Energy News, July 2009

Posted in: Perspectives: Friday, 31 July 2009

Energy News, July 2009

Richard Michael, Chief Executive of Straterra

Sound scientific data suggests that more than 1.2million square kilometres of New Zealand’s economic zone could have hydrocarbons beneath.

In a recent article, GNS petroleum scientist Chris Uruski estimated that “we could have the equivalent of a North Sea in New Zealand waters”.

Mr Uruski believes there is strong evidence to suggest our deep water sedimentary basins contain large volumes of oil and gas. His comments are based on the outcomes of many years of research for both government and for exploration companies.

Yet by global standards investment in exploration in New Zealand is still relatively limited. Even the Taranaki Basin is comparatively underexplored and surfaces have barely been scratched in many of New Zealand’s other sedimentary basins.

Decades of blinkered government approach have not helped. Despite some measures to encourage exploration, back in 2004, the feeling remained that our natural wealth was a guilty secret – trampled underfoot in the race to become the world’s first carbon neutral country.

There has been a recent increase in exploration activity in New Zealand waters, but we have still lagged behind many other countries in terms of investigating our rich supply of natural resources.

As well as the potential to substantially boost our country’s economy, exploration and the discovery of new resources is vital domestically. The latest estimates suggest that the Maui gas field has five to ten more productive years. More than originally expected, but the clock is still ticking. Current new fields will only shore up the situation on a temporary basis.

Certainly more warmth towards the industry has emanated from the Beehive since National took power. The extension of tax exemption for offshore oil and gas exploration was a very welcome move to encourage interest from the international exploration community.

Equally, the $20 million funding to make seismic data freely available to the oil exploration industry certainly reinforced the message that the New Zealand Government welcomes exploration.

As Gerry Brownlee pointed out, previous surveys resulted in $1.4 billion being spent on exploration.

But the Government cannot afford to now rest on its laurels. We are a geographically remote country competing for exploration dollars with hundreds of other countries around the world. Based on 2007 figures, New Zealand is ranked 63rd among 210 oil producing countries.

We have to work harder than most to ensure the legal and financial environment remains favourable on an international level and, where possible, to remove obstacles to sensible investment – particularly in oil and gas exploration.

The depth of waters and conditions in areas of interest, such as the Great South Basin, are often cited as a deterrent for potential investors.

However, as Mr Uruski points out, companies have overcome equally significant obstacles in other parts of the world from the icebergs of Alaska to hurricane force storms in the Gulf of Mexico. Oil is also being produced from depths of 3000m in other parts of the world.

We have the advantage of being an economically and politically settled country and public resistance to coal-fired power plants, new hydroelectric dams and nuclear-power stations should also be an attraction for investors. With no viable alternative to natural gas there is a ready customer base right here.

More can be done to provide a framework going forward that will help encourage more explorers and larger companies.

Further Government funding of geoscientific and technical information could help to encourage further drilling.

Initiatives such as flow through shares are also worth consideration. Both Australia’s Association of Mining and Exploration Companies (AMEC) and the Australian Institute of Geoscientists lobbied, unsuccessfully, for the Australian Federal Government to introduce flow shares in the country’s recent budget.

Too often Australia seems to pip us to the post in attracting investors – FSD could, potentially, be a way to capture some of that interest.

Another vital element for explorers is continuity and certainty. The very nature of their business involves a leap into the unknown. To give them the confidence they need to invest – particularly the huge amounts required for deep water drilling – they need to know what that country’s government’s position will be over as long a period as possible.

We understand that the Government is currently looking at policy setting around the natural resources sector and now is a great time to be making the changes that are required.

However, in order to project a united and confidence-inspiring image to the world, we need a whole of government response to issues related to the natural resources industry - and industry needs to engage as one with government.

Straterra, which was launched in September 2008, aims to provide a united voice for companies working in the oil, gas, aggregates, minerals, metals and coal industries.

Straterra’s purpose is to bring together the interests of the entire natural resources sector and related bodies. Its vision is of prosperity through one partnership, including engaging with government,

We will also press for a national policy statement outlining long-term goals for the sector to provide potential explorers and investors with continuity.

Straterra will also concentrate on the many common sector wide themes and issues and ensure they are well articulated to government and the public.