ATO ID 2008/154: Excise: naturally occurring stabilised crude petroleum oil
Date of decision: 21 November 2008
Business line: Indirect Tax

Issue
Is crude petroleum oil (crude oil) that is stable as extracted from a production well, 'stabilised crude petroleum oil' for the purposes of the Schedule to the Excise Tariff Act 1921 (Tariff Act)?

Decision
Yes, crude oil that is stable as extracted from a production well, is 'stabilised crude petroleum oil' for the purposes of the Schedule to the Tariff Act.

Facts
An oil producer extracts crude oil that is not from a Resource Rent Tax area and is not exempt offshore oil. The crude oil has a low gas-to-oil ratio, that is, a low proportion of hydrocarbon gases. It is not necessary to subject this crude oil to a stabilisation process, such as a separation or treatment process, as the crude is sufficiently stable for safe storage and/or transport.

Reasons for decision
Summary: Subsection 4(1) of the Excise Act 1901 defines 'excisable goods' as goods in respect of which excise duty is imposed by Parliament, and includes goods the subject of an Excise Tariff or Excise Tariff alteration proposed in the Parliament. Section 5 of the Tariff Act imposes excise duty on goods specified in the Schedule and which are manufactured or produced in Australia. The Schedule describes those goods which are excisable, and sets down the rate of excise duty levied on those goods. 'Stabilised crude petroleum oil' is specified in both item 10 and item 20 of the Schedule to the Tariff Act and is therefore an excisable good, subject to certain exceptions (for the purposes of this question we will only make reference to item 20, unless otherwise indicated, however the meaning applies to both item 10 and item 20). The meaning of the term 'stabilised crude petroleum oil' has not been statutorily defined by the Excise Act or the Tariff Act. The Tariff Act was amended by the Excise Tariff Act 1975 which inserted item 17 into the Schedule to the Tariff Act to include, among other things, 'stabilised crude petroleum oil'. The Excise Tariff Bill 1975 did not have an accompanying explanatory memorandum and the second reading speech to this Bill does not clarify the Parliament's intended meaning of the term 'stabilised crude petroleum oil'. However, the meaning of 'stabilised crude petroleum oil' is discussed in the explanatory memorandum that accompanied the Excise Laws Amendment (Fuel Tax Reform and Other Measures) Bill 2006, stating at paragraph 1.54: Stabilised crude petroleum oil is produced when crude oil from wells is taken to the surface and cooled and treated to achieve a state in which it can be further dealt with, in particular safely transported. Although the explanation above related to item 10 of the Schedule to the Tariff Act, the Commissioner considers this explanation to be equally relevant to the reference to 'stabilised crude petroleum oil' in item 20 (effectively item 20 is a renumbered item 17) of the Schedule insofar as the explanatory memorandum discusses the meaning of 'stabilised crude petroleum oil'. Notwithstanding the explanatory memorandum providing some assistance, the Commissioner considers that the term 'stabilised crude petroleum oil' is a technical term adopted from the petroleum industry rather than a term of ordinary English usage. A technical term adopted by Parliament into legislation as opposed to a term of ordinary English usage was discussed in Abbott Point Bulk Coal Pty Ltd & Anor v. Collector of Customs (1992) 35 FCR 371. Ryan and Cooper JJ said: It is clear, in our view, that 'beneficiation' is not a term in ordinary English usage. It is a technical term applicable to a range of processes in the mining and metallurgical industries. Accordingly, its meaning is to be determined as a question of fact. ... Here the Tribunal found, ... 'beneficiation' denotes the processing of minerals or ore-bearing minerals to improve their physical and chemical properties. [Emphasis added] Similarly, 'stabilised crude petroleum oil' is a technical term used by the petroleum industry to describe crude oil that is sufficiently stable for safe storage and transport. It is pertinent then to observe what crude oil is, and what makes crude oil stabilised and unstable. Crude oil is a mixture of hydrocarbons that exists as a liquid in natural underground reservoirs and remains liquid at atmospheric pressure after passing through surface separating facilities. Ordinarily, the crude oil is extracted from the production well under high pressure and contains a significant proportion of dissolved hydrocarbon gases that makes the crude oil unstable (volatile). To stabilise the crude oil for safe storage and transportation, the majority of the dissolved gases are removed (separated) from the crude oil so that the crude oil is stable at ambient temperature. The separated gases are used for other products and the crude oil is then technically known as 'stabilised crude petroleum oil'. Therefore the Commissioner considers that the use of the phrase 'stabilised crude petroleum oil' in the Schedule to the Tariff Act is merely a description of crude oil that is stable. Whether the crude petroleum oil is stable 'as extracted' from the production well or unstable 'as extracted' and subsequently stabilised by a stabilisation process, in this context, is immaterial for the purposes of satisfying the term 'stabilised crude petroleum oil'. What is material for the purposes of the excise Acts is the point at which the crude oil meets the description of 'stabilised crude petroleum oil', that being the point at which the crude oil is stable (that is, had the majority of hydrocarbon gases been removed (if required) and therefore safe for storage and/or transportation) is a question of fact. In this case the crude oil as extracted from the production well is stable for the purposes of safe storage and transportation to downstream refining without having been subjected to a stabilisation process, such as a separation facility or treatment process. It is stable crude oil as extracted, and therefore 'stabilised crude petroleum oil' for the purposes of the Schedule to the Tariff Act at the point the crude oil is extracted from the production well.

Legislative references: Excise Act 1901 subsection 4(1)
Case references: Abbott Point Bulk Coal Pty Ltd & Anor v. Collector of Customs (1992) 35 FCR 371
Other references: Excise Laws Amendment (Fuel Tax Reform and Other Measures) Bill 2006 Second reading speech to the Excise Tariff Bill 1975
Subject references: Crude oil Excisable goods Excise Stabilised crude oil