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Government should encourage further exploration

21 August 2005

Government should encourage further exploration for new oil reserves

The Government is being urged to invest in New Zealand’s long term oil supply security to provide a better safety net against oil shortages.

The Petroleum Exploration & Production Association (PEPANZ) said today that encouraging exploration for new reserves and accelerating the development of known resources, including those which are currently marginally economic, would give the country much greater capacity to survive overseas supply disruptions.

“The Government is being prudent with the measures in its recent report,” PEPANZ executive director, Dr Mike Patrick, said.

“However, we could avoid all this alarm, and the potential for third world carless days and public rationing, if Government put more emphasis on encouraging oil exploration.

“It is not addressing this option positively enough, despite the fact it offers many strategic benefits for the whole country.”

Dr Patrick said New Zealand's self sufficiency in indigenous oil has deteriorated from around 50% only a few years ago to 18% currently. The only new discovery being developed is Pohokura – other potential significant developments at Kupe, Tui and Maari are still awaiting final investment decisions by their operators.

“If Government addressed the fiscal barriers to their speedy development, it could return New Zealand to about 60% self-sufficiency in oil,” Dr Patrick said.

“The major barriers to discovering and developing new oil reserves are financial ones, particularly the royalties and the tax regime that Government imposes on oil producers.”

While acknowledging recent Government moves to encourage exploration, Dr Patrick said there is still some way to go before the cost of exploration here is low enough to encourage companies to invest in New Zealand rather than elsewhere where exploration costs are significantly lower.

“New Zealand suffers from the tyranny of distance, and coupled with the high demand internationally for drilling rigs and other services, the costs of exploring here are extremely high.

“As a consequence, PEPANZ has long sought Government support for further amendments to the taxation regime, and for royalty relief for new oil developments. This would create greater incentives for more intensive exploration and production.

“A fiscal regime that encourages the discovery of new oil reserves will also create a large number of jobs, reduce the use of overseas funds and save the consumer the costs of establishing an alternate oil supply security buffer.

“It will also alleviate the need for carless days and rationing,” Dr Patrick said.


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