Resource tax reform will cover half of domestic oil and gas production

As part of the strategy for the development of the western region, the central government will change the taxation of resources such as coal, crude oil, and natural gas in the western region from ad valorem to ad valorem. This means that this major reform will be extended to the entire western region. Insiders pointed out that after the promotion, nearly half of China’s oil and gas production equivalents have been covered. “In 12 western provinces, including PetroChina’s second largest oil field—Changqing Oilfield, Southwest Oil and Gas Field, and Sinopec’s Puketian.” It is said that half of China’s oil and gas production will be covered by the resource tax reform,” said Professor Han Xuegong, an expert from Beijing Petroleum, in an interview with this reporter yesterday.

The reporter learned that Changqing Oilfield is not only PetroChina’s second-largest oil field, but also surpassed Shengli Oil Field in December last year and became China’s second largest oil field.

He believes that once the resource tax reform scope is expanded, it means that the profits of PetroChina and Sinopec will be affected. In contrast, PetroChina’s resource advantage is still more pronounced than that of Sinopec, and its impact on resource tax reforms is correspondingly greater than that of Sinopec. "But correspondingly, temporary measures like special income payments should also change."

"After a rough estimation, after all 12 western provinces have been included in the scope of the resource tax reform, the profits affected by PetroChina and Sinopec are approximately twice the impact of the resource tax reform in Xinjiang." According to He Wei, senior analyst at Bank of Communications International, Xinjiang's resource tax reform will affect PetroChina’s earnings per share by about 1 cent. As a result, the EPS affected by the promotion may be around 2 cents.

In his view, only when heavy oil and gas fields such as Daqing Oilfield and Liaohe Oilfield have all entered the scope of resource tax reform, will the impact of reforms be revealed gradually.

“It is a matter of time before this reform is promoted to the whole country. However, the eastern region is more affluent than the western region, unlike the western region’s strong demand for resource tax reform,” said Han Xuegong.

Prof. Liu Yijun, a natural gas expert at the China University of Petroleum's School of Business Administration, told the reporter that the original pilot of the resource tax reform in Xinjiang was estimated to have been introduced nationwide after half a year. At present, it seems that time has advanced. However, since the Western Development Conference did not mention the timetable for the expansion of resource tax reform to 12 provinces in the western region, it is also difficult to determine whether it will be implemented in the near future.

"Of course, it is indeed a favorable time window for advancing the reform of the resource tax. The central government may also consider it as an opportunity, so it will speed up the reform steps." Liu Yijun said.