Oil and gas companies could lose some of their generous tax deductions following a review of the Petroleum Resource Rent Tax (PRRT).

Key points: Despite LNG boom, only $800 million raised through PRRT

Despite LNG boom, only $800 million raised through PRRT Government review looking at generous deductions for exploration costs

Government review looking at generous deductions for exploration costs Woodside CEO says current rates are reasonable

Amid concerns that revenue from the PRRT has flatlined at just over $800 million a year — less than half its peak of more than $2 billion in 2000-01 — there is new focus on the tax treatment of project costs.

Under current rules, oil and gas companies with PRRT liabilities can deduct their exploration costs, indexed at the long-term bond rate plus 15 per cent.

At that rate, the value of the deduction doubles every four years, and exploration costs are deducted only after development and construction costs are first recovered.

Labor unlikely to oppose changes

Senior sources have told 7.30 that a view is developing inside Government that this arrangement is too generous and could be scaled back in the May budget.

It is understood the ability of oil and gas companies to transfer enormous deductions between projects may also face new restrictions, and the definition of allowable deductions possibly tightened.

With the resource sector warning against changes to the PRRT regime, Labor has signalled it would be unlikely to oppose a move to increase the tax take on oil and gas companies.

Australian Petroleum Production & Exploration Association chief executive Malcolm Roberts said the PRRT was working as intended.

"The PRRT is a super profits tax so obviously businesses don't pay a super profits tax when they're not making profits and in the last 18 months or so we've seen a sharp fall in the global oil and gas price and that's flowed through to the profitability of our companies," he said.

'We're essentially giving them away free'

Jason Ward, of the Tax Justice Network, says Australia isn't getting a fair return from its gas resources. ( ABC News )

Jason Ward from the Tax Justice Network said Australia was not getting a fair return for its resources.

"In fact, we're essentially giving them away free to the world's largest multinational corporations," Mr Ward said.

His organisation wants five offshore LNG projects slapped with a royalty in the same way the North West Shelf project and onshore gas projects are taxed.

"The North West Shelf pays a 10 per cent royalty, the gas projects in Queensland that are up and running now are paying a 10 per cent royalty to the state of Queensland," he said.

"We estimate that if we do that again it levels the playing field, it creates a fair system so that all companies are competing on the same basis.

"We estimate that that will bring in about $4 to $6 billion over the next four years."

'Puzzling time to have a review of a taxation system'

Woodside CEO Peter Coleman says it's a puzzling time for a tax review. ( ABC News )

Woodside chief executive Peter Coleman says so-called "uplift" rates of interest on deductible project costs are reasonable.

"The uplift rate actually reflects the return that companies in the oil and gas industry need to make," he said.

"So over time those sorts of returns are in the order of 12 to 15 per cent.

"That recognises the risks that companies take in their investments, whether there's cost over-runs or there's fluctuations in pricing.

"Today we're in one of those fluctuations, pricing is at a low, it's half of what it was two years ago, the industry is really hurting at this point.

"So it's a puzzling time to have a review of a taxation system at a point in time when many governments in the world are in fact looking to incentivise industry to invest."