A Devil’s Advocate speaks.5 Jun 2024 20:13
Just like most folk here I have been baffled by this never-ending saga of the outstanding FIG tax issue and its relationship to the Ombrina Mare award process.
I decided to change hats, become a devil’s advocate, and look at it through the eyes of an imaginary tax inspector in Stanley, and I find a surprising result.
I want to share it with you as a discussion point because there is nothing else to talk about right now, and it might form a backdrop to someone’s question at the forthcoming AGM.
The fictional setting is an office in Government House last month and as the imaginary tax inspector, I am discussing the issue with Sam Moody, OK?
Me: “Mr. Moody, when you agreed to sell 60% of the Sea Lion asset to Premier Oil, you got $231 million in cash and $722 million in kind, via a so-called development carry. You paid capital gains tax on the cash element and thank you for that. We both agreed that the $772 million was to be deemed as a capital gain as well, since you will receive the future benefit without putting up any money. Is that correct?”
SM: “Yes, that’s right”
Me: “We also agreed to defer the payment of the deemed tax until such time as it was affordable for you from oil sales and apply a DCF formula. There was also a predatory investor who wanted you to declare a cash distribution from the proceeds of the asset sale. We put a stop to that by you agreeing that we should take a legal security over all your assets, until the tax was paid, and you were happy with that?”
SM: “Yes, but things changed when Premier put us over a barrel to exchange the development carry for a loan and you cannot levy capital gains tax on a loan, and it’s still the same with the Navitas deal.”
Me: “I am sorry Mr. Moody, we had a tax agreement, and you broke it without our approval. You still owe us the tax. In any case these loans, as you call them, would never have resulted in a market value commercial transaction of money paid into your bank account to pay your share of costs. They are just operator accrual spreadsheet exercises, and you are still getting a cash free carry up to first oil and so a deemed capital gains up to that point. Who knows what will happen afterwards? Navitas might write the loan off, or exchange it for your South Basin licences, or whatever, so until you have definitively paid off the accrued Navitas debt, you will owe us the tax, OK?”
SM: “What about the Ombrina Mare award issue?”
Me: “That has nothing to do with us. If your litigation funder wants security over the award, when we already have primary security over all of your assets, they will have to take second place in a ranking agreement or walk away. I have a suggested agreement here if you want to take it to them for signature.”
SM: “Thanks for the tea and Hobnobs”
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