Thread: ATO slugs Shell with $ 755 million fine

Originally Posted by speleomike

Hi

You may be right John; I'm just skeptical as i cannot understand how a project can take that long and that much $ and just now starts to make a dollar. I understand that mining companies and companies that develop new drugs have very large up-front costs and risks, but as there are some that use creative accounting, it tars them all.
...........
Mike

arapiles has explained it a bit more, but to address your specific lack of understanding - it takes that long for two reasons, primarily. When a major field is discovered (decades ago in this case), we know there is a major field. but what we do not know is just how much gas there is. To determine this to the reliability and precision needed before anyone will commit to an expensive develooment the discoverer has to spend a lot of time and money evaluating the discovery. This will mean the drilling of additional wells and carrying out an extensive (and expensive) 3D seismic survey. All of this takes time (years not months). and may have to be repeated if the resuts are different to what was expected. At this stage, the operator is almost certainly needing to get additional partners - more time, as their experts need to go over and verify all the work done to date,

Then a production method needs to be designed and costed - since every case has a lot of unique features, such as water depth, location, distance offshore, distance from infrastructure, this represents a lot of time and work. At this stage, the ioerator can approach potential customers with some concrete numbers and start negotiatiojs - which may take years.

Once firm contracts have been signed, actual design of the contract can begin (although the preliminary design helps, it does not have the detail) which almost certainly will need surveys to determine sea flloor conditions at the locations chosen for the seafloor infrastructure. The environmental impact statement for the project is likely to take years to prepare, and even more years to get accepted, and is likely to be subject to delays due to objections and court action. And no actual hardware is likely to be ordered until approval is granted.

For this sort of project, much of the hardware needs to be designed especially for this project, and some will almost certainly be the first of its kind. The LNG ships are hardly standard production ships, and are among the most expensive type of ships built, tailored to the port facilities and water depths of the trade they are built for. Negotiating these contracts, and getting them signed also can take years of back and forth. Then there are land rights claims to be negotiated for onshore facilities etc.

And finally there is the actual building and commissioning of the facility, which cannot even start until all the above is completed, and will take years of work in a remote area with almost no existing infrastructure.

And I may have missed a few steps!

Perhaps worth pointing out that any petroleum or mining licence is legally speaking, a licence to produce the mineral on behalf of the crown (the licencee does not own the mineral deposit), and for this licence the licence holder pays a royalty which is typically a proportion of the production plus usually an application fee. This royalty does not have cost of production deducted, although it may effectively have shipping costs deducted, as the government usually asks the producer to ship and sell if for them.

And, of course the government collects taxes of all kinds from the operation, company tax, GST on anything bought for the operation, import tariffs, personal income tax from every employee, and often (particularly state governments) special charges for roads etc. Then of course there are council rates on any land occupied.

A consideration of these leaves most governments rubbing their hands in glee, and explains why governments usually support mining proposals (of course, they always talk about the jobs, but I suspect they are usually more interested in the tax income!).