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The
Government of Papua New Guinea has attractive incentives
and packages for the international oil companies to come
and explore for oil and gas (see fiscal terms). The legislation,
regulations, policies, fiscal terms and other necessary
information can be obtained from the oil and gas regulatory
organization, the Petroleum Division of the Department
of Petroleum and Energy (see Contact Us). |
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Location
map of licenses, fields, leads and prospects of Papua
New Guinea
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Licensing
System |
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Papua
New Guinea has a concessionary petroleum regime where
oil and gas are owned by the State and oil companies are
issued licenses to explore, develop, process, transport
and market petroleum products. The Government has in place
a system of royalties, taxes, and State equity participation
of up to 22.5 per cent. |
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Currently,
there are five types of petroleum licenses issued and
administered by the Government through the Department
of Petroleum and Energy. The Licenses include Petroleum
Prospecting License (PPL), Petroleum Retention License
(PRL), Petroleum Development License (PDL), Petroleum
Processing Facility License (PPFL) and Pipeline License
(PL). These licenses are respectively granted by the State
through the Minister for Petroleum and Energy to applicants
intending to either explore for petroleum, retain presently
non-commercial gas discoveries, develop oil and gas fields,
process petroleum and transport petroleum. |
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Current
Status of licences issued by Minister for Petroleum and
Energy |
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As
of 31 December 2001, there are 23 Petroleum Prospecting
Licenses (the trend since 1990) 5 Petroleum Development
Licenses (PDLs), 3 Petroleum Pipeline Licenses (PLs),
5 Petroleum Retention License (PRLs) and one Petroleum
Processing Facility Licence (PPFL). Among the PPLs, one
(PPL 138) is an extended license currently in its second
five-year term. Only two new PPLs (PPL 227 & 228)
were granted by the Minister in 2001. The 5 PDLs cover
the Kutubu, Hides, Gobe and Moran fields: Hides is basically
a gas project, which provide gas for power generation
for the Porgera gold mine. The Kutubu, Gobe and Moran
are oil projects. In March 2000, the first Petroleum Processing
Facility License (PPFL) was issued to an oil refinery
developer for a refinery at Napa Napa, near the Fairfax
Harbour (Port Moresby). The Refinery is currently under
construction. |
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2001
monthly highlights |
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| January |
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18/01/01 PPL 186 cancelled
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18/01/01 PPL 187 cancelled
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| February |
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March
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| April |
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| May |
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Hon. Roy Yaki appointed as Minister replacing
Hon. Chris Haiveta
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June
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| July |
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26/07/01 PPL 228 awarded
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26/07/01 PPL 202 relinquished
- 26/07/01
PPL 213 relinquished
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August
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15/08/01 PPL 179 surrendered
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| September |
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| October |
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| November |
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| December |
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Twenty-one
(21) of the PPLs, the 5 PDLs and the 5 PRLs are for acreage
in the Papuan Basin. The North New Guinea Basin has two
PPLs while the other two PPLs previously in the Cape Vogel
Basin have been cancelled. |
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Petroleum
Prospecting License since 1990
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Leased
Blocks |
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The
map below shows various permits and the Operating oil
companies as of May 2002.
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Map
showing Papua New Guinea's various petroleum licenses
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Fiscal
Terms |
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The
Independent State of Papua New Guinea considers the development
of the State's petroleum resources to be amongst its highest
priorities. The State also recognizes the need to put
in place the necessary policies, regulations and laws
to help regulate the petroleum sector in the country.
The Government's strong objective is to ensure that these
laws and policies are internationally competitive and
that they are attractive enough to lure foreign investment,
where the investor can earn a reasonable rate of return
on his investment. At the same time, the State is committed
towards ensuring that these petroleum resources are developed
in a way, which maximizes benefits to its citizens. |
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The
Oil & Gas Act 1998 is the major piece of legislation
which is administered by the Department of Petroleum and
Energy. There are also other important laws like the Income
Tax Act and the Environmental Act, which are administered
separately by the Internal Revenue Commission and the
Department of Environment and Conservation respectively,
and play a complementary role in the regulation of the
petroleum sector in PNG. |
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The
petroleum fiscal regime in PNG is currently categorized
into two areas: The General Petroleum Fiscal Terms and
The Gas Fiscal Terms. Each of these is explained in the
subsequent paragraphs. The third area, Frontier Terms,
existed prior to 2000 but was repealed in the 2000 Taxation
Review. The State intends to re-introduce it again shortly. |
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1.
