BEIJING, April 13 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
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
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.