PTTEP Australasia (Ashmore Cartier) Pty Ltd v Commissioner of Taxation

Federal Court of Australia|2013-11-11|Before: Gordon J

The parties are directed to bring in orders to give effect to these reasons for judgment by 4:00pm on 18 November 2013. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011 (Cth).

IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 294 of 2013 VID 295 of 2013 VID 296 of 2013

BETWEEN: PTTEP AUSTRALASIA (ASHMORE CARTIER) PTY LTD

INTRODUCTION 1 Under s 22 of the Petroleum Resource Rent Tax Assessment Act 1987 (Cth) (PRRTAA), the "taxable profit" of the Applicant (PTTEP) includes the "consideration receivable, less any expenses payable, … in relation to the sale" of crude oil. PTTEP produced and sold crude oil from two fields in the Timor Sea - Jabiru and Challis. Pursuant to an "Agreement for the Sale of Crude Oil" (the Sale Agreement), PTTEP sold crude oil to Petro Summit Pte Ltd (Petro). Crude was sold on a shipment by shipment basis. Each shipment from each field was separately invoiced (a J or C Sale Invoice). The invoiced price for each shipment was calculated pursuant to a formula which used, as an integer, the arithmetic average of all the mean of quotations in the Asian Petroleum Price Index (APPI) for crude for the month containing the Bill of Lading Date (the cl 4.1 Price). The Bill of Lading Date was the day the loading hose was disconnected once the lifting of the shipment was completed: cl 1.1 of the Special Conditions of the Sale Agreement. 2 From 1 June 2005, the Sale Agreement was amended so that on the 10th business day of the last month of each quarter, PTTEP would provide Petro with the expected crude production for the quarter in barrels and the volume of barrels lifted in any shipment in that quarter prior to that day. Petro would then pay PTTEP a "Quarterly Deemed Payment Amount" (QDPA) for each quarter calculated as follows: QDPA in USD = Expected Quarterly Production X Deemed Price X Proportionate Share X 80% 3 The Expected Quarterly Production was the expected crude production for the quarter in barrels minus any barrels of crude lifted in a shipment in that quarter. The "Deemed Price" for each barrel of the Expected Quarterly Production was the cl 4.1 Price but using a deemed Bill of Lading Date that was the midpoint of the quarter. The QDPA amount was invoiced by PTTEP (the EQ Invoices) and paid by Petro. "EQ" was a reference to cash flow equalisation. The EQ Invoices were issued for the Project (see [22] below), not a specific field. 4 From 1 June 2005, when issuing a J Sale Invoice or a C Sale Invoice, PTTEP also issued a Credit J Invoice or a Credit C Invoice. The Credit J or Credit C Invoice contained the "Adjusted Payment Amount", being the adjusted amount payable by Petro to PTTEP for each shipment of crude delivered. The formula for the "Adjusted Payment Amount" was "A - B", where: A is the actual amount payable by [Petro] to [PTTEP] for the Shipment of Crude as determined in accordance with clause 4; and B is the Revised QDPA Value of the Barrels of Crude in that Shipment being the Value of Lifted QDPA Barrels minus the Interest Value. (Emphasis added in italics.) Value of Lifted QDPA Barrels and the Interest Value were defined: cl 8.7 of the First Supplemental Agreement. The Interest Value was the time value of the money paid by Petro under the EQ Invoices. If the Adjusted Payment Amount was positive, Petro made a further payment to PTTEP. If the Adjusted Payment Amount was negative, PTTEP made a payment to Petro. From 1 October 2005, PTTEP was no longer required to issue a QDPA. It had the option of doing so on a quarterly basis. 5 In calculating PTTEP's taxable profit under s 22 of the PRRTAA, was the "consideration receivable" by PTTEP for the sale of each shipment of crude the cl 4.1 Price or was PTTEP entitled to account for the "Interest Value" as a negative or subtracting amount? For the reasons that follow, the "consideration receivable" by PTTEP was the cl 4.1 Price. 6 These reasons for judgment will consider the background facts and matters, including the relevant contractual arrangements and then the statutory framework before turning to consider the issues in the proceeding.

BACKGROUND 7 The years ending 30 June 2006, 30 June 2007 and 30 June 2008 (the Relevant Years) are in dispute. The facts described below concern the Relevant Years. 8 PTTEP was a participant in, and operator of, the Jabiru Challis-Cassini petroleum project in relation to Production Licence Areas AC/L1, AC/L2 and AC/L3 issued pursuant to the Petroleum (Submerged Lands) Act 1967 (Cth) (the Licences). The Licences, known as the "Jabiru Challis-Cassini" project for the purposes of the PRRTAA (the Project), are in the Timor Sea. The Project was operated by PTTEP as a joint venture with other entities. PTTEP held a 70.9375% participant interest in the Project. 9 PTTEP's operations included the exploration, recovery and production of petroleum within the Licences. The Licences covered two oil fields in the Timor Sea - the Jabiru field within AC/L1 and the Challis field within AC/L3. 10 The Project produced crude oil for sale via two floating production, storage and offloading (FPSO) vessels - the Jabiru Venture, a converted oil tanker which served the Jabiru field and the Challis Venture, a purpose built barge which served the Challis field. Each was defined as a Facility under the Sale Agreement. 11 PTTEP sold the crude oil to Petro on a Free On Board (FOB) basis pursuant to the Sale Agreement. In fact, the Sale Agreement was comprised of a number of documents. It was common ground that three documents governed the current dispute. They were: 1. Agreement for the Sale of Crude Oil dated 22 February 2005 referred to as the Special Conditions with attached General Conditions for the Sale of Crude Oil (General Conditions); 2. Supplemental Agreement - Sale of Crude Oil dated 1 June 2005 (the First Supplemental Agreement); and 3. A further Supplemental Agreement - Sale of Crude Oil dated 1 March 2006 (the Second Supplemental Agreement). Annexure 1 contains an extract of the applicable provisions of the Sale Agreement as at 22 February 2005, 1 June 2005 and then from 1 October 2005. It is necessary to consider the terms of the Sale Agreement in force at each date.

Sale Agreement as at 22 February 2005 12 The initial Agreement for the Sale of Crude Oil dated 22 February 2005 was referred to as the Special Conditions. The General Conditions were annexed to the Special Conditions. The Recitals to the Special Conditions recorded, as was the fact, that PTTEP owned a proportionate share of the crude, Petro was the buyer of the Crude, PTTEP was also the operator who arranged for the sale of the proportionate share of the crude to Petro and that Petro agreed to purchase FOB PTTEP's proportionate share of the crude. 13 The principal obligation was for PTTEP to sell and supply, and for Petro to purchase and receive, FOB all of the crude oil produced by, and available for lifting at, each Facility: cl 3.1 of the Special Conditions. Crude was sold on a Shipment by Shipment basis: cl 3.7 of the Special Conditions. Shipment was not defined in the Special Conditions. Terms not defined in the Special Conditions had the meaning ascribed to them in the General Conditions: cl 1.4 of the Special Conditions. Shipment was defined in the General Conditions to mean "a shipment or cargo of Crude lifted from the Facility by a Tanker pursuant to this agreement and includes a shipment or cargo of less than the full capacity of a Tanker": cl 1 of the General Conditions. 14 Each Shipment consisted of lifting crude from the Delivery Point to a Tanker: cl 2.1 of the General Conditions. Delivery Point was defined as the point at which the crude passed the loading hose flange on the manifold of the Tanker: cl 1 of the General Conditions. The Tanker was the tanker arranged by Petro to lift the crude: cl 1 of the General Conditions. All title, risk and property in the crude in each Shipment passed to Petro on delivery of the crude at the Delivery Point: cl 2.2 of the General Conditions. The date each loading of crude was completed and the loading hose was disconnected was defined as the Bill of Lading Date: cl 4.3 of the Special Conditions. 15 Petro was required to pay PTTEP for each barrel of crude in a Shipment calculated pursuant to a formula in cl 4.1 of the Special Conditions. The price was set by reference to prices published on the APPI: cl 1.1 of the Special Conditions. Clause 4.1 of the Special Conditions entitled "price" provided that: [Petro] shall pay to [PTTEP] for each Barrel of Crude delivered in accordance with this agreement and in the Final Inventory the price calculated as follows: Price = APPIT + P + D The APPIT was defined to mean the arithmetic average of all the mean of the quotations in the APPI for Tapis crude as published by KPMG Corporate Services Limited, Hong Kong, as Accountant to the APPI for the calendar month containing the Bill of Lading Date: cl 1.1 of the Special Conditions. 16 P and D were defined in cl 4.2 of the Special Conditions as: (a) P means the average of all the mean of premium/discount quotations for Tapis crude oil as published in the Platt's Pacific Rim Spot Crude Assessments for the 30 days commencing 60 days prior to the Bill of Lading Date; (b) D means: (i) in relation to Jabiru Crude that is produced and available for lifting during the Term, USD 0.35; (ii) in relation to Challis Crude that is produced and available for lifting during the Term, USD 0.35. … 17 PTTEP was obliged to provide Petro promptly with an invoice for each Shipment of Crude delivered: cl 3.2 of the General Conditions. Each Shipment from each field was separately invoiced by a J Sale Invoice for the Jabiru Field or a C Sale Invoice for the Challis Field. The C Sale and J Sale Invoices (by number) and the date each Shipment was lifted are listed in columns 1 and 2 of Table 2 in Annexure 2. Petro was obliged to make payment within 30 days of the Bill of Lading Date for each Shipment: cl 3.4 of the General Conditions. 18 These arrangements continued throughout the Relevant Years. The sale of crude was lumpy. There were 16 Shipments: see Table 2 in Annexure 2.

