TAX NEWS - June 2010

Australia Tax: BG Meets Australian Prime Minister Over Resource Tax

BG Group Plc, the U.K.-based energy company planning a liquefied natural gas project in Australia's Queensland state, met today with Prime Minister Kevin Rudd to discuss the government's proposed resource profits tax.

BG will consider a final investment decision on the Queensland coal-seam-gas-to-LNG venture later this year if it has "acceptable fiscal terms" and environmental approvals, Catherine Tanna, managing director of the company's Australian unit, said in a statement distributed in Canberra.

Santos Ltd. and Origin Energy Ltd. have said that uncertainty surrounding the government's plan to impose a 40 percent tax on resource project "super profits" is likely to delay development decisions on their Queensland LNG projects. BG's talks with Rudd come amid speculation that the government may compromise, allowing the Queensland ventures to operate under a tax applied to offshore oil and gas projects.

"The theory is that such a move would remove the uncertainty surrounding the fiscal terms applicable to these projects, allowing them to proceed as planned, but still provide a means for the government to apply a 40 percent rent tax," Nik Burns, an analyst at RBS Morgans, wrote in a June 11 report.

The tax proposal, introduced May 2, threatens to reduce the profitability of the coal-seam gas projects, analysts including John Young of Wilson HTM Investment Group have said.


Project Delays

Santos aims to make a final decision on its Gladstone LNG venture later this year, as opposed to the mid-year target it set out earlier. Origin said the tax may affect the timeline of its project with ConocoPhillips.

Origin is "engaging with the government" as part of the consultation process over the tax, Tim Scott, a spokesman for the Sydney-based company, said today. Santos is also participating in talks, said Matthew Doman, spokesman for the Adelaide-based company. The companies declined to comment on specific meetings.

Santos fell 1.2 percent to A$13.34 at 2:01 p.m. in Sydney trading, while Origin dropped 0.3 percent to A$15.49. The benchmark S&P/ASX 200 Index was little changed.

BG's Queensland Curtis LNG venture will initially produce at least 8 million metric tons of LNG a year and is expected to generate more than 5,000 jobs during construction, the U.K.'s third-biggest natural gas producer said today. Tanna said March 18 that she had a "high degree of confidence" the Reading- based company would make a final decision in 2010.