies left the country, selling their interests to the
Papua LNG project compared to the 19.6% in the ExxonMobil-led PNG LNG project. 5.3. Development Levy: Charged at the rate of 2% of wellhead value of all petroleum or gas produced out of a petroleum or gas project, and calculated in the same manner as royalty. They are treated as a normal business expense and are therefore a tax deduction. 5.4. Corporate Income Tax: Income tax is levied on taxable income from petroleum or gas operations. The current corporate income tax rate is charged at 30% for both petroleum and gas operations. 5.5. Additional Profit Tax: This is similar to a resource rent tax (which exists in Australia and elsewhere) in that its objective is for the state to share in gains from a petroleum resource, which are in excess of what are considered reasonable and justifiable returns to the investor. The new incentive introduced in 2003 sees the abolition of the APT on new petroleum and gas projects. This was to encourage exploration in the petroleum sector and for the development of high-risk marginal fields. However, the state may negotiate with individual project developers for APT on per project basis. In the Papua LNG Gas agreement signed in April 2019, the state managed to negotiate for a 15% APT. 5.6. Production Levy: Similar to additional profit tax, this is the tax applied to excess profits made from petroleum resources, to share the gains from increased production which are in excess of what are considered reasonable and justifiable returns to the investor. The state may negotiate with individual project developers for a production levy on per project basis. In the Papua LNG Gas agreement signed in April 2019, the state managed to negotiate for a 2% production levy. The Government also secured a 3% production levy in the P’nyang Gas Agreement signed in February 2022. 5.7. Dividend Withholding Tax: This 15% tax is payable on dividends paid by resident companies carrying on gas operations. 5.8. Capital Expenditure: Assets are capitalised and written off over the life of the project. From 2001 onwards, capital assets are classified as being short-term or long-term assets. Long-term assets have an expected life of 10 years or more. They are written off over 10 years on a straight-line basis. The deduction allowable for short life assets, i.e. with an expected life of less than 10 years, is calculated by dividing the residual capital expenditure by remaining field life or by four, whichever is less. Alternatively, the taxpayer may elect to depreciate short life assets under the normal depreciation provisions of the Income Tax Act. 5.9. Exploration Expenditure: Under ring fencing principles, exploration expenditure is not automatically deductible. However, past exploration expenditure incurred anywhere in the area of a petroleum prospecting licence from which a project is developed within 20 years (but not before 1990 for oil and 1985 for gas) prior to the grant of a petroleum development licence for the project, is deductible against income derived from the project. The total of such expenditure is the allowable exploration expenditure of the project. The deduction allowed in each year is determined by dividing residual exploration expenditure by the number of years remaining in field life, or by four, whichever is less. 5.10. Stamp Duty: The transfer of a petroleum licence, or an interest in a licence, is subject to stamp duty. A flat amount of stamp duty of K5000 is payable, plus K5000 for the cost of exploration expenditure transferred (known as information). Where the price paid exceeds the cost of exploration, 2% stamp duty is payable on the additional amount (over K100,000). For example, in the case of development licences, additional capital expenditure would be mostly Value Added Tax – VAT is levied at the standard rate of 10%, and applies generally to all imports. However, export activities are ‘zero-rated’ for VAT purposes. This means VAT is not payable on input purchases. Petroleum companies, since they export all their produce, are therefore not liable to pay VAT. Until recently, petroleum companies paid VAT on locally purchased goods and services but later claimed a credit or refund. Since 2001, however, no VAT needs to be paid upfront. Fiscal Stability – Petroleum and gas projects may contain a clause subject to 2% stamp duty. 5.11. Other Type Taxes
This map and chart show the five main petroleum basins in PNG and percent of exploration in each as of July 2021 Source : Registry Branch, DOP
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