Sale Agreement as at 1 June 2005 19 The First Supplemental Agreement amended the Special Conditions from 1 June 2005 to introduce a new cl 8 into the Special Conditions headed "Cash Flow Equalisation". The amendments are redlined in Annexure 1. 20 The new cl 8 worked by reference to a quarter, not a Shipment: cl 8.1. It provided that on the 10th business day of the last month of each quarter, PTTEP would provide Petro with the expected crude production for the quarter in barrels and the volume of barrels lifted in any Shipment in that quarter prior to that day: cl 8.3. 21 Clause 8.4 then provided that Petro would pay PTTEP a QDPA [Quarterly Deemed Payment Amount] for each quarter calculated in accordance with the following formula: QDPA in USD = Expected Quarterly Production X Deemed Price X Proportionate Share X 80% 22 The Expected Quarterly Production was defined as the expected crude production for the quarter in barrels minus any barrels of crude lifted in a Shipment in that quarter. The Deemed Price was the price for each barrel of the Expected Quarterly Production calculated in accordance with cl 4 but using a deemed Bill of Lading Date that was the midpoint of the quarter. That amount (the QDPA) was invoiced by PTTEP to Petro. These were separate invoices labelled "EQ". As noted earlier, "EQ" was a reference to cash flow equalisation. The EQ Invoices were issued for the Project, not a specific facility. The EQ Invoices (together with the due date and date of payment) are listed in Table 1 in Annexure 2. Petro was required to pay the QDPA no later than 10 business days after the end of the quarter: cl 8.6 of the Special Conditions. There were 12 EQ invoices: see Table 1 in Annexure 2. 23 As will be apparent, there were two streams of payment obligation by Petro to PTTEP - the cl 4.1 Price and the QDPA. 24 Clause 8.7 provided that the amount payable by Petro was to be subject to adjustment as follows: Notwithstanding anything to the contrary in clause 4 of the Special Conditions and clause 3 of the General Conditions, the amount payable by [Petro] to [PTTEP] for each Shipment of Crude delivered in accordance with this agreement shall be subject to adjustment in accordance with the following provisions of this clause 8. The Adjusted Payment Amount in USD = A - B Where A is the actual amount payable by [Petro] to [PTTEP] for the Shipment of Crude as determined in accordance with clause 4; and B is the Revised QDPA Value of the Barrels of Crude in that Shipment being the Value of Lifted QDPA Barrels minus the Interest Value. (Emphasis added in italics.) 25 The Adjusted Payment Amount was a calculation. It took the cl 4.1 Price of the Shipment as the starting point - that was defined as A. From A, it deducted B. B was the sum of two elements and referred to as the "Revised QDPA Value of the Barrels of Crude in that Shipment". The two elements were the Value of Lifted QDPA Barrels and the Interest Value. The two elements were defined in cl 8.7 of the Special Conditions. The Value of Lifted QDPA Barrels was: … the number of Barrels of Crude of that Shipment which are the subject of a QDPA paid to [PTTEP] under clause 8.6, and which have not previously been the subject of an Adjusted Payment Amount pursuant to this clause 8, multiplied by the Deemed Price attributable to that QDPA, multiplied by the Proportionate Share, multiplied by 80%. 26 The Interest Value was defined as: … the amount of interest on the amount that is the Value of the Lifted QDPA Barrels for the period between the date on which the QPDA (sic) in respect of those Barrels was paid to [PTTEP] and the due date for payment of A (inclusive of the first and last day of that period), calculated at LIBOR plus 2% where LIBOR is the London Interbank Offering Rate for deposits in US Dollars for one month which appears on Reuters Page LIBOR01 on or about 11.00am London time on the date on which the QPDA (sic) was paid to [PTTEP]. For the purposes of the calculation of the Interest Value, one year is 360 days. 27 If the Adjusted Payment Amount was positive, Petro made payment of the Adjusted Payment Amount to PTTEP "in substitution of the amount payable for the Shipment of the Crude": cl 8.8 of the Special Conditions. If the Adjusted Payment Amount was negative, then PTTEP made a payment of the Adjusted Payment Amount to Petro: cl 8.8 of the Special Conditions. The Adjusted Payment Amount was recorded in a Credit J Invoice (for Jabiru) or a Credit C Invoice (for Challis). 28 Ms Brown, a finance manager employed by PTTEP, gave sworn evidence and was cross examined. She had responsibility for preparing and issuing the invoices under the Sale Agreement. As an illustration of the overall invoicing process for the period from 1 July 2005, Ms Brown referred to the invoices issued in and in relation to the quarter commencing 1 July 2005 (the 30 September 2005 Quarter). 29 Equalisation Invoice EQ002 was issued on 30 September 2005, being the last day in the 30 September 2005 Quarter. After calculating the expected crude to be produced from the Challis and Jabiru fields in the 30 September 2005 Quarter, Ms Brown calculated 80% of PTTEP's share at 235,200 barrels. This figure was inserted into EQ002 as the "Expected Quarterly Production" for the 30 September 2005 Quarter. It was the "Expected Quarterly Production" from the Challis and Jabiru fields. The invoice did not allocate the expected production between the two fields. No crude had been produced and lifted in that quarter. 30 Next, Ms Brown calculated the value of the "Expected Quarterly Production" from the Challis and Jabiru fields. The Deemed Bill of Lading Date was 16 August 2005 (being the middle of the 1 July to 30 September 2005 Quarter). Invoice EQ002 reflected that there was a fixed price agreement in relation to 100,000 barrels at US$65.030. The Deemed Price (by reference to the Deemed Bill of Lading Date) for the balance of the barrels was calculated as US$66.555 per barrel. The amount invoiced to Petro was US$15,501,236 (excluding GST). That amount was calculated using the formula "Expected Quarterly Production X Deemed Price X Proportionate Share X 80%". Put simply, the integers in the calculation of the QDPA were not certain. The Expected Quarterly Production was an estimate, the Deemed Price was, its label suggests, a deemed price and to further complicate the matter, those uncertain amounts were multiplied by PTTEP's proportionate share and then multiplied by 80%. The QDPA was payable and paid on 19 October 2005. 31 On 29 October 2005 (after the end of 30 September 2005 Quarter), Petro completed lifting 628,872.01 barrels of crude from the Jabiru Facility. This included crude produced from the Jabiru field in the 30 September 2005 Quarter, the 30 June 2005 Quarter and the 31 December 2005 Quarter. Ms Brown prepared Jabiru Sales Invoice J225 dated 29 October 2005. This invoice showed that 628,872.01 barrels of crude had been lifted from the Jabiru Facility on 29 October 2005. The price was calculated using the cl 4.1 Price formula of the Sale Agreement. It was US$65.183 per barrel. PTTEP's proportionate share of the amount (including GST) was US$31,986,386.03. That figure was included in Jabiru Sales Invoice J225. The crude oil lifted on 29 October 2005 and the subject of Jabiru Sales Invoice J225 was referable only in part to production in the 30 September 2005 Quarter. The Sales Invoice J225 was dated 29 October 2005 and payable on 29 November 2005. 32 On the same day that Sales Invoice J225 was prepared, Ms Brown also prepared Credit Invoice J225. The Credit Invoice recorded that under EQ001 and EQ002, Petro had paid for a percentage of the expected production in the 30 June 2005 Quarter and in the 30 September 2005 Quarter. In relation to EQ002, the amount paid for Expected Quarterly Production that was listed on Credit Invoice J225 under the heading "Repaid Cash Flow Equalisation" was calculated at 162,859 barrels of expected production from the Jabiru Facility in the 30 September 2005 Quarter. Ms Brown's evidence was that she determined how much of the previous EQ invoices should be allocated to a subsequent Jabiru lifting by using a first in, first out (FIFO) inventory reconciliation. The FIFO inventory reconciliation required her to extract from the bank or store of Jabiru QDPA barrels that were available to be allocated and to do so on a first in first out principle. The dollar amounts of the Expected Quarterly Production from the Jabiru Facility in the 30 September 2005 Quarter were invoiced in EQ002 and allocated to the crude lifted from Jabiru on 29 October 2005. The Expected Quarterly Production was made up of two amounts, namely US$6,518,300.00 and US$4,183,580.75, making US$10,701,880.75 (excluding GST). The two amounts reflected the fact that there were fixed price barrels and deemed price barrels in EQ002. Credit Invoice J225 also included a "Repaid Cash Flow Equalisation" amount from EQ001 in the sum of $15,755,252.56. Credit Invoice J225 then showed two interest value adjustments (Interest Value Amount) in relation to the two amounts from EQ002, which were US$44,460.35 and US$28,602.72. Finally, Credit Invoice J225 included an Interest Value Amount for EQ001, being US$269,754.40. Credit Invoice J225 was the sum total of those six amounts including GST. 33 The same invoicing procedure was adopted in relation to the completed lifting by Petro on 29 December 2005 when it completed lifting 247,515.36 barrels of crude from the Challis Facility. Ms Brown issued Sales Invoice C145 dated 29 December 2005. The invoice showed that 247,515.36 barrels of crude had been lifted and that the amount calculated pursuant to the cl 4.1 Price formula was US$58.677 per barrel. PTTEP's proportionate share of the amount so calculated (including GST) was US$10,302,578.57. Again, this sales invoice included crude produced in the 30 September 2005 Quarter as well as the 31 December 2005 Quarter. 34 On the same day, Ms Brown prepared the Challis Sales Invoice C145 she also prepared Credit Invoice C145 dated 29 December 2005. This Credit Invoice reflected the fact that under EQ002 and EQ003 Petro had paid for Expected Quarterly Production. The amount paid for expected quarterly production under EQ002 that was allocated to the crude lifted from the Challis Facility on 29 December 2005 was identified in the invoice under the heading "Equalisation Invoices" in the amount of US$4,814,655.26 and was referable to 72,341 barrels of expected production from the Challis Facility in the 30 September 2005 Quarter. Credit Invoice C145 also shows the Interest Value Amount in relation to this Expected Quarterly Production payment, being US$81,088.98. Consequently, the adjustment required by cl 8.7 of the First Supplemental Agreement in respect of the lifting from the Challis Facility was the sum total of those two amounts, namely US$4,895,744.24. 35 As will be apparent, Sales Invoices and Credit Invoices were done separately for Jabiru and Challis because there were separate liftings from each of those fields. The EQ Invoices were issued on a Project basis.

