Oil and Gas Exploration—Royalties

Hon HARRY DUYNHOVEN Link to this

First, leaving aside the last comment, which I think has not been put in context, and looking at the actual issue, I say that the issue of a royalty regime also has to be balanced against prospectivity, the difficulties of production, the remoteness from oil exploration infrastructure, and so on. New Zealand’s regime will generate from the exploration activity, we hope, something in the order of 40 percent of net expenditure in New Zealand, but that has yet to be seen. But in the production phase, obviously a significant amount of revenue will come to New Zealand from the accounting profits royalty regime—20 percent of the accounting profits royalty—and also from the 5 percent ad valorum royalty. That will be substantial. But, overall, one has to balance not only the fiscal regime but also the prospectivity, the costs of production, etc., etc. We think, and the international oil experts who have advised us believe, that we have a very fair regime.

Hon HARRY DUYNHOVEN Link to this

When compared in the light of New Zealand’s geographical location, the perceived prospectivity, and the tight nature of the international market for drilling rigs, seismic vessels, and, indeed, skilled personnel, the Government’s total take, which is at around 50 percent of profits, compares very favourably with that of the UK at 30 to 40 percent, the USA for deep-water exploration at 35 to 40 percent, and Australia at 60 percent, where perceived prospectivity is very much higher than it is here.

Hon HARRY DUYNHOVEN Link to this

That is an exceptionally good question, and one that I had not expected, but I think I have a pretty good answer, too. Four and a half years ago when the regime was being considered, I sat with my officials around the table and we debated how we could reinvigorate the oil and gas industries. One of the things we had to consider was the trade-off between exactly the points that the member makes in terms of the royalty regime—the taxation etc.—the prospectivity, and the likelihood of having the very big companies that we need to tackle this prospect go to other, more favourable places in terms of their likelihood of making a discovery. We think we pitched it exactly right. We were ridiculed by the Opposition for what we put forward, and the proof of the pudding is in the eating. We have the largest oil exploration company in the world, which has never been in New Zealand before, here looking.

Hon HARRY DUYNHOVEN Link to this

In those countries that have major State-owned oil exploration companies that take the risks of the billions of dollars of expenditure required to produce a field like the Great South Basin themselves—such as the Brazils of the world, and so on—those countries obviously produce the oil for themselves and therefore are not subject to the international market regime. Because of our prospectivity we in New Zealand choose not to take the risk of the huge expenditure, and although there is a very strong likelihood of a very good discovery in the Great South Basin, there is also the absolute certainty of enormous costs. We will clip the ticket on the way by, but we will pay international market prices for any oil that is discovered.

Hon HARRY DUYNHOVEN Link to this

The very simple fact is that New Zealand is a strongly oil-dependent economy, in a whole variety of ways. Although the National members have proposed that by the time all of them are dead in 2050, in 43 years’ time, New Zealand will be carbon neutral—should National ever be the Government, and I doubt very much whether that looks to be very likely—the point that I would make very strongly to the member is that I would much rather have our existing thermal power stations fuelled by natural gas than by coal, as they are at present. Our largest power station currently runs on coal largely because the National Government sat on its hands and did virtually no exploration for its entire period in office. National took no initiatives that generated extra oil and gas exploration in New Zealand, which has led to the current situation. So we are in a position where we have taken definite action, with definite effect.

Hon HARRY DUYNHOVEN Link to this

The exploration activity that has been undertaken by the Government to date includes seismic surveying, and we took very strong regard of the advice from the Department of Conservation, particularly with regard to marine mammals. We have adopted the policies—which are internationally right up there with the best practice—of a 20-minute starting cycle of low-intensity seismic work and low-intensity explosions, in order to ensure that any marine mammals in the area of several kilometres around are, if you like, gently warned. We have also adopted a policy that where any dolphin, whale, or other marine mammal comes within 1 kilometre of seismic vessels, work stops. However, what I want to tell the member is that whales, dolphins, and other marine mammals are actually curious and are often attracted to seismic vessels, as the National Institute of Water and Atmospheric Research found in the small amount of seismic work that it has done. We are taking care to look after the environment, and taking the best guidelines we can, and of course no project gets approval without meeting environmental requirements set out under the Maritime Transport Act.

Hon HARRY DUYNHOVEN Link to this

First of all, I tell the member that if we have a significant gas discovery in the Great South Basin, that will actually help in terms of our thermal generation, and perhaps we can even supply liquefied natural gas being supplied to other countries for their generation of electricity, thus lessening the amount of coal needed to be burnt on this planet, which has to be an environmental benefit.

Hon HARRY DUYNHOVEN Link to this

I think I can answer all three questions pretty quickly. First of all, in terms of a bond, that is not an issue because the Maritime Transport Act controls activities in our oceans. It very clearly sets out the damages requirements and the remedial requirements if there is an oil spill. Secondly, in relation to seismic data, I think we have spent a total so far of around $16 million on all seismic activity acquired by the Government around the country. For that we have, in the Great South Basin alone, something in the order of, I think, $10 million, to achieve $1,200 million of expenditure in exploration activity. I reckon that is a pretty good return for the taxpayer. Thirdly, on the issue of our climate change policy, etc., I do not shy away from that at all. The reason why is that currently we have thermal power stations. If we do not have fuel to run them, then the power goes off. I think we need to ensure we do have adequate fuel to run them.