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Assessment of future royalty income

Petroleum royalties, the government’s share of proceeds from oil and gas produced in New Zealand could be a very significant source of government revenue for many years.

Independent financial advisers Woodward Partners assessed the asset value of future petroleum royalties from known petroleum reserves as well as potential production.

If recent patterns of exploration and development continue, future royalty income could generate $8.5 billion to New Zealand.  If current exploration rates increased by 50 per cent over the next 10 years, New Zealand could earn $12.7 billion in royalties.

Anticipated future royalty payments were discounted for inflation and adjusted for commercial risk, so the estimated total value of future royalty cash flows is equivalent to a lump sum payment of $8.5 billion, as at June 2010.

  • Royalty income from existing production facilities in Taranaki could be worth $3.2 billion in gross royalty income to New Zealand.  This is on top of royalty income received in past years from these operations.
  • New production from future discoveries could generate royalty income equivalent to a $5.3 billion (in June 2010 prices) – and up to $9.5 billion if exploration activity accelerated by 50 per cent over the next 10 years.

Coupled with company tax, the government receives about 42 per cent of a petroleum company’s accounting profit.  This income helps fund government services, such as education and healthcare.

 

Last updated 9 November 2011

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