Second Supplemental Agreement 36 With effect from 1 October 2005, cl 8.7 was further amended by the Second Supplemental Agreement. The substance of this amendment was that, whereas under the previous cl 8.7 PTTEP was obliged to make use of the cl 8 mechanism, under the amended cl 8.7 (which applied for the remaining 21 months of the Relevant Years), PTTEP had the option of doing so on a quarter by quarter basis.

Other matters 37 Two other matters should be noted. Although the calculation of the cl 4.1 Price referred to in the Special Conditions was based on a price for crude calculated in accordance with that clause, from time to time PTTEP agreed that fixed prices should be applied to certain volumes of crude from time to time. This was, in effect, a substituted cl 4.1 Price. Nothing turns on this variation. 38 Secondly, although the First Supplemental Agreement contemplated that Petro would make advance payments calculated by reference to 80% of PTTEP's share of the estimated production, this percentage was varied upwards from time to time. This percentage change was reflected in the invoices. Nothing turns on that variation.

STATUTORY FRAMEWORK 39 Petroleum Resource Rent Tax is imposed by s 4 of the Petroleum Resource Rent Tax Act 1987 (Cth). It imposes tax "in respect of the taxable profit of a person of a year of tax in relation to a petroleum project". 40 Liability to taxation is addressed in Pt V of the PRRTAA. Division 1 is concerned with liability to tax on "taxable profit". Tax imposed in respect of the taxable profit of a person of a year of tax in relation to a petroleum project is payable by the person. 41 Petroleum project is not defined in the PRRTAA. Its meaning is informed by s 19(4): 19 Petroleum project … (4) For the purposes of this Act, a reference to the operations, facilities and other things comprising a petroleum project is a reference to: (a) operations and facilities for the recovery of petroleum from the production licence area or production licence areas in relation to the project; and (b) such of the following as are carried on or provided: (i) operations and facilities involved in moving petroleum so recovered between any storage or processing facilities prior to the production of any marketable petroleum commodity from the petroleum; (ii) operations and facilities involved in the storage, processing or treatment of petroleum so recovered to produce any marketable petroleum commodity from the petroleum; (iii) operations and facilities involved in the moving or storage of any such marketable petroleum commodity before it becomes an excluded commodity; (iv) services, or facilities for the provision of services, in connection with the operations, facilities, amenities and services referred to in this section; (v) employee amenities in connection with the operations, facilities and services referred to in this section. 42 Next, the phrase "taxable profit … in relation to a petroleum project" is defined in s 22 of the PRRTAA. It provides: Where, in relation to a petroleum project and a year of tax, the assessable receipts derived by a person exceed the sum of: (a) the deductible expenditure incurred by the person; and … the person is taken for the purposes of this Act to have a taxable profit in relation to the project and the year of tax of an amount equal to the excess. (Emphasis added.) Taxable profit is the excess of assessable receipts over deductible expenditure. 43 It is then necessary to consider those two phrases - assessable receipts and deductible expenditure. Assessable receipts are defined in s 23 of the PRRTAA. It is common ground that this dispute concerns s 23(1)(a) - assessable petroleum receipts. Assessable petroleum receipts are defined in s 24 of the PRRTAA. Section 24(1)(b) is the relevant limb and it provides: (1) For the purposes of this Act, a reference to assessable petroleum receipts derived by a person in relation to a petroleum project is a reference to: (b) where any marketable petroleum commodity ... produced from petroleum from the project becomes or became an excluded commodity by virtue of being sold - the consideration receivable, less any expenses payable, by the person in relation to the sale; (Emphasis added.) It was common ground that the marketable petroleum commodity in the present case was stabilised crude oil and that it became an excluded commodity when it was sold from either the FPSO Jabiru Venture or the FPSO Challis Venture. 44 Next, the second limb of taxable profit - deductible expenditure. Deductible expenditure is defined in s 32 of the PRRTAA as follows: For the purposes of this Act, a reference to the deductible expenditure incurred by a person in a financial year in relation to a petroleum project (not being an ineligible project in relation to the financial year) is a reference to the total expenditure of the following kinds incurred by the person in the financial year in relation to the project: … (c) class 2 augmented bond rate general expenditure; (Emphasis added.) 45 It is common ground that PTTEP's deductible expenditure was class 2 augmented bond rate general expenditure, being class 2 general project expenditure incurred on or after 1 July 1990: see ss 34A(3) and 34A(5) of the PRRTAA. During the Relevant Years, s 38(1)(b) provided: 38 General project expenditure (1) For the purposes of this Act, a reference to general project expenditure incurred by a person in relation to a petroleum project is a reference to payments (not being excluded expenditure, exploration expenditure or closing-down expenditure), whether of a capital or revenue nature, liable to be made by the person: … (b) in carrying on or providing the operations, facilities and other things comprising the project; (Emphasis added.) 46 Section 38(1)(b) was retrospectively amended by Sch 6 to the Tax Laws Amendment (2013 Measures No 2) Act 2013 (Cth) (the Retrospective Act). As amended it reads as follows: (1) For the purposes of this Act, a reference to general project expenditure incurred by a person in relation to a petroleum project is a reference to payments (not being excluded expenditure, exploration expenditure or closing-down expenditure), whether of a capital or revenue nature, to the extent that they are made by the person: (b) in carrying on or providing the operations, facilities and other things comprising the project; 47 The Retrospective Act also inserted a new s 38(3) which reads: For the purposes of this section, a person is taken to make a payment when the person becomes liable to make the payment. 48 Paragraph 11(a) of Sch 6 to the Retrospective Act provides that these amendments apply retrospectively "to any payment made by a person on or after ... the applicable commencement date in relation to the project". It was common ground that the amended version of s 38 is applicable to the Relevant Years. The effect of this amendment is that s 38 deductibility is now to be assessed on the basis of payments made but that the timing of the deduction will be when the liability to make the payment arises. 49 Finally, s 38 excludes "excluded expenditure" from general project expenditure. Excluded expenditure is defined in s 44 to include "(a) payments of principal or interest on a loan or other borrowing costs".

ISSUES 50 In calculating PTTEP's taxable profit under s 22 of the PRRTAA, was the "consideration receivable" by PTTEP for the sale of each Shipment of crude the cl 4.1 Price or was PTTEP entitled to account for the "Interest Value" as a negative or subtracting amount? 51 That issue was addressed by the parties by reference to the following questions: 1. whether the Interest Value Amounts in each Relevant Year are to be taken into account in the calculation of the s 24(1)(b) "consideration receivable" under the PRRTAA for each sale of crude oil (as negative or subtracting components of that calculation that are deducted from the gross sale proceeds); 2. whether the Interest Value Amounts in each Relevant Year are "expenses payable" in relation to each sale of crude oil within the meaning of s 24(1)(b) of the PRRTAA; or 3. whether the payment of the Interest Value Amounts is deductible expenditure, being "general project expenditure" within the meaning of s 38 of the PRRTAA and, if so, whether the Interest Value Amounts are "excluded expenditure" within the meaning of s 44(a) of the PRRTAA?

