China extends energy levy to projects with foreign firms

BEIJING, April 13 Fri Apr 13, 2012 6:55am EDT

BEIJING, April 13 (Reuters) - China has extended a charge on oil and gas production to cover cooperation projects between foreign and Chinese companies from those run solely by domestic firms, as it tries to smooth levies for all oil and gas producers.

China National Petroleum Corp (CNPC), the country's largest oil and gas producer, had 35 oil and gas cooperation projects with foreign firms including Royal Dutch Shell, Chevron Corp and Total PA at the end of 2010.

The projects involve mostly thick oil and coalbed methane gas deposits, or reserves with low permeability, high sulphur content or in high-pressure environments and shallow ocean water.

From March 31, foreign and Chinese firms jointly pumping oil or gas in China will pay 1 percent of revenues from products sales to the government as a "resource compensation fee", the Ministry of Land and Resources said.

The mandate, which will run for eight years, would further trim the profit margins of oil and gas producers after a switch last November 1 to ad valorem resource tax from royalty payment was expected to cut into producers' returns.

This meant that though many projects had only small output and so paid little royalty, their burden increased since the change to a resource tax.

The new rule will cover production not only of conventional oil and natural gas, but also unconventional fuels, such as coalbed methane gas.

Oil and gas cooperation deals between Chinese and foreign companies signed before last November will be exempt from the new charge and continue to pay royalty until their contracts expire, the ministry said in a notice dated March 31 but posted on its website this week (www.mlr.gov.cn).

China previously charged royalty on such projects at graduated rates, of upto 12.5 percent on oil output and upto 3 percent on gas output, in addition to an oil windfall tax and other regular taxes.

Beijing replaced the royalty system from November 1 last year with a resource tax regime that charges 5 percent to 10 percent on oil and gas sales revenue.

It also exempted from the change cooperation deals inked before November 1 between Chinese and foreign companies until their contracts expire.

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