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During the 2009 year the oil and gas sector had never performed better with two new offshore fields coming on stream and an exploration programme for the 2009/2010 summer of 11 exploration wells. So what are the prospects going forward and what will 2010 hold in store for the industry? It promises to be a year of considerable policy flux. For most of 2009 the Government had been reviewing the regulatory settings associated with the petroleum industry. In November the Minister of Energy and Resources, Gerry Brownlee, announced an ‘action plan’ for the petroleum industry. This was welcomed by the sector because for the first time in many years the Government has said it wants to use its mineral wealth to create a step change in New Zealand’s economic performance. The Government has signalled it will be making positive statements about the potential of the sector. The Prime Minister is to open the 2010 Petroleum Conference. Research by GNS Science for the Government shows that there are 10 offshore petroleum basins with the potential to produce oil and gas. If the estimated resources in these basins prove real, the Government believes it could be getting Crown receipts of up to $10 billion a year. Talking up the potential is fine, but what is happening on the ground?First, the Government is reviewing the NZ Energy Strategy. The new strategy (we are told) will have petroleum and mineral resources at the heart of it and send a clear message that the Government is keen to see those resources developed. Since the last strategy was little more than a climate change policy in drag, this will be a welcome change. Second, the Minister of Research Science and Technology has announced a shake up of science funding. Again, the Government has signalled that more money will be put into geoscience funding in the years ahead. Hydrocarbons and minerals research will be one of the new research “platforms”. This will be in addition to funding already provided for seismic surveys. This is good news, because geoscience research is often seen as staid and boring and has frequently been sidelined in favour of high technology research investment. Third, the Centre for Advanced Engineering has produced a seminal piece of work for the Government on the prospects for gas hydrates. While definitely in the unconventional class of resource, it points to a future where New Zealand can expect returns from resources other than conventional oil and gas deposits. The Government has also announced that it will be doing two further reviews. The first will be looking at the capability of the Ministry of Economic Development to deliver on the governments wish to develop our resources. Expect to see more resources by way of money and people employed to deliver that capability at MED. The second review expected before the end of 2010 is a review of the regulatory, royalty and taxation arrangements for petroleum. Petroleum tax/royalty reform can be seen within the wider context of the Tax Working Group reviewing the wider taxation regime – and the desire to have a simple system which is seen to operate fairly. They were due to report in December 2009. There has been a suggestion that the royalty regime here could be replaced with a Petroleum Resource Rent Tax, as exists in Australia. If administered by the IRD one presumes it would be more rigorously enforced than the current regime and provide the opportunity to increase the Crown take. The regulatory changes signalled above will likely involve a major overhaul of the Crown Minerals Act and petroleum minerals programme. On the broader exploration front, early 2010 is the closing date for bids on frontier blocks in the Raukumara, Reinga and Northland areas. These blocks were released early in 2009 and supported with seismic data from the Crown acquisition programs of recent years. A good response to these would signal to the Government that investors like what they are hearing from it. Into all this mix of reviews and change are the activities of other Crown agencies: the Ministry of Agriculture and Forestry reviewing biosecurity arrangements in the Exclusive Economic Zone – they are seeking an extension of their powers from the territorial sea out into the EEZ; the Department of Conservation (DOC) reviewing their guidelines which control the effects of seismic surveying on marine mammals; ongoing DOC development of marine reserve proposals; the Government re-examining the Foreshore and Seabed legislation, and Maritime NZ reviewing oil pollution levies. For the past three years the core policy environment has been fairly stable with respect to the petroleum industry. Aside from the fun associated with the thermal ban, there has been little change to the regulatory regime. While there have been some minor changes around section 41 of the Crown Minerals Act and some work completed on the petroleum taxation front - that now looks set to change with some major work ahead. Given the positive approach of the current energy minister and his colleagues, these reviews are likely to lead to a positive outcome for the sector. I for one look forward to working with the minister and his officials over the year ahead.
Energy NZ Vol.4 No.1 Energy Perspectives 2010 |
The Government has good cause to be pleased with the performance of the oil and gas industry since its election late 2008. The sector contributed $965 million in royalties and taxes to the Government coffers in 2008, $543 million of that was royalty payment alone. By John Pfahlert, the executive officer of the Petroleum Exploration and Production Association.