Issue 1 - Interest Value Amounts as negative components of the consideration receivable? 52 The Commissioner contended that the consideration receivable for each Shipment was the cl 4.1 Price. PTTEP contended that the consideration receivable for each Shipment was the sum of several amounts: the relevant proportions of the QDPA(s) which were credited to the Shipment plus the Adjusted Payment Amount for that Shipment. 53 The phrase "consideration receivable" in s 24(1)(b) is not defined in the PRRTAA. But it does not stand alone. Section 24(1)(b) provides: For the purposes of this Act, a reference to assessable petroleum receipts derived by a person in relation to a petroleum project is a reference to: (b) where any marketable petroleum commodity ... produced from petroleum from the project becomes or became an excluded commodity by virtue of being sold - the consideration receivable, less any expenses payable, by the person in relation to the sale; (Emphasis added.) 54 The first thing to note is that the section is dealing with a commodity, a marketable petroleum commodity. In this case, crude oil. The section operates when the marketable petroleum commodity (the crude) becomes an excluded commodity. It becomes an excluded commodity by being sold. The sole focus is, and remains, the sale of the commodity. Upon the sale of the commodity, the section operates upon the consideration receivable by the participant, less any expenses payable by the participant, in relation to the sale. Again, the focus is (and remains) the sale. The express words of the section are clear - it is the consideration receivable ... in relation to the sale. 55 The choice of the phrase (the consideration receivable) was deliberate. As originally introduced in the Petroleum Resource Rent Tax Assessment Bill 1986 (the 1986 Bill) what is presently the concluding words to s 24(1)(b) were "... the consideration received by the person for the sale": at page 16. At that time, assessable receipts for sales were to be accounted for on a cash flow receipts basis and there was to be no exception for expenses payable in relation to the sale: Explanatory Memorandum, Petroleum Resource Rent Tax Assessment Bill 1986 (Cth) at pages 7, 40 and 44 and the Second Reading Speech for the 1986 Bill made on 28 November 1986. 56 As a result of industry representation, the cash flow receipts basis was changed by an amendment in the Petroleum Resource Rent Tax Assessment Bill 1987 (Cth) (the 1987 Bill). The amendment to s 24(1)(b) adopted the present wording "... the consideration receivable, less any expenses payable, by the person in relation to the sale": Supplementary Explanatory Memorandum, Petroleum Resource Rent Tax Assessment Bill 1986 (Cth), at pages 1, 5 and 6, the Second Reading Speech for that Bill on 27 March 1987 and the 1987 Bill at page 17. The amendments changed the basis for accounting for assessable receipts from a cash flow receipts basis to an accruals basis and to make an allowance for expenses payable in relation to the sale. 57 Four cases have considered the proper construction of s 24(1)(b) of the PRRTAA: Woodside Energy Ltd v Federal Commissioner of Taxation (No 2) (2007) 69 ATR 465 at [244]-[259] (Woodside First Instance); Woodside Energy Ltd v Federal Commissioner of Taxation (2009) 174 FCR 91 (Woodside Full Court) at [46], [53]-[58]; Esso Australia Resources Pty Ltd v Federal Commissioner of Taxation (2011) 194 FCR 32 (Esso First Instance) at [165]-[181] and Esso Australia Resources Pty Ltd v Federal Commissioner of Taxation (2011) 199 FCR 226 (Esso Full Court) at [110]. 58 The Commissioner submitted that three principles are to be drawn from these authorities concerning the meaning of "consideration receivable" in s 24(1)(b) of the PRRTAA: 1. it is the amount receivable for a particular sale, that is, the supply of a particular agreed quantity of product; 2. the receivability of that sum must move the sale of the agreed quantity of that product; and 3. a payment that does not move the sale of a particular quantity of product is not consideration receivable. As a review of the authorities will demonstrate, these should be adopted as a summary of the relevant principles. 59 In Woodside First Instance, the taxpayer contended that certain hedging losses should be subtracted from the taxpayer's taxable profit. The primary judge rejected those contentions, finding that both the consideration receivable and the expenses payable referred to in s 24(1)(b) must be "directly related to a particular sale" and must be referrable to a "particular sale" of the relevant commodity: at [4] and [266]. Given the express words of s 24(1)(b), those conclusions were not surprising: see [54] above. The primary judge also found that the consideration referred to in s 24(1)(b) was not a "net concept": at [266]. The Full Court dismissed the taxpayer's appeal. The decision of the Full Court repays careful reading. 60 The Full Court referred to the legislative history of s 24 and after analysing the changes in wording at [53]-[57] stated: As the draft Bill originally was framed, there was no room for doubt that the consideration received was that for the project produce and no other ... in the setting of each of s 24(a) and 24(b) the consideration referred to manifestly still remained that which was receivable under a contract for the sale of project produce. The real work that the "in relation to" formula had to do was in relation to the expenses payable. (Emphasis in the original.) That is authority for the first principle; the consideration receivable is the consideration receivable for the sale of the project produce and no other produce or commodity. Unsurprisingly, the "expenses payable" referred to in s 24(1)(b) need to be in relation to the sale of project produce and not otherwise: Woodside Full Court at [58]. It will be necessary to return to consider this latter aspect below. 61 Secondly, the Full Court noted that the reference to "consideration" in s 24 is not a reference to the concept of consideration in simple contracts but rather the wider meaning used in conveyancing, namely "the money or value passing which moves the conveyance or transfer": at [61]-[63]. Applying that wider meaning of consideration in the context of s 24 of the PRRTAA, the Full Court concluded that consideration receivable is limited to the money or value which "moves the relevant sale" of the project produce and would not encompass "a passing of money or value which does not move the relevant sale". Again, the Full Court applied the same reasoning to the word "expenses" so that it refers to expenses of obtaining entitlement to payment of money or value which moves the relevant sale. As the Full Court said, "expenses" in s 24 of the PRRTAA is confined to expenses incurred by the vendor in achieving receivability of the consideration in respect of the sale: at [64]. 62 Next, the Esso litigation. An issue in that litigation was whether certain payments made by the Buyer to the Seller referred to as "MLMDQ payments" were consideration receivable for the sale of gas. The primary judge held that the MLMDQ payments were not consideration receivable because they did not move the transfer of any gas, they amounted to a variation to the contract that did not affect the quantity or quality of gas sold: see [472]-[477] and [485]. That finding was affirmed on appeal for the reasons given by the primary judge: see [191]-[193], [197]-[200] and [203]. 63 The Court in Esso Full Court found at [199]-[200]: In this regard it is to be noted that s 24(b) of the Act was concerned (as is s 24(1)(b) of the Act after the 2001 amendment), with the consideration receivable in relation to the sale, not the agreement for sale. The ordinary meaning of the word "sale" is a transfer of property in return for a consideration in money or money's worth: Simpson v Connelly [1953] 1 WLR 911; Robshaw Brothers Ltd v Mayer [1957] Ch 125 at 131-132; Sun World International Inc v Registrar, Plant Breeders' Rights (1998) 87 FCR 405 at 406, 412. In some legal contexts, it may be unduly pedantic to distinguish an agreement for sale from a sale. But in the context of s 24 of the Act, the term "consideration" is concerned with the money or money's worth "receivable … in relation to the sale" rather than the consideration moving from each party to the agreement apt to make the agreement for sale binding on the other parties. The focus of s 24 is explicitly upon the consideration receivable by the seller in order to entitle the buyer to a transfer of the agreed quantity of the commodity.

