Essential services

We're converting New Zealand's natural assets into services that make a real difference.

The Oil and Gas industry pays New Zealand for the right to explore for, and produce oil and gas. These payments consist of royalties and corporate taxes - paid directly to government who use those funds to help pay for the social services that underpin our kiwi lifestyle.

Rising costs of services

1

The costs of essential government services continues to rise, and kiwis need industries of scale to invest here so we can generate revenue to pay for those services. With an annual spend of approximately $80 billion, the major components of that expenditure are Social security and welfare, Health and Education.

Social security & welfare

$28b

Total amount spent by the New Zealand Government in 2015

Health Services

$14b

Total amount spent by the New Zealand Government in 2015

Education services

$13b

Total amount spent by the New Zealand Government in 2015

Oil and gas makes a substantial contribution

Oil and gas makes a substantial contribution

2

The oil and gas industry regular pours over half a billion dollars a year into our country in royalties and taxes, and has contributed over three billion dollars in royalty revenue alone in the last decade.

While that amount pales in comparison to our countries annual cost schedule, it represents a significant return on our natural assets, and a sizeable contribution from a single industry to the government's current account.

Given the inevitable rebalancing of the price of oil in the coming years, and the prospect of further discoveries in New Zealand's Exclusive Economic Zone (EEZ), the value of this contribution could double the value of the industry to the nation.

More on New Basins

Oil & Gas returns profits of

Oil & Gas returns profits of

42%

back to New Zealanders in royalties and taxes.

 

Explaining 42%

Explaining 42%

The figure of 42% return to New Zealand from each oil and gas project is based on some key figures.

42% is the combination of the royalty rate and rate of corporate tax paid by oil and gas companies. The royalty rate to be paid is calculated as the higher figure of 5% ad valorem (the estimated value or worth of the project) or 20% actual accounting profit. Generally, the 5% ad valorem royalty gets paid for a very short period of time, typically one year or less, with most royalty collected at the 20% rate. The government has decided, in setting this figure, that this level of royalty maximises the financial return to New Zealand, while providing international oil and gas companies enough profit potential  to invest here.

The corporate tax rate is set by the government at 28% of accounting profit.

What difference can half a billion dollars make?

3

While the NZ government alone decides on how to spend Oil & Gas royalties and tax income, half a billion dollars really adds up.

Oil & Gas provides

Oil & Gas provides

$0.5b

to New Zealand in Royalties and tax income. 

Housing

Half

our annual social house & community development budget

Teachers

8,000+

more teachers in our schools

Fund

75%

of the Christchurch hospital redevelopment budget

Nurses

9,500+

more nurses

What are royalties?

4

Oil and gas companies must pay for the right to extract our natural resources. 

Any company producing and selling oil and natural gas in New Zealand is required to pay a royalty to the government. This ensures the government receives a revenue stream throughout the life of an operation, ensuring New Zealanders benefit from highly profitable operations. 

Royalty amounts collected since 2004, per annum.

A total of $3,273,433,654 has been collected over the last decade.

Financial Year Royalty Amount
2004/2005 $114,341,205
2005/2006 $125,132,961
2006/2007 $110,318,903
2007/2008 $124,150,772
2008/2009 $542,959,260
2009/2010 $431,892,264
2010/2011 $384,509,813
2011/2012 $360,612,601
2012/2013 $405,905,199
2013/2014 $371,002,926
2014/2015 $302,607,750

 

In the 2013/2014 financial year

$371m

was received by the Government in royalties and energy resource levies/royalties from exploration and production companies.

In the four years to 2014, over

$1.5b

has been collected by the Crown in petroleum royalties and levies. To put this into perspective, this is equivalent to the annual budget for the New Zealand Police.

Future royalty payments, based on existing fields

According to the Ministry of Economic Development, the value of future royalties due to be paid to the government from individual oil and gas projects has been estimated to be worth $3,191 million over the full lifetime of the fields.

Future royalty value per field

  • Pohokura $1,548 million
  • Maari $490 million
  • Tui $376 million
  • Kupe $277 million
  • Maui $190 million
  • Kapuni $86 million
  • Mangahewa $82 million
  • Turangi $57 million
  • McKee $40 million
  • Other fields $45 million

Totals $ 3,191 million

Calculating the potential value of future royalties

The future value of New Zealand's oil and gas assets are, by their very nature, estimates. All sorts of variables can impact on the value of an oil and gas asset. Some of those variables are:

  • The global price of oil at any given time
  • The extent of exploration and production operations in individual basins
  • The number of new basins opened to exploration and production
  • The size and scale of discovered hydrocarbons
  • The level of investment by oil and gas companies

All these variables must be considered when estimating the potential value of the royalties paid. In line with standard international practice, three main types of estimates are usually compiled to reflect possible value:

Conservative (P90). This estimate generally assumes lower oil prices and lower levels of exploration and production.

Median (P50). This estimate assumes medium oil prices and medium levels of exploration and production.

Optimistic (P10). This estimate assumes higher oil prices and more intense levels of exploration and production.

 

Official estimate valuations of New Zealand's future oil and gas royalty payments 

  P90 P50 P10
Low valuation case $753 m  $1,488 m $2,640 m
Mid valuation case      $3,321 m $5,298 m $8,099 m
High valuation case  $6,639 m $9,544 m $14,866 m

According the numbers in the table above, the potential value of future royalties can range from a very conservative $753 million to the very optimistic $14 billion. 

Who is responsible for setting royalties?

The government, through legislation, sets the royalty level and the Energy & Resource Markets brand of the Ministry of Business Innovation and Employment collects royalties.

What are Oil and Gas taxes?

5

Oil and gas activity generates significant direct and indirect tax income for the country.

Direct taxes from exploration and production companies, in the form of a 28% corporate tax on profit, is estimated to be worth over $200 million dollars per annum, a figure that rises in periods of high activity.

The government also collects PAYE and income tax from those employed by oil and gas companies, and Goods and Services Tax (GST) from sales. The exact amount for these forms of taxes is harder to determine, but are projected to add up to hundreds of millions of dollars. 

Pepanz Logo