How will the new Federal Budget affect your business?

The budget highlighted major LNG projects currently under construction and their projected contributions to the national economy as the more advanced projects begin production.

“Continued robust growth is also expected beyond the forecast years as additional projects come online, with Australia likely to overtake Qatar to become the world’s largest LNG exporter before the end of the decade,” the Budget Paper No. 1 said.

However, it also recognised the supply challenges impacting the market as LNG exports look set to double by 2015-16, saying “restrictions on the spread of new gas extraction technologies are likely to make this problem more acute.”

Key announcements for the oil & gas industry explained

Cuts to Cooperative Research Centre Program

The Commonwealth Budget has included a cut to the Cooperative Research Centre (CRC) Program of $80 million over the forward estimates.

The current funding round will not proceed as planned, with only continuing CRCs able to apply for funding on the 3 July 2014 deadline.

Funding for the following two years of new CRCs will be affected, but the extent is not yet clear.

The future of the program will be determined following a review, which is scheduled to be conducted this year.

Exploration Development Incentive

The Exploration Development Incentive will allow investors to deduct the expense of mining exploration against their taxable income.

Under the scheme, the Australian Taxation Office will determine a proportion of expenses that can be claimed as tax credits by investors.

The scheme will target small exploration companies by limiting eligibility to companies with no taxable income.

The scheme will start for investments made from 1 July 2014 and will be capped at $100 million over the forward estimates.

Industry Skills Fund

The Government will provide $476 million over four years to establish the Industry Skills Fund (ISF) from 1 January 2015, to support the training needs of small to medium enterprises which cannot be readily met by the national training system.

Mining, oil and gas equipment, technology and services are among those industries targeted in this scheme.

The Industry Skills Fund is expected to deliver 121,500 training places and 74,300 support services over four years.

Entrepreneurs’ Infrastructure Program

The Government will provide $484.2 million over five years from 2013-14 to establish the Entrepreneurs’ Infrastructure Program to implement its new approach to industry policy.

The program will focus on supporting the commercialisation of good ideas, job creation, lifting the capability of small business, the provision of market and industry information, and the facilitation of access to business management advice and skills from experienced private sector providers and researchers.

The program will be delivered through a single agency model by the Department of Industry to achieve efficiencies and reduce red tape.

It will apply to mineral exploration activity, with a focus on the small and mid-tier exploration sector.

What they said…

The Australian Pipeliner provides a snapshot of the oil and gas industry’s response to the budget through the words of select industry personnel.

Cheryl Cartwright, Chief Executive, APIA

“The gas transmission industry does not rely on government assistance, so is encouraged by a budget that holds the promise of a stronger national economy. A strong economy means a strong industry sector, which in turn should encourage the development of natural gas.

“APIA is, however, concerned about a cut in funding for the highly-regarded CRC Program. The Energy Pipelines CRC is undertaking world-leading research in the safe and efficient transportation of hydrocarbons. It would not be in the national interest to reduce investment in critical research.”

Valerie Linton, CEO, Energy Pipelines Cooperative Research Centre

“Although it is naturally disappointing to see a reduction in funding for the entire Cooperative Research Centres (CRC) Program, it is important to reassure everyone that the Commonwealth funding granted to the Energy Pipelines CRC in 2010 has not been affected.

“The Energy Pipelines CRC will continue to provide the world-leading valuable research and education it has produced over the past few years. We hope after the 2014 review of the CRC Program that the Commonwealth will understand the full value of the CRC Program and will continue to support it.”

David Byers, Chief Executive, Australian Petroleum Production & Exploration Association

“The decisions announced…spread the burden across all segments of the Australian community and the economy. There is no simple or single solution that will ensure that Australia captures a new wave of growth and prosperity.

“Securing economic growth in an ongoing and sustainable manner will require us to focus as a nation on enhancing our productivity performance by removing unnecessary regulations, freeing up firms and workers to respond flexibly in a changing market, and to promote a culture of innovation.

“The critical role that Australia’s oil and gas industry can play is through investment in the next phase of projects currently under review.

“The ongoing challenge for the Australian Government is to rein in spending, search for expenditure savings, impose Budget discipline, and unshackle Australia’s productive sectors via vital reforms of the labour relations regulatory framework.

“The Australian Government has made an important start in improving Australia’s fiscal position, and with it, Australia’s capacity to endure future global economic turbulence.”

Innes Willox, Chief Executive, Australian Industry Group

“Major developments in Government policy for the oil and gas sector will await the completion of the Gas Market 2020 Strategy and Energy White Paper processes later in 2014. However, the Budget did include several changes of broad interest to industry, as well as some specific measures impacting the oil and gas sector.

“The proposed Industry Skills Fund will support the training needs of small to medium companies in a number of targeted sectors, including oil and gas equipment technology and services. Funds require industry co-contributions on a sliding scale by size of business. The Industry Skills Fund replaces a number of other skills programs.

“The Entrepreneurs’ Infrastructure Program, which is a broad industry initiative and should pull together the best of a range of existing programs, sounds promising in terms of boosting business innovation and we look forward to seeing more detail.

“While very attractive, the $100 million Exploration Development Incentive, which will allow some resources exploration businesses in a tax loss situation to turn exploration expenditure into a personal tax deduction for investors, applies to minerals exploration only, and not oil or gas.”

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