The Morrison Government has given permission for oil and gas exploration in NSW coastal waters by a company set up as a tax minimisation ploy

Those Liberal-Nationals MPs and senators preparing to return to Canberra late next month appear determined to annoy NSW voters - especially those who live in coastal communities.

Having wrecked the Murray-Darling freshwater river system that runs through four states, they have now turned their eyes towards the coastal commercial and recreational fishing grounds of New South Wales.

This is how it is playing out........

Asset Energy Pty Ltd holds an 85 per cent interest in Petroleum Exploration Permit PEP11, an offshore petroleum exploration lease covering 4,649 square kilometres in Commonwealth waters off the coast of New South Wales.

Asset Energy is a wholly owned subsidiary of the Melbourne-based (formerly Perth-based) mining company MEC Resources Ltd’s investee company Advent Energy Ltd.

Bounty Oil and Gas NL is the junior joint venture partner in PEP11 holding a 15 per cent interest, 

Newcastle Herald, 9 January 2019

In March 2018 the National Offshore Petroleum Safety and Environment Management Authority (“NOPSEMA”) gave approval for a survey which acquired high resolution 2D seismic data over the Baleen prospect, approximately 30km southeast of Newcastle, which evaluated (amongst other things) shallow geohazard indications including shallow gas accumulations that can affect future potential gas drilling operations.

NOPSEMA falls within the portfolio of Australian Minister for Resources and Northern Australia & Nationals Senator for Queensland, Matt Canavan.

That particular survey has been completed and on New Year's Eve 2018 MEC Resources informed the Australian Stock Exchange that it now intends to do 3D seismic mapping in the vicinity of the potential test drill site at the earliest opportunity.

Underwater seismic testing involves continuous seismic airgun blasts approximately every 2-3 seconds for 24 hours continuously, for days or weeks at a time. That is, such testing creates compressed air streams or focused sonic waves - in simple language, loud booms - towards the ocean floor in order to gauge the depth, location and structure of the oil or gas resources. The sounds of which can travel many thousands of square kilometres and which are known to have a negative effect on marine ecosystems.

Previous to this, on 15 May 2018 the NSW Parliament had called on the federal government to suspend Asset Energy’s permit to conduct seismic testing off the coast of Newcastle, with the NSW Minister for Resources and Energy & Liberal Party Member of the Legislative Council Don Harwin expressing a lack of confidence in Australia’s current offshore mining regulations.

The Morrison Coalition Government in Canberra appears to be ignoring NSW Government  and community concerns. Being more concerned itself with offering tax free investment opportunities to the market.¹

It is worth noting that any significant Advent Energy/Asset Energy drilling rig (left) mishap has the potential for an uncontrolled release of untreated oil into coastal waters.

It is reportedly intended that one or more exploration drilling rigs should be in place sometime in 2020.

MEC Resources (formerly MEC Strategic Ltd) is a registered corporation which only been in existence for the last thirteen years and for the last three years there has been a bitter rift between the board and certain shareholders involving repeated calls for removal of the entire board, with the last call for a spill occurring in November 2018. The company was also involved in a dispute with a former managing director, as well litigation involving a $295,000 loan.

One of the shareholder bones of contention appears to be the cost of exploration in PEP11. On 31 October 2018 MEC Resources informed the stock exchange that a cost reduction plan remains in place to ensure all costs are reduced wherever possible.

Questions raised about the rigour of offshore mining regulations covering PEP11 and an oil & gas exploration company determined to cut costs. What could possibly go wrong? 

Concerned readers can sign Stop Seismic Testing Newcastle's change.org petition to Minister Canavan and NOPSEMA here.

Footnotes

1. www.mecresources.com.au, Tax Advanatges, retrieved 10 January 2018:

MEC is a registered Pooled Development Fund (PDF). PDF shareholders pay no capital gains tax on the sale of their PDF shares. Investors who receive dividends will also be exempt from income tax on dividends.

This can be particularly attractive to both traders and investors, since any profits derived from trades or investments are tax-free or low tax. The Pooled Development Fund Programme was established by the Federal Government to develop the market for patient venture capital for growing small and medium enterprises and to provide a concessional tax regime to encourage such investments. Any capital losses on the sale of PDF’s are not deductable.

To encourage investors, the government offers tax benefits to both the PDF and its shareholders as follows:

capital gains made by PDF shareholders are not taxable,

shareholders can elect to treat dividends paid by a PDF as tax free,......

PDF’s tend to invest in a portfolio of growing companies, thereby potentially reducing investors’ risk through diversification. Investee companies have the potential to become listed companies in their own right, which has the possibility of providing investors with attractive returns.

This is not a complete list of the taxation issues surrounding Pooled Development Funds. For further information please contact AusIndustry.

See  Pooled Development FundsAct 1992 as amended up to September 2018.