Macquarie says changes to this tax could be a red flag for Woodside shares

Woodside Energy Group Ltd (ASX: WDS) shares could take a hit if Macquarie’s analysis of the gas industry proves correct.

Macquarie’s assessment considers potential changes to the petroleum resource rent tax (PRRT).

As reported by various media, including The Guardian, federal treasurer Jim Chalmers is considering options to change the PRRT which could mean a $94.5 billion boost to the federal budget over a decade. Australia’s budget is currently in deficit.

What does this mean for ASX energy shares?

According to The Guardian, the PRRT allows concessions on expenses relating to exploring and developing gas fields. Under the current system, these can be carried forward and deducted as tax credits against future liabilities. But the Greens want the government to eliminate $284 billion of accumulated credits that enable gas companies to reduce their tax liability.

The suggestion is to remove all of these tax credits, which would mean gas companies start paying from 1 July, and for the government to apply a 10% royalty to all offshore projects subject to the tax.

Greens leader Adam Bant, as quoted by The Guardian, said:

It’s time to make big gas corporations pay their fair share of tax. Greedy gas corporations are taking Australia for a ride, making billions of dollars in profits and sending it offshore tax free. Australia’s gas tax is broken and many multinational corporations pay no gas tax at all. When a nurse pays more tax than a global gas giant, something is seriously wrong.

Analysis by Macquarie suggests that Woodside shares could be impacted because of the company’s Pluto, Julimar-Brunello, and Scarborough projects, according to reporting by The Australian.

The investment bank suggested government focus will be on maximising tax collection from offshore LNG projects, particularly in Western Australia and the Northern Territory.

According to The Australian, Macquarie wrote:

LNG projects now appear an easier target politically. Particularly given future investment in new offshore LNG projects now looks limited (beyond those already committed).

Post the major LNG investment cycle, PRRT is now largely being applied to longer cycle LNG projects in WA & NT which all had high up-front capex, but have not yet exhausted the uplifted cost bases.

How could this impact the Woodside share price?

Macquarie has estimated that the Woodside valuation could be the one under its coverage that’s most impacted, with a negative hit of between 2% to 5% if a higher weighting to netback pricing is applied on WA LNG PRRT. Santos Ltd (ASX: STO) shares could also be hit, but to a lesser degree.

At the time of writing, Woodside shares are down 2% today. The Woodside share price is down close to 9% since 7 March 2023.

The post Macquarie says changes to this tax could be a red flag for Woodside shares appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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