Application of s 24(1)(b) to the present facts and circumstances 64 Applying the proper construction of s 24(1)(b) to the facts and circumstances of the present case, the "consideration receivable" was the cl 4.1 Price and not the sum of the QDPA(s) and the Adjusted Payment Amount. 65 As noted above, cl 4.1 of the Special Conditions provided that: [Petro] shall pay to [PTTEP] for each Barrel of Crude delivered in accordance with this agreement and in the Final Inventory the price calculated as follows: Price = APPIT + P + D The first two integers in the calculation of the Price - the APPIT (see [15] above) and the P (the average of all the mean of premium / discount quotations for Tapis crude oil published on a particular index for the 30 days commencing 60 days prior to the Bill of Lading Date) - were dependent upon first identifying the Bill of Lading Date. 66 The Bill of Lading Date was the day the loading hose was disconnected once the lifting of the Shipment was completed: cl 1.1 of the Special Conditions. The Bill of Lading Date was important. It was the event that dictated the calculation of the APPIT and the second integer (P) and therefore the calculation of the cl 4.1 Price. It was not until there was a Shipment of crude that you could start to calculate the price. The Shipment - the lifting of a cargo of crude from the Jabiru Facility or the Challis Facility by one of Petro's tankers - had to occur and be completed before the Bill of Lading Date could be ascertained and then the cl 4.1 Price calculated. In addition, it was at that time and date, the Bill of Lading Date, that title to the crude transferred from PTTEP to Petro: cl 2.2 of the General Conditions. Put another way, the cl 4.1 Price for each Shipment became payable, unconditionally, on the Bill of Lading Date. Adopting the language of the Woodside Full Court, the consideration that moved the sale of each Shipment of crude was the cl 4.1 Price. The QDPA had no role to play. The Adjusted Payment Amount (including its integers) had no role to play. Each was irrelevant. 67 PTTEP's contention that the consideration receivable was not the cl 4.1 Price but the sum of the QDPA(s) and the Adjusted Payment Amount is rejected. It is necessary to look at each of the integers identified by PTTEP. 68 First, the QDPA(s). The Commissioner identified five reasons as to why the QDPA was not consideration receivable for any particular Shipment of either Jabiru or Challis crude. 69 As noted above, the QDPA was a dollar figure calculated on a proportion of the estimated crude production, the total of the estimated Jabiru crude production plus the estimated Challis crude production, using a "Deemed Price": see [22] above. The estimated crude production was a total figure and did not distinguish between Jabiru and Challis. Indeed, the QDPA could relate to crude that never ultimately came into existence in the quarter the subject of the EQ Invoice. The later in the quarter the estimate was produced the more likely it was to be accurate, but the Sale Agreement required it to be carried out at a time when it could only be an estimate. The Jabiru and Challis fields were geographically separate with two Delivery Points, two Facilities and two taxing points giving rise to separate transactions both geographically and contractually. Put another way, no barrel of oil was sold for the Deemed Price. 70 Second, it necessarily follows that the QDPA was not consideration receivable for any particular Shipment of either Jabiru or Challis crude in the future. It was effectively a dollar credit to be applied (in as yet unknown amounts and proportions) to future shipments. At the time it was receivable by PTTEP (and in fact received) it was not consideration receivable for any specific sale of a quantity of crude which would occur in the future. To be consideration receivable an amount must move a specific sale of product, not simply be attributable to or creditable against future sales generally. None of the QDPA payments related to any particular sale of crude. 71 Third, the receivability of the QDPA amount did not move any Shipment. The payment of the QDPA did not cause any crude, or any additional crude, to be moved. By the QDPA, no crude or no extra crude was sold. There was nothing in the provisions of the Sale Agreement that linked the payment of a QDPA to any obligation on PTTEP to sell crude to Petro. PTTEP was obliged to sell exactly the same quantity of crude to Petro by Shipments regardless of whether or not PTTEP chose to utilise the cl 8 "Cash Flow Equalisation" mechanism in a particular quarter. 72 Fourth, the QDPA figure was a notional dollar figure based on the total estimated Jabiru crude production plus the total estimated Challis crude production while each Shipment consisted of a quantity of either Jabiru or Challis crude lifted from either the FPSO Jabiru Venture or the FPSO Challis Venture respectively. There was no necessary relationship between the estimated production of Jabiru and Challis crude in a quarter and the subsequent crediting of a portion of the QDPA to actual Jabiru and Challis Shipments. In fact, QDPAs, in varying proportions, were applied to Shipments: see Annexure 2. At the time that the QDPA was issued, no one knew against what shipment, if any, or in what amount, the QDPAs were to be applied. Sometimes, a QDPA was applied to a Challis Shipment and then a Jabiru Shipment, sometimes to a Jabiru Shipment and then a Challis Shipment and sometimes to a Jabiru Shipment and then another Jabiru Shipment. It was never applied to a Challis Shipment and then another Challis Shipment. The ratio between shipments varied from 50/50 to 98/2: see Table 2 on Annexure 2. 73 Fifth, the QDPA was not consideration receivable for a particular Shipment but in the nature of a repayable advance or loan. It was not an amount absolutely payable as consideration for the future supply of crude which PTTEP was entitled to retain in all circumstances but an amount that was repayable under cl 8.9 if not credited to a future Shipment(s). The QDPA does not affect the amount payable for the crude. Therefore, the QDPA in each relevant quarter was not consideration receivable or part of the consideration receivable for each Shipment. 74 Next, the Adjusted Payment Amount. In this context, it is necessary to first consider the opening chapeau to cl 8.7 which provided: Notwithstanding anything to the contrary in clause 4 of the Special Conditions and clause 3 of the General Conditions, the amount payable by [Petro] to [PTTEP] for each Shipment of Crude delivered in accordance with this agreement shall be subject to adjustment in accordance with the following provisions of this clause 8. (Emphasis added.) It is apparent that in its terms cl 8.7 did not purport to replace the cl 4.1 consideration receivable for a particular Shipment. 75 The balance of the clause must then be considered. It provided: The Adjusted Payment Amount in USD = A - B Where A is the actual amount payable by [Petro] to [PTTEP] for the Shipment of Crude as determined in accordance with clause 4; and B is the Revised QDPA Value of the Barrels of Crude in that Shipment being the Value of Lifted QDPA Barrels minus the Interest Value where: the Value of Lifted QDPA Barrels is the number of Barrels of Crude of that Shipment which are the subject of a QDPA paid to [PTTEP] under clause 8.6, and which have not previously been the subject of an Adjusted Payment Amount pursuant to this clause 8, multiplied by the Deemed Price attributable to that QDPA, multiplied by the Proportionate Share, multiplied by 80% (italicised phrase deleted by Second Supplemental Agreement); and the Interest Value is the amount of interest on the amount that is the Value of the Lifted QDPA Barrels for the period between the date on which the QPDA (sic) in respect of those Barrels was paid to [PTTEP] and the due date for payment of A (inclusive of the first and last day of that period), calculated at LIBOR plus 2% where LIBOR is the London Interbank Offering Rate for deposits in US Dollars for one month which appears on Reuters Page LIBOR01 on or about 11.00am London time on the date on which the QPDA (sic) was paid to [PTTEP]. For the purposes of the calculation of the Interest Value, one year is 360 days. If the Barrels of Crude in that Shipment are attributable to more than one QDPA paid to [PTTEP] under clause 8.6, then B shall be the aggregate of the Revised QDPA Values attributable to the Barrels of Crude in that Shipment. 76 The function of cl 8.7 was to calculate an arithmetic adjustment to the cash flow "amount payable" for crude that had been "delivered in accordance with this agreement" so as to ensure that Petro was given the correct cash flow credits to account for both the crediting of part(s) of previous QDPA(s) to the Shipment and the Interest Value Amount(s) of those part QDPA(s). This ensured that Petro was not overcharged and that Petro ended up paying the correct cash amount for the Shipment as at the due date. The cash "amount payable" net of credits owed to Petro calculated by cl 8.7 would then need to be paid under cl 8.8 in lieu of the cl 4.1 Price (or refunded if the credits exceeded the cl 4.1 Price). 77 Clause 8.7 acknowledged (as was the fact) that there was an "actual amount payable for the Shipment of Crude as determined in accordance with clause 4" (see the definition of A and the calculation of the Interest Value amount) and that: 1. this amount was the actual amount payable for the crude in a Shipment; and 2. it was referable to a "Shipment of Crude" that had been delivered. 78 That is, cl 8.7 took as its starting point that there was a Shipment and consideration receivable (as defined in A) for that Shipment, with that consideration receivable being the cl 4.1 Price. There is nothing in the terms of cl 8 that alters those existing facts. Rather, cl 8.7 takes them as the basis for calculating a cash flow "amount payable" taking into account that obligation to pay the cl 4.1 Price and the credits owed to Petro as a result of the attribution of QDPA(s) (and corresponding Interest Value Amount(s)) to the Shipment. 79 Next and no less importantly, the receivability of the Adjusted Payment Amount did not move any particular sale of crude, or indeed, any sale of crude. It did not move any Shipment. Clause 8.7 operated to calculate the net cash flow amount payable as at the due date for payment for a Shipment (namely, 30 days after the Bill of Lading Date). The Interest Value Amount (defined as an amount of interest) was calculated at that date. Clause 8.8 required the Adjusted Payment Amount to be made by that date - 30 days after the Bill of Lading Date. By the time any obligation to pay an Adjusted Payment Amount arose (30 days after the Bill of Lading Date), the change in ownership of the crude lifted by the Shipment had already occurred and the consideration receivable (i.e. the cl 4.1 Price) had accrued to PTTEP as an assessable receipt under the PRRTAA. That had occurred on the Bill of Lading Date: see [14] above. 80 Finally, PTTEP was obliged to sell crude to Petro whether or not PTTEP chose to utilise the cl 8 mechanism for any particular quarter and thus cause an Adjusted Payment Amount to become receivable. No additional crude was sold because an Adjusted Payment Amount became receivable. The receivability of the Adjusted Payment Amount was not consideration receivable or part of the consideration receivable for each Shipment.

Issue 2 - Interest Value Amounts expenses payable in relation to the sale of crude? 81 Alternatively, PTTEP submitted that the Interest Value Amount should be taken into account as an "expense payable … in relation to the sale" under s 24(1)(b) of the PRRTAA. 82 PTTEP's written submission was limited to the following: Of the phrase "expenses payable … in relation to the sale" in s 24, French J [as he then was] said that the provision was concerned with: Outgoings incurred in connection with the actual sale process, that is to say, the formation of the relevant contract, delivery of the commodity and receipt of payment for it. In this case the [Interest Value Amount] was an amount calculated under the very contract for the sale and delivery of the commodity. If the credit to Petro under the adjustment mechanism described above is regarded as a separate expense as appears to be the Commissioner's contention, it was an expense incurred in connection with the actual sale process, as contemplated by French J [as he then was]. That contention is rejected. 83 First, the express words of s 24(1)(b). The "expenses" referred to in s 24(1)(b) need to be in relation to the sale of project produce and not otherwise: Woodside Full Court at [15] and [58]. They require a close connection between the expense and the sale transaction: Woodside Full Court at [15]. Put another way, the phrase "expenses in relation to the sale" in s 24(1)(b) of the PRRTAA is confined to expenses incurred by the vendor in achieving receivability of the consideration in respect of the sale: Woodside Full Court at [64]. A narrow definition of the expenses relating to sales is supported by the statutory scheme of the PRRTAA (see [39]-[49] above) and the extrinsic materials: Explanatory Memorandum, Petroleum Resource Rent Tax Assessment Bill 1987 (Cth) at pages 45 and 46. 84 The Interest Value Amounts were not expenses in relation to the sale of the project produce. The Interest Value Amounts were not incurred by PTTEP to achieve receivability of the consideration in respect of the sale. The Interest Value Amounts were liabilities incurred by PTTEP calculated to compensate Petro for the time value of the cash flow equalisation payments. 85 Indeed, the sale of crude under the Sale Agreement did not depend on the cash flow equalisation transactions. It was not the money or value that moved the sale of crude or the amount by which PTTEP obtained its entitlement to the consideration of the sale of the crude. And from 1 October 2005, PTTEP was entitled to elect whether to use the cl 8 mechanism. As the Commissioner submitted, the cash flow equalisation transactions were a tool used by PTTEP to manage cash flows and the Interest Value Amounts were the cost of obtaining an advance of funds based on anticipated sales, not an expense in relation to a particular sale. 86 The lack of relevant connection between the Interest Value Amounts being incurred and the consideration receivable by PTTEP for a particular shipment is demonstrated by the fact that if a QDPA (or part of it) was not credited to a subsequent Shipment then cl 8.9 required an amount of interest, calculated identically to the Interest Value Amounts, to be paid by PTTEP to Petro for the use of the QDPA funds. 87 For those reasons, the Interest Value Amounts were not expenses payable in relation to the sale under s 24(1)(b) of the PRRTAA.