General Petroleum Fiscal Terms |
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All
new tax provisions applicable 2001 |
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1.1
Royalties: Royalties are payable by the licensees to the
State at a rate of 2% of wellhead value and are treated
as a tax credit if it pays a 2% Development Levy.
1.2 Development Levies: Development levy is also paid
by the licensees at a rate of 2% of wellhead value of
all petroleum produced in a project, and is a normal deduction.
1.3 Income Tax: 50% of taxable income for existing petroleum
projects, defined according to ordinary concepts, but
subject to ring fencing. For new projects it is 45%.
1.4 Additional Profits Tax: 50% of net cash flow once
a 27% rate of return has been achieved and maintained.
This is only applicable to existing projects. In new projects,
a two-tier system applies. First tier; 15% RoR, 20% APT.
Second tier; 20% RoR, 25% APT.
1.5 Past Exploration Expenditure: Exploration expenditure
in the 11 year period prior to project development is
deductible. This is applicable to existing projects. For
new projects, all past costs may be pooled for a 25% declining
balance depreciation.
1.6 Current Exploration Expenditure: 10% of current year
exploration
expenditure in any license is deductible.
1.7 Capital Expenditure: Written off against project income,
on a diminishing balance basis with an 8 year divisor.
This is for existing projects. For new projects, expenditure
will be distinguished between long life, 10% straight
line and short life, 25% declining balance
1.8 Accelerated Depreciation: Nil
1.9 Debt: equity ratio: 3:1
1.10 Tax Losses Carried forward: twenty years |
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2.
Gas Fiscal Terms |
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In
1995, the Government introduced new gas fiscal terms in
a "White Paper on Natural Gas Policy". These
new gas terms were aimed to provide adequate incentives
to potential investors in the upstream and downstream
sectors to facilitate commercial development of PNG's
gas reserves. These new gas terms are now incorporated
in the Income Tax Act and applicable provisions in the
Oil & Gas Act 1998. |
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As
a result of these new gas terms, the Government received
two separate gas development concepts: a proposal for
a PNG to Queensland, Australia Gas Pipeline Project, and
a LNG concept targeting the South East Asian markets.
The former was promoted strongly by a Joint Venture led
by Chevron Corporation but now by ExxonMobil, and is currently
at a stage where it is likely to become a reality as a
major resource development project. |
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The
new gas terms are as follows: |
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2.1
Income Tax: 30% of income tax.
2.2 Old terms; Additional Profits Tax: 30%, with a 20%
rate of return threshold. New terms; A two-tier system
applies. First tier; 15% RoR, 20% APT. Second tier; 20%
RoR, 25% APT.
2.3 Past Exploration Expenditure: 20 year carry forward.
2.4 Capital Expenditure: written off against project income
over 10 years on a straight-line basis.
2.5 Accelerated Depreciation: Not Available.
2.6 Debt: equity ratio: 3:1 |
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3.
Frontier Areas Fiscal Terms |
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Frontier
area fiscal terms are aimed to encourage exploration in
the upstream sector, particularly in areas perceived to
offer a lot uncertainties and high risks. |
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The
old terms are as follows: |
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3.1
Income Tax: 35% of taxable income.
3.2 Additional Profits Tax: 35%, with a 20% rate of return
threshold. |
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These
terms were repealed in the taxation review of 2000. The
State intends to re-introduce them with some slight modification
shortly. |
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4.
State Participation |
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The
State has the right to acquire a 22.5% interest in any
petroleum development project. |
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Pre
2002, Orogen Minerals Limited, a public listed company
51% owned by the State, had the option to acquire up to
20.5% interest in all petroleum projects in PNG, out of
the State's 22.5% entitlement. The remaining 2% is allocated
free to project area landowners impacted by the project.
In the new arrangement, the Orogen option has been repealed
and the State will hold and dispose the balance of the
equity however it desires. A 2% free equity will still
be allocated by the State to the landowners. |
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