|Subject: AU: Smith seeks Timor peace on oil
also Woodside loses in $500m tax appeal
December 11, 2007
Smith seeks Timor peace on oil and gas - CLIMATE CHALLENGE
Nigel Wilson, Energy writer
STEPHEN Smith will attempt to ease tensions between Australia and East Timor during his first overseas trip as Foreign Minister this week.
High on his agenda will be the issue of energy resources following the hardening of Dili's attitudes since the election of a new East Timorese Government earlier this year.
Mr Smith is scheduled to travel to Dili following the climate-change summit in Bali this week.
Australian officials say they do not believe Dili will renege on the energy agreement signed in Sydney in January by then foreign minister Jose Ramos Horta, who is now the country's President, but the East Timorese are increasing irked by sharing administrative responsibility for the Timor Sea oil and gas reserves.
The two countries share equally the responsibility for the joint petroleum development area between Darwin and East Timor's south coast.
Under treaties with Australia, East Timor receives 90 per cent of the revenues from developments in the Timor Sea.
The 90 per cent revenue sharing arrangement came on condition of East Timor putting on hold for 50 years the determination of a maritime boundary between the two countries.
Many senior East Timor officials believe their country has the right to the oil and gas reserves in the Timor Sea, rather than Australia, and that Dili should not have signed away its maritime boundary position.
The equal sharing of administrative responsibility means decisions must be made by consensus.
Australia's biggest investment in the Timor Sea is the $US3billion ($3.4 billion) Bayu Undan oil and gas development operated by ConocoPhillips, which supplies gas to the export liquefied natural gas plant in Darwin.
The Dili Government also hopes to have an LNG facility using Greater Sunrise gas reserves sited in East Timor.
Woodside Petroleum, the Greater Sunrise operator, said last month it favoured a floating LNG plant for Greater Sunrise.
December 11, 2007
Woodside loses in $500m tax appeal
Nigel Wilson, Energy writer
WOODSIDE has lost a Federal Court appeal against a tax office ruling that it is not entitled to claim more than $500 million in hedge loss transactions on the Laminaria/Corallina oil fields in the Timor Sea.
The losses were claimed for 2000, 2001 and 2002 when the fields, closer to Timor than Darwin, were collectively Australia's biggest oil producer.
In a written judgment released in Perth late yesterday, Justice Robert French dismissed Woodside's appeal against a ruling of the Commissioner of Taxation saying the court could not accommodate hedging losses as expenses of sale, as defined under legislation establishing the Petroleum Resource Rent Tax.
The judgment noted that since the 1990s when Woodside became involved in the Laminaria/Corallina joint venture, it had always had an oil price risk management policy because of the volatility in oil prices.
The company suffered losses under this policy of $148.8 million in the financial year 2000, $300 million in 2001 and $106.4 million 2002 for a total of almost $555 million.
In 2002, Woodside was assessed for PRRT for the year ended June 30 on the basis that its taxable profit was calculated without regard to the losses, which had been incurred because of then hedging transactions.
The judgment said Woodside filed its return and paid the assessment on the basis that the losses were not to be deducted as it did not wish to expose itself to substantial penalties.
It lodged an objection to the assessment, which was disallowed by the Commissioner for Taxation. ``In my opinion, on its proper construction the expense which are referred to in section 24 (of the PPRT Act) are expense directly related to particular sales in a way hedging losses are not,'' Justice French wrote in the judgment. He referred to evidence from PRRT's nominal author, economist Ross Garnaut, who had argued that losses on hedging transactions designed to minimise risk of price fluctuations associated with sales of a commodity could be treated ``in the taxation of economic rent, as an expense in relations to sales.''
Justice French wrote that Professor Garnaut's evidence turned on an assumption that the PRRT was intended as a tax on economic rent.
But the judge said the court could not accommodate the economic rent model in the context of the PRRT legislation. He dismissed Woodside's application and ordered the company to pay costs. Woodside declined to comment on the judgment.
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