Issue 3 - Interest Value Amounts deductible expenditure under s 38? 88 Alternatively, PTTEP contended that the Interest Value Amounts were deductible expenditure under s 38 of the PRRTAA thereby reducing PTTEP's taxable profit. Again, PTTEP's submission was short and stated: Assuming that the [Interest Value Amount] should be regarded as a stand alone payment, it was a "payment" made in carrying on the project. In support of the contention that s 38 is sufficiently broad to capture amounts like the Interest Value Amounts, PTTEP relied upon the judgment of Perram J in Esso Australia Resources Pty Ltd v Federal Commissioner of Taxation (2012) 200 FCR 100 at [130] (Esso Deductions Case). This contention is also rejected. 89 First, the express words of s 38. To be deductible expenditure, each Interest Value Amount must be a payment made by PTTEP "in carrying on or providing the operations, facilities and other things comprising the project". 90 As we have seen, the phrase "petroleum project" is not defined in the PRRTAA but the terms of s 19(4) inform its meaning: see [41] above. That is not surprising given the similarity of wording of ss 38 and 19(4). As Middleton J said in Esso First Instance at [211]: I observe that when it comes to expenditure, for example general project expenditure in s 38, express reference is made to "the operations, facilities and other things comprising a petroleum project", thus incorporating for that purpose the "definition" in s 19(4) of a "petroleum project". 91 What then does s 38 encompass? In the present case, the "operations, facilities and other things comprising" the Project consist of the activities in recovering crude oil from the Jabiru and Challis fields, processing the crude into a marketable petroleum commodity (the stabilised crude oil) on the two FPSOs, and all further activities so far as they carried on up to the point that the crude oil becomes an excluded commodity by virtue of being sold from either the FPSO Jabiru Venture or the FPSO Challis Venture to a Petro Tanker: see [46]-[50] above. 92 The Interest Value Amounts are an integer in the calculation of the cash flow equalisation transactions. They do not have a close and direct relationship to carrying out the operations, facilities and other things comprising the Project. For that reason alone, they are not deductible expenditure under s 38 of the PRRTAA. 93 Given the views I have formed, it is strictly unnecessary to address the balance of the submissions in relation to this issue. However, it is appropriate I say something about PTTEP's contention that the judgment of Perram J in the Esso Deductions Case provided support for its contention that the Interest Value Amounts were deductible expenditure. In that case, in the context of s 44 of the PRRTAA, Perram J pointed out that s 44 excludes costs (including, for example, payments of interest) that would otherwise be within the definition of "general project expenditure" in s 38. His Honour said (at [130]) that: But for the exclusion of these matters by the parenthetical excision in s 38, many of these items of expenditure would otherwise constitute general expenditure under its terms. For example, the interest on a loan used to acquire a capital asset to be deployed in the extraction process would be an expense incurred "in carrying on" the project. The effect of the parenthesis is, therefore, not descriptive of what then follows but instead operates directly as an excision from what would otherwise have been the ambit of s 38. 94 PTTEP submitted that where the legislature sought to exclude particular payments from the statutory definition of "general project expenditure", it did so by listing the particular payments to be excluded by the terms of s 44 and the brackets (or the "parenthetical excision" adopting Perram J's language) in both ss 37 and 38. This submission is rejected. First, Perram J was not stating that all payments falling within s 44(a) would necessarily fall within s 38, merely that "many of these items of [excluded] expenditure would otherwise constitute general expenditure under its terms". Put another way, a payment does not fall within s 38 simply by showing that the payment falls within s 44(a). A participant must establish that payment satisfies the express requirements of s 38. In the present case, PTTEP cannot do so: see [46]-[50] above. 95 That contention, that not all payments falling within s 44(a) would necessarily fall within s 38, is illustrated by the example given by Perram J - interest on a loan used to acquire a capital asset to be deployed in the extraction process. That is a payment that would fall within s 38(1)(b) and also fall within s 44(a). 96 For those reasons, the Interest Value Amounts were not deductible expenditure under s 38 of the PRRTAA.

Issue 4 - If yes to (3), were the Interest Value Amounts excluded expenditure? 97 This issue does not arise for determination.

Economic Advantage 98 PTTEP submitted that this was a straightforward case. They stated: Sale of the crude oil in this case was on an FOB basis as and when oil was lifted, at which point the amount it received or became entitled to receive became known. The assessable petroleum receipts were the amounts payable under cl 8 of the Agreement for the Sale of Crude Oil. It would be antithetical to a statutory purpose of seeking to tax the economic advantage obtained by PTTEP from exploiting the petroleum fields here, to require it to pay tax on amounts that it did not receive or was not entitled to retain. The Commissioner's approach achieves both these outcomes. If competing constructions are open, … the Court should prefer an approach that results in PTTEP paying tax on the economic advantage obtained by it, which is in this case the money it receives, rather than on money that it does not receive or that it is not entitled to retain. 99 This submission is circular and is rejected. The first paragraph is accurate. The second is not. 100 The PRRTAA imposes tax "in respect of the taxable profit of a person of a year of tax in relation to a petroleum project": see [40] above. The taxing point is when the assessable petroleum expenses are derived by PTTEP in relation to either the Jabiru Facility or the Challis Facility. In the present case, that point is "where any marketable petroleum commodity ... produced from petroleum from the project becomes or became an excluded commodity by virtue of being sold": see [43] above. When was it sold? 101 In the present case, it was sold on the lifting of a Shipment. Shipment was defined in the General Conditions to mean "a shipment or cargo of Crude lifted from the Facility by a Tanker pursuant to this agreement and includes a shipment or cargo of less than the full capacity of a Tanker": cl 1. All title, risk and property in the crude in each Shipment passed to Petro on delivery of the crude at the Delivery Point: cl 2.2 of the General Conditions. Each Shipment consisted of lifting crude from the Delivery Point to a Tanker: cl 2.1 of the General Conditions. Delivery Point was the point at which the crude passed the loading hose flange on the manifold of the Tanker: cl 1 of the General Conditions. The loading of crude was completed when the loading hose was disconnected (the Bill of Lading Date): cl 4.3 of the Special Conditions. It was at that point that PTTEP had sold the crude to Petro. It was at that point that PTTEP had obtained the economic advantage and was required to pay tax on it. I certify that the preceding one hundred and one (101) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gordon.

