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  • Offshore Petroleum Levy – best practice framework

    Our best practice framework help businesses understand expectations for reporting on Offshore Petroleum Levy (OP Levy).

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    Overview

    We recognise that different entities may legitimately adopt different governance practices based on a range of factors, including their size, complexity, history and corporate culture. For that reason, the measures outlined below are not mandatory. However, they are an indication of our view of better practices to ensure accurate reporting for the Offshore Petroleum (Laminaria and Corallina Decommissioning Cost Recovery Levy)(OP Levy).

    Our compliance approach to the OP Levy will vary depending on the measures that are in place. The following principles will help you understand our expectations. This includes the information that should be available to enable a taxpayer to accurately calculate their liability for the OP Levy.

    Best practice measures

    If our best practice measures are in place, we are less likely to conduct compliance activity to further test taxation outcomes:

    Processes

    Best practice processes include:

    • documented procedure must be in place for OP Levy reporting
    • design effectiveness testing of the procedures for OP Levy reporting
    • annual reconciliation of petroleum amount
    • standardised conversion rates used for calculating petroleum amount for the OP Levy
    • using the most accurate meter for measuring petroleum production  
      • this may be at the well head or some alternative point
      • generally, the ‘custody transfer meter’ is the most accurate point of measurement, with volumes then being added back using a scientific calculation following normal business practices.  

    Variances

    Annual variances in the petroleum amount can be explained.

    • We understand that variances may arise between the production amounts reported to National Offshore Petroleum Titles Administrator (NOPTA) versus the production amounts reported to the ATO for the purposes of the OP Levy.
    • Monthly reporting to NOPTA can often rely on estimated production amounts with an annual 'adjustment process' customarily undertaken by licence holders at the end of the financial year. At the time of reporting petroleum production amounts to us for the purposes of the OP Levy, we expect  
      • the final numbers for the OP Levy year would be known
      • as a minimum, the Joint Venture (JV) operator would provide the JV participants sufficient information to complete the OP Levy lodgment return.  

    Project interest must align to the petroleum amount reported and any difference documented and explained.

    Conversion of measurement to BOE

    Barrel of oil equivalent (BOE) is the basis for standardising different petroleum product amounts into a single measurement on an energy equivalent basis.

    BOE is a unit of energy approximately equal to the energy of one barrel (158.9873 litres) of crude oil.

    We expect you will generally calculate petroleum amounts using the Guidelines for Application of the Petroleum Resources Management System (PDF, 4.3MB)This link will download a file (November 2011) from the Society of Petroleum Engineers. However, other methods may be used.

    A table has been provided below outlining the methods known by the ATO to be recognised methods of converting ‘petroleum’ into the BOE equivalent:

    Product

    1 BOE equivalence

    Crude oil

    158.9873 litres

    Gas

    5.8 thousand standard cubic feet (Mscf) or 164.24 cubic metres (cu.m) of gas at STP (15°C and 1 atm)

    When alternative methods of calculation are used to the above, this must be well documented and include:

    • the reason for an alternative method
    • how the calculation was arrived at.

    Reporting

    Taxpayers are responsible for:

    • ensuring that petroleum production numbers reported for the OP Levy align with those reported to NOPTA
    • lodging and making payment on time.

    We expect the JV operator will provide sufficient information to JV participants to allow them to:

    • accurately complete the OP Levy lodgment return
    • identify and explain any differences to similar information reported by NOPTA.
      Last modified: 05 Aug 2022QC 70112