Contemporary fiscal issues impacting M&A in the oil and gas sector

Abstract

Ongoing growth in deal activity in the oil and gas industry is one of the critical forces underpinning the sustained robustness of the Australian economy. Australian oil and gas assets continue to attract significant international interest and are actively pursued by global and domestic investors alike. On the supply side, exploration players are seeking the necessary funding and technical support to commercialise prospective oil and gas discoveries, while on the demand side, major established oil and gas companies are seeking to acquire viable targets as a means of rapidly replenishing their reserves. Consequently, merger and acquisition (M&A) deals and asset trades have become a regular feature of the corporate oil and gas scene in Australia. In time to come, a wave of industry consolidation is likely to emerge. This paper discusses key fiscal aspects of M&A transactions, as affected by recent developments in the Australian taxation landscape, and their impact on the overall economics of, and extracting value from, an investment in the oil and gas sector, including:

• the taxation of farm-in/farm-out arrangements, asset swaps and carry arrangements;

• structuring the deal consideration for fiscal efficiency;

• takeover and acquisition vehicle structures;

• the M&A issues associated with the extension of the Petroleum Resource Rent Tax (PRRT) to the onshore oil and gas industry;

• consideration associated with capital management, capital structure and financing trends for the industry;

• exit and repatriation routes—do all roads lead to tax?;

• managing transaction costs; and,

• managing tax risks in M&A deals.