Associate: Dated: 11 November 2013 ANNEXURE 1 - RELEVANT CONTRACTUAL TERMS Special Conditions for the Sale of Crude Oil as at 1 June 2005 (Agreement for the Sale of Crude Oil dated 22 February 2005 as amended by the First Supplemental Agreement - Sale of Crude Oil dated 1 June 2005) redlined with the further amendments made by the Second Supplemental Agreement - Sale of Crude Oil dated 1 March 2006 (but with effect from 1 October 2005) greenlined. 1 Interpretation 1.1 The following words have these meanings in this agreement and in any invoice or order relating to Crude sold under this agreement, unless the contrary intention appears. APPI means Asian Petroleum Price Index; APPIT shall mean the arithmetic average of all the mean of the quotations in the APPI for Tapis crude as published by KPMG Corporate Services Limited, Hong Kong, as Accountant to the APPI for the calendar month containing the Bill of Lading Date; Bill of Lading Date has the meaning given in clause 4.3; Challis Crude means petroleum liquids produced from the Challis and other oil fields in the vicinity of Challis available for lifting from the FPSO Challis Venture; … Facility means the FPSO Jabiru Venture or the FPSO Challis Venture as appropriate; … FPSO Challis Venture means the purpose built 115,000 DWT barge described in the Facility Regulations and located at latitude 12° 07' 17" South and longitude 125° 00' 43" East; FPSO Jabiru Venture means the converted 140,000 DWT tanker described in the Facility Regulations and located at latitude 11° 55' 33" South and longitude 125° 00' 23" East; General Conditions means the Coogee Resources General Conditions for the Sale of Crude Oil annexed and marked "A" which, for the avoidance of any doubt, form part of this agreement; Jabiru Crude means petroleum liquids produced from the Jabiru and other oil fields in the vicinity of Jabiru available for lifting from the FPSO Jabiru Venture; … Term means the period commencing on 1 January 2005 and continuing for a period of 12 months or such longer period as may be determined in accordance with clause 5. … 1.2 In this agreement unless the contrary intention appears: … 1.3 Headings are inserted for convenience and do not affect the interpretation of this agreement. 1.4 Terms which are not defined in this agreement have the meaning ascribed to them in the General Conditions. 1.5 The provisions of the General Conditions shall be subordinate to the provisions of this agreement to the extent of any inconsistency. … 3 Sale 3.1 The Seller agrees to sell and supply and the Buyer agrees to purchase, receive and, subject to the terms and conditions of the agreement, pay for, on an FOB basis, all of the Seller's Proportionate Share of: (a) Crude produced and available for lifting at the Facilities during the Term; and (b) the Final Inventory, upon the terms and conditions of this agreement (including the General Conditions). … Shipment by Shipment Basis 3.7 The sale of Crude shall be made on a Shipment by Shipment basis in accordance with the terms of this agreement. … 4 Price Price 4.1 The Buyer shall pay to the Seller for each Barrel of Crude delivered in accordance with this agreement and in the Final Inventory the price calculated as follows: Price = APPIT + P + D Variables / Rounding Off 4.2 For the purposes of clause 4.1: (a) P means the average of all the mean of premium/discount quotations for Tapis crude oil as published in the Platt's Pacific Rim Spot Crude Assessments for the 30 days commencing 60 days prior to the Bill of Lading Date; (b) D means: (i) in relation to Jabiru Crude that is produced and available for lifting during the Term, USD 0.35; (ii) in relation to Challis Crude that is produced and available for lifting during the Term, USD 0.35. (c) if the quotations published by KPMG Corporate Services Limited, Hong Kong for Tapis are interrupted or cease to be published then the Buyer and the Operator shall meet and use their best endeavours to select an appropriate alternate crude oil price quotation to be used to determine the market price for Crude; (d) the final price is to be rounded up to three decimal places where the fourth decimal is 5 or greater. The final price is to be rounded down to three decimal places where the fourth decimal is less than 5. Bill of Lading Date 4.3 The Bill of Lading Date shall be the day on which the loading hose is disconnected once the lifting in relation to a Shipment is completed. … 8 Cash Flow Equalisation 8.1 In this clause 8, a reference to a "quarter" is to be interpreted as the period of three (3) consecutive months commencing the first day of January, April, July or October (as the context may require). 8.2 The provisions of this clause 8 shall take effect from the quarter commencing the first day of July 2005 and only apply in respect of a quarter which is the subject of an election made by the Seller in accordance with clause 8.3. 8.3 On the 10th Business Day of the last month of each quarter, the Seller may, in its absolute discretion, elect by notice to the Buyer to apply the provisions of this clause 8 to that quarter, in which case the Operator shall provide the Buyer with the expected Crude production for the quarter in Barrels and the volume of Crude in Barrels lifted in any Shipment in that quarter prior to that day. 8.4 The Buyer shall pay the Seller the Quarterly Deemed Payment Amount for each quarter ("QDPA") calculated in accordance with the following formula: QDPA in USD = Expected Quarterly Production X Deemed Price X Proportionate Share X 80% Where Expected Quarterly Production is the expected Crude production for the quarter in Barrels minus any Barrels of Crude produced in the quarter and lifted in a Shipment during the quarter, in each case as advised by the Operator under clause 8.3; Deemed Price is the price for each Barrel of the Expected Quarterly Production calculated in accordance with clause 4 using a deemed Bill of Lading Date that is the date that is the midpoint of the quarter. 8.5 The Operator shall, no later than three (3) Business Days before the last day on which the Buyer's payment is required under clause 8.6, provide the Buyer with a valid tax invoice in respect of the QDPA. 8.6 The Buyer shall make payment of the QDPA in Immediately Available Funds using the SWIFT system to the bank and to the account directed in the Seller's tax invoice, without offset, discount or counter-claim, not later than 10 Business Days after the last day of the quarter. 8.7 Notwithstanding anything to the contrary in clause 4 of the Special Conditions and clause 3 of the General Conditions, the amount payable by the Buyer to the Seller for each Shipment of Crude delivered in accordance with this agreement shall be subject to adjustment in accordance with the following provisions of this clause 8. The Adjusted Payment Amount in USD = A - B Where A is the actual amount payable by the Buyer to the Seller for the Shipment of Crude as determined in accordance with clause 4; and B is the Revised QDPA Value of the Barrels of Crude in that Shipment being the Value of Lifted QDPA Barrels minus the Interest Value where: the Value of Lifted QDPA Barrels is the number of Barrels of Crude of that Shipment which are the subject of a QDPA paid to the Seller under clause 8.6, and which have not previously been the subject of an Adjusted Payment Amount pursuant to this clause 8, multiplied by the Deemed Price attributable to that QDPA, multiplied by the Proportionate Share, multiplied by 80% (italicised phrase deleted); and the Interest Value is the amount of interest on the amount that is the Value of the Lifted QDPA Barrels for the period between the date on which the QPDA (sic) in respect of those Barrels was paid to the Seller and the due date for payment of A (inclusive of the first and last day of that period), calculated at LIBOR plus 2% where LIBOR is the London Interbank Offering Rate for deposits in US Dollars for one month which appears on Reuters Page LIBOR01 on or about 11.00am London time on the date on which the QPDA (sic) was paid to the Seller. For the purposes of the calculation of the Interest Value, one year is 360 days. If the Barrels of Crude in that Shipment are attributable to more than one QDPA paid to the Seller under clause 8.6, then B shall be the aggregate of the Revised QDPA Values attributable to the Barrels of Crude in that Shipment. 8.8 If the Adjusted Payment Amount is positive then the Buyer shall make payment of the Adjusted Payment Amount to the Seller in substitution of the amount payable for the Shipment of the Crude. If the Adjusted Payment Amount is negative then the Buyer will not be required to make any payment to the Seller for that Shipment of the Crude and the Seller shall make payment of the Adjusted Payment Amount to the Buyer. Any payment by the Seller to the Buyer under this clause 8 shall be made in Immediately Available Funds using the SWIFT system to the bank and to the account directed in the Buyer's tax invoice, without offset, discount or counter-claim not later than 30 days after the Bill of Lading Date applicable to that Shipment of Crude (with the Bill of Lading Date counting as day zero). The Operator shall specify any Adjusted Payment Amount payable by the Buyer in the Seller's invoice provided to the Buyer under clause 3.2 of the General Conditions. The Operator shall, no later than three (3) Business Days before the last day on which the Buyer's payment for the Shipment of Crude is required under this agreement, provide the Buyer with the Seller's valid tax invoice in respect of any Adjusted Payment Amount payable by the Buyer. The Buyer shall, no later than three (3) Business Days before the last day on which the Buyer's payment for the Shipment of Crude would be required under this agreement, provide the Seller with a valid tax invoice for any Adjusted Payment Amount payable by the Seller. 8.9 If, after the Buyer makes a payment of QPDA (sic) in accordance with clause 8.6, all or any part of the quantity of Crude in Barrels which is the subject of that QPDA (sic) does not become available for lifting at the Facilities, or otherwise becomes incapable of being delivered in accordance with this agreement, during the Term or as Final Inventory due to any cause (but except if caused by the Buyer, the Tanker, its master, crew or the Tanker Owner), the Seller shall pay the Buyer an amount equal to the amount of the QDPA that is attributable to that quantity of Crude plus the amount of interest on that amount for the period between the date on which the QDPA in respect of that quantity of Crude was paid to the Seller and the date that is either the expiry of the Term or such earlier date on which that quantity of Crude becomes incapable of being delivered in accordance with this agreement during the Term or as Final Inventory, calculated as LIBOR plus 2% where LIBOR is the London Interbank Offering Rate for deposits in US Dollars for one month which appears on Reuters Page LIBOR01 on or about 11.00am London time on the date on which the QPDA (sic) was paid to the Seller. For the purposes of the calculation of the interest, one year is 360 days. The Seller shall make payment of any amount due and payable under this clause 8.9 within three (3) Business Days of the expiry of the Term or such earlier date on which that quantity of Crude becomes incapable of being delivered in accordance with this agreement during the Term or as Final Inventory. Any such payment must be made in Immediately Available Funds using the SWIFT system to the bank and to the account directed in the Buyer's invoice, without offset, discount or counter-claim. The Buyer shall provide the Seller with a valid tax invoice in respect of any payment required by the Buyer under this clause 8.9. General Conditions for the Sale of Crude Oil (Annexure to the Agreement for the Sale of Crude Oil dated 22 February 2005) 1 Interpretation … Delivery Point means the point at which Crude passes the loading hose flange on the manifold of the Tanker; … Facility has the meaning ascribed to that term in the Special Conditions; … Shipment means a shipment or cargo of Crude lifted from the Facility by a Tanker pursuant to this agreement and includes a shipment or cargo of less than the full capacity of a Tanker; … Special Conditions means the agreement for the sale of crude oil to which this document is annexed; … Tanker means the tanker arranged by the Buyer to lift Crude under this agreement or any vessel substituted pursuant to clause 4.6; … 2 Delivery, title and risk Delivery 2.1 The Seller shall supply and the Buyer shall receive each lifting of Crude FOB the Tanker at the Delivery Point. Title 2.2 All title, risk and property in respect of each Shipment shall pass to the Buyer on delivery of the Crude at the Delivery Point. 3 Payment terms … Invoice for Liftings 3.2 The Operator shall, promptly and in any case no later than 3 Business Days before the last day on which payment is required under this agreement, provide to the Buyer the Seller's invoice and the Cargo Documents for each Shipment of Crude delivered under this agreement. … Time and method of payment 3.4(a) The Buyer shall make payment denominated in USD in Immediately Available Funds by telegraphic transfer using the SWIFT system to the bank and to the account directed in the Seller's invoice without offset, discount, deduction or counter-claim not later than 30 days after the Bill of Lading Date. The Bill of Lading Date is to count as day zero. … Interest on late payments 3.5 If payment is not made by the Buyer within the times specified in this agreement, then interest shall be paid on the overdue amount from the due date until the date of payment at SIBOR plus 2% per annum. … ANNEXURE 2 TABLE 1: EQ INVOICES, QDPA AMOUNTS EQ Ref EQ Notice Date Quarter Total Production Expected Quarterly Production QDPA Barrels QDPA % QDPA Amount (USD) (ex GST) QDPA Due Date Date QDPA Paid 002 30 Sep 05 Jul-Sep 05 291,090 ?? 235,200 ?? $15,501,236 19 Oct 05 19 Oct 05 003 30 Dec 05 Oct-Dec 05 233,563 203,061 162,499 80% $9,605,905 17 Jan 06 17 Jan 06 004 31 Mar 06 Jan-Mar 06 305,226 311,825 296,234 95% $20,311,877 18 Apr 06 18 Apr 06 005 3 Jul 06 Apr-Jun 06 308,961 306,184 290,875 95% $20,506,688 14 Jul 06 24 Jul 06 006 3 Oct 06 Jul-Sep 06 239,854 239,854 227,861 95% $17,301,258 16 Oct 06 16 Oct 06 007 2 Jan 07 Oct-Dec 06 230,665 228,152 216,774 95% $13,397,163 16 Jan 07 16 Jan 07 008 2 Apr 07 Jan-Mar 07 194,593 194,593 165,404 85% $11,012,268 20 Apr 07 20 Apr 07 009 2 Jul 07 Apr-Jun 07 255,366 250,549 212,967 85% $16,622,287 13 Jul 07 13 Jul 07 010 2 Oct 07 Jul-Sep 07 249,572 246,453 209,485 85% $15,146,603 12 Oct 07 12 Oct 07 011 2 Jan 08 Oct-Dec 07 288,324 294,469 250,299 85% $24,878,970 15 Jan 08 15 Jan 08 012 1 Apr 08 Jan-Mar 08 251,782 253,436 215,421 85% $20,777,786 14 Apr 08 14 Apr 08 013 3 monthly notices Apr-Jun 08 263,699 263,699 213,377 85% $27,449,450 15 May - 15 Jul 08 15 May - 15 Jul 08

