Tax relief for gas explorers

By BRIAN FALLOW

The Government plans to remove one of the tax obstacles thought to be inhibiting exploration for natural gas in New Zealand.

Under the existing rules drilling rig operators from some countries are exempt from New Zealand income tax for the first 183 days they spend in this country's waters. They tend to depart before that period is up.

Finance Minister Michael Cullen said yesterday the 183-day rule would be waived until the end of 2009.

"In effect non-resident offshore rig operators will be exempted from paying company income tax in New Zealand on their profits for the same period as the gas exploration royalty incentives announced on June 14 - from June 30 2004 to December 31, 2009," he said.

A tax spokeswoman for Cullen said the concession applied across the board, including rigs from those countries - Australia is one - which do not get the 183-day exemption now.

The change will be introduced in the next tax bill, in November.

"Every little bit helps," said Austral Pacific chief executive Dr Dave Bennett.

The Petroleum Exploration Association sought the change, saying it would allow foreign rig operators to contract to drill several wells for several ventures without fear of running out of time.

This would benefit the overall exploration effort.

The Government is still considering another item on the association's wish list - faster amortisation of development costs.

At present they are amortised on a straight-line basis over seven years. But the association argues that this can create a mismatch with the revenue from a producing field, which tends to be front-loaded, so that the payback period for the initial investment gets pushed back.

It also wants transferability of tax losses. The costs of a dry hole are deductible at once, but for a new entrant to New Zealand that is useless until or unless it has some taxable revenue here it can use the tax losses to offset.