Skip to main content

Royalties

New Zealand’s fiscal regime that applies to the O&G industry consists of Corporate Income Taxation and a royalty based taxation.

Taxation

Companies conducting business within New Zealand pay Corporate Income Tax of 28% of their taxable income.

Taxable income is calculated after allowing for deductions against their assessable income.

For information about these calculations - refer to Inland Revenue Department,  professional taxation advisers, and the free downloads (see right hand side of page).

Objective of the petroleum royalty regime

Royalties are payments to the owner of a resource for extraction or use of rights and may be payable whether the owner is the Government or a private individual. 

In New Zealand the Crown owns the in-ground petroleum resource and any company wanting to prospect, explore or mine petroleum in New Zealand must obtain a permit and, in accordance with the Crown Minerals Act 1991 (and accompanying guideline documents such as The Minerals programme for Petroleum 2005), pays royalties to the Crown   in respect of any petroleum obtained under their permit that is either sold or used in the production process as fuel or otherwise exchanged or removed from the permit area without sale.

What are New Zealand’s Royalty regime rates?

New Zealand has developed an internationally competitive royalty regime stipulating  the payment of either an ad valorem royalty (AVR) or an accounting profits royalty (APR), whichever is the greater in a given year.

The royalty rates are either:

  • 5% AVR i.e. 5% of the net revenues obtained from the sale of petroleum, or
  • 20% APR i.e. 20% of the accounting profit of petroleum production

However, for  any discovery made between 30 June 2004 and 31 December 2009, the following royalty regime applies:

  • 1% AVR for net sales revenue of natural gas and 5% on oil.

or

  • Off shore discovery: APR: 15% of the first NZ$750 million cumulative gross sales
  • Onshore discovery: APR 15% on the first NZ$ 250 million cumulative gross sales
  • 20% on additional production

Definitions:

Ad Valorem Royalty (AVR): Royalty payable on the basis of either a sales price received, or where there has been no sale or no arms length sale, the deemed sales price.

Accounting profits royalty (APR) – royalty paid which reflects a share of the profits once all significant costs have been recovered by the producer. It is payable on the net accumulated accounting profit of production from a permit/petroleum field, and takes into account both prices received for products and the costs of extracting, processing and selling those products up to the point of sale. These may include e.g. associated production costs, capital costs (exploration costs, development costs, permit acquisition and feasibility cost), indirect costs, abandonment costs, operating and capital allowance etc.

 

For Royalty Regime Specifics

The objectives of the royalty regime are discussed in broad terms within the Crown Minerals Act 1991.

Refer to guiding documents Minerals Programme for Petroleum for specifics such as:

  • When a royalty is payable,
  • Terminology and definitions,
  • Rules surrounding royalty payment and compliance,
  • Points of valuation,
  • Allowable deductions,
  • Reporting periods and format,
  • Rules surrounding royalties and the sale/transfer of permit interests,
  • Records and book keeping,
  • Special provisions and failure to pay

Is the royalty regime fair and internationally competitive?

The hybrid royalty regime was chosen to enable the Crown to obtain a fair minimum royalty (achieved via the AVR component) and a fair share of the substantial profits arising from a petroleum development when these occur (achieved via the APR component).

The special royalty provisions relating to the period 30 June 2004 and 31 December 2009 was introduced to encourage exploration in order to identify new discoveries given the decline of existing fields.

A summary of the reasons for and against adopting the royalty regime is documented in Appendix II of the Minerals programme for Petroleum 1995.

An investigation of the international competitiveness of New Zealand’s royalty regime was commissioned by MED in September 2003 and undertaken by Scotland-based company Wood MacKenzie, which compared New Zealand’s royalty regime with those of seven competitor countries (Australia, Norway, UK, Argentina, Alaska and Indonesia). The results reaffirmed the international competitiveness of New Zealand’s  regime.

 

How much does the Government receive in royalties?

Total royalties from petroleum and mineral 20009/2010: $450,650,223: 

Royalties from oil and gas: $431,892,263.

This amount comprises:

  • Petroleum royalties: $399,194,756
  • Gas Energy Resources levy: $32,697,507

Click here to view royalty payments from  2007 to 2010.

 

What happens to the royalty payments of the Government?

Monies received by the Government from petroleum royalties contributes to the general revenue stream of Government and is utilised to help pay for services which all New Zealanders can benefit from.