TABLE 2: SHIPMENTS SORTED CHRONOLOGICALLY WITH QDPA BARRELS CREDITED J or C Sale Invoice Ref Sale Invoice Date / Load Completed Date Total Barrels Lifted PTTEP Barrels Lifted (Share) PTTEP Share of Invoice Payable (USD) Date J or C Sale Invoice Payable 1st QDPA Credited 1st QDPA Barrels Credited 1st QDPA Due Date & Date Paid 2nd QDPA Credited 2nd QDPA Barrels Credited 2nd QDPA Due Date & Date Paid Total QDPA Barrels Credited J225 29 Oct 05 628,872 446,106 $31,986,386 29 Nov 05 EQ 1 241,708 15 Jul 05 EQ 2 162,859 19 Oct 05 404,567 C145 29 Dec 05 247,515 175,581 $10,302,579 27 Jan 06 EQ 2 72,341 19 Oct 05 EQ 3 47,350 17 Jan 06 119,691 J226 31 Jan 06 266,951 189,368 $12,886,115 2 Mar 06 EQ 3 115,099 17 Jan 06 115,099 J227 29 Jul 06 385,411 273,401 $20,119,558 28 Aug 06 EQ 4 273,401 18 Apr 06 273,401 J228 20 Sep 06 362,895 257,429 $18,523,018 20 Oct 06 EQ 4 22,833 18 Apr 06 EQ 5 228,759 14 Jul 06 251,592 (24 Jul 06) C146 2 Oct 06 326,738 231,780 $16,729,547 8 Nov 06 EQ 5 62,116 14 Jul 06 EQ 6 151,577 16 Oct 06 213,693 (24 Jul 06) J229A & B 1 Jan 07 304,649 216,110 $13,015,896 31 Jan 07 EQ 6 76,284 16 Oct 06 EQ 7 127,834 16 Jan 07 204,118 C147 2 Apr 07 194,732 138,138 $11,034,428 10 May 07 EQ 7 88,910 16 Jan 07 EQ 8 35,306 20 Apr 07 124,216 J230 4 Jul 07 299,108 212,180 $16,627,257 17 Aug 07 EQ 8 130,098 20 Apr 07 EQ 9 52,893 13 Jul 07 182,991 C148 16 Oct 07 291,822 207,011 $19,973,091 15 Nov 07 EQ 9 160,074 13 Jul 07 EQ 10 4,538 12 Oct 07 164,612 J231 25 Dec 07 314,524 223,115 $25,081,655 24 Jan 08 EQ 10 204,947 12 Oct 07 204,947 J232 15 Jan 08 281,041 199,363 $21,583,704 14 Feb 08 EQ 11 177,445 15 Jan 08 177,445 C149 2 May 08 240,620 170,690 $15,902,480 ?? EQ 11 72,854 15 Jan 08 EQ 12 59,811 14 Apr 08 132,665 J233 3 May 08 285,802 202,741 $20,780,824 ?? EQ 12 155,610 14 Apr 08 155,610 J234 22 Aug 08 271,164 192,357 $23,801,298 22 Sep 08 EQ 13 166,334 15 May - 15 Jul 08 166,334 J235 22 Nov 08 ?? ?? ?? ?? EQ 13 47,043 15 May - 15 Jul 08 EQ 14 Irrelevant Irrelevant

TABLE 3: CREDITING OF QDPA TO SHIPMENTS SORTED BY EQ (all amounts ex-GST) EQ Ref QDPA Barrels 1st Sale 1st Sale Invoice Date 1st Sale QDPA Barrels Credited 1st Sale QDPA Amount Credited 2nd Sale Invoice Ref 2nd Sale Invoice Date 2nd Sale QDPA Barrels Credited 2nd Sale QDPA Amount Credited Total QDPA Amount Credited Invoice Ref 002 235,200 J225 29 Oct 05 162,859 $10,701,881 C145 29 Dec 05 72,341 $4,814,655 $15,516,536 003 162,449 C145 29 Dec 05 47,350 $2,778,356 J226 31 Jan 06 115,099 $7,205,144 $9,983,500 004 296,234 J227 29 Jul 06 273,401 $18,746,286 J228 20 Sep 06 22,833 $1,565,590 $20,311,876 005 290,875 J228 20 Sep 06 228,759 $16,127,509 C146 2 Oct 06 62,116 $4,379,178 $20,506,687 006 227,861 C146 2 Oct 06 151,577 $11,509,090 J229A 1 Jan 07 76,284 $5,792,168 $17,301,258 007 216,774 J229A 1 Jan 07 127,834 $7,901,547 C147 2 Apr 07 88,910 $5,495,616 $13,397,163 008 165,404 C147 2 Apr 07 35,306 $2,350,603 J230 4 Jul 07 130,098 $8,661,665 $11,012,268 009 212,967 J230 4 Jul 07 52,893 $4,128,352 C148 16 Oct 07 160,074 $12,493,936 $16,622,288 010 209,485 C148 16 Oct 07 4,538 $328,116 J231 25 Dec 07 204,947 $14,818,488 $15,146,604 011 250,299 J232 15 Jan 08 177,445 $17,637,501 C149 2 May 08 72,854 $7,241,469 $24,878,970 012 215,421 C149 2 May 08 59,811 $5,768,891 J233 3 May 08 155,610 $15,008,896 $20,777,787 013 213,377 J234 22 Aug 08 166,344 $21,139,690 J235 22 Nov 08 47,043 $6,309,759 $27,449,449

TABLE 4 - ACTUAL PRODUCTION JABIRU AND CHALLIS, QDPA AND APPLICATION TO J OR C SALE INVOICES Quarter Jabiru Prod Challis Prod Total Prod Jabiru % Challis % EQ Ref QDPA Barrels 1st Sale Invoice Ref 1st Sale QDPA Barrels Credited and Credit Invoice No 2nd Sale Invoice Ref 2nd Sale QDPA Barrels Credited and Credit Invoice No % QDPA Barrels Credited to J Sales % QDPA Barrels Credited to C Sales Jul-Sep 05 191,880 99,210 291,090 65.92 34.08 002 235,200 J225 162,859 C145 72,341 69.24 30.76 Oct-Dec 05 143,133 90,430 233,563 61.82 38.72 003 162,449 C145 47,350 J226 115,099 70.85 29.15 Jan-Mar 06 210,158 95,068 305,226 68.85 31.15 004 296,234 J227 273,401 J228 22,833 100.00 0.00 Apr-Jun 06 212,906 96,055 308,961 68.91 31.09 005 290,875 J228 228,759 C146 62,116 78.65 21.35 Jul-Sep 06 201,363 38,491 239,854 83.95 16.05 006 227,861 C146 151,577 J229A 76,284 33.48 66.52 Oct-Dec 06 163,343 67,322 230,665 70.81 29.19 007 216,774 J229A 127,834 C147 88,910 58.98 41.02 Jan-Mar 07 110,797 83,796 194,593 56.94 43.06 008 164,404 C147 35,306 J230 130,098 78.65 21.35 Apr-Jun 07 164,074 91,292 255,366 64.25 35.75 009 212,967 J230 52,893 C148 160,074 24.85 75.16 Jul-Sep 07 160,151 89,421 249,572 64.17 35.38 010 209,485 C148 4,538 J231 204,947 97.83 2.17 Oct-Dec 07 201,880 86,444 288,324 70.02 29.98 011 250,299 J232 177,445 C149 72,854 70.89 29.11 Jan-Mar 08 167,628 84,154 251,782 66.58 33.42 012 215,421 C149 59,811 J233 155,610 72.24 27.76 Apr-Jun 08 186,295 77,404 263,699 70.65 29.35 013 213,377 J234 166,344 J235 47,043 100.00 0.00

Measures No 2) Act 2013(Cth)

At a glance

Court

Decision date

Before

Source

Judgment (22 paragraphs)

Parties

Legislation Cited (5)

Cases Cited (5)