Oil Basins Limited v BHP Petroleum Pty Limited & Ors; BHP Petroleum Pty Ltd & Ors v Oil Basins Limited

Oil Basins Limited sought special leave to appeal to the High Court of Australia from a decision of the Full Court of the Supreme Court of Victoria. The dispute concerned the interpretation of a royalty agreement governing the production of oil and gas from Bass Strait fields, which had been in operation since 1970 and was expected to continue for several decades. BHP Petroleum Pty Limited and others were the respondents.

The primary legal issue before the High Court was whether the Full Court had erred in upholding an arbitrator's award concerning the construction of the royalty agreement. Specifically, Oil Basins contended that the agreement prohibited the producers, BHP and Esso, from directly or indirectly passing on the burden of excise taxes imposed on crude oil and liquefied petroleum gases since 1975. This prohibition was argued to operate in two ways: by preventing a direct reduction in royalty payments and by disallowing the deduction of excise payments from the value of hydrocarbons used to calculate the royalty.

Oil Basins argued that the producers had been deducting excise payments from the sales value of hydrocarbons since 1975, which had significantly reduced the royalty payments otherwise due. This practice, if permitted by the royalty agreement, would result in substantial financial detriment to Oil Basins over the remaining life of the oil fields. The company sought special leave to appeal on the basis that the Full Court's interpretation of the royalty agreement was fundamentally flawed and would have a significant and long-lasting impact on royalty calculations.