9 February 2012

Next steps towards oil and gas exploration

Improvements in the process for permitting exploration for oil and gas will be implemented this year.

“From 2012 we will exclusively use a ‘block offer’ annual competitive tender process to allocate permits for oil and gas exploration, and no longer use first-in, first-served permitting, known as priority-in-time,” says David Binnie, General Manager of New Zealand Petroleum & Minerals, a branch within the Ministry of Economic Development.

The change implements the government’s strategy announced last August.

“Priority-in-time permitting limited the government’s ability to strategically manage New Zealand’s oil and gas resource. It was a reactive approach, where companies could apply to explore any area in New Zealand at any time,” says Mr Binnie.

“Using an annual block offer approach enables the government to take more proactive control over where and when areas are opened for exploration. It will also provide more certainty and opportunity for upfront engagement with iwi, local government and industry.

“An annualised approach will reposition New Zealand in the international market and should attract significant inward investment. A recent report into future royalty income showed that a 50 percent increase in exploration could increase royalties to $12.7 billion. Coupled with corporate tax, the government’s revenue is 42 percent of industry profits.

The government has previously undertaken block offers over the onshore Taranaki Basin – Kahili (2010; 6.0 km2); Reinga Basin (2010; 105,226 km2); Northland Basin (2008-10; 49,554 km2); Raukumara Basin (2008-10; 17,288 km2); onshore Taranaki Basin (2007-08; 3,017 km2); Great South Basin (2006-07; 328,338 km2); offshore Taranaki Basin (2005-06; 9,011 km2); East Coast (2005-06; 43,235 km2); Northland (2005; 34,693 km2); Taranaki Basin (2003; 12,763 km2), and Canterbury Basin (2002; 31,147 km2).

There are 25 blocks proposed for competitive block offer tender in 2012.

“The proposed blocks for 2012 cover 40,285 km2 of offshore seabed and 5,704 km2 of land in Waikato, Taranaki, Tasman, the West Coast and Southland. Land listed as unavailable for mining under Schedule 4 of the Crown Minerals Act 1991 will be excluded from exploration,” says Mr Binnie.

The Ministry is consulting with iwi and local government in the areas where the proposed blocks are located. This consultation will inform final decisions on the blocks for 2012. The finalised blocks are expected to be released for competitive bidding toward the middle of this year.

New Zealand and international companies will then be invited to tender for petroleum exploration permits. Applications will be evaluated based on a number of criteria including the applicants’ corporate standing, technical and financial capability, risk management practices, operating experience and proposed work programme. Permits are expected to be awarded by the end of 2012.

“New Zealand Petroleum & Minerals is committed to continuous improvement in its processes for the management of our mineral resources, and to ensuring their responsible and safe development on behalf of New Zealanders,” says Mr Binnie. “Relevant legislation, such as the recently introduced EEZ bill and the soon to be revised Crown Minerals Act 1991support and prepare for responsible and successful industry growth.”

Background

Exploration permits allow for investigation of the potential for oil and gas development.

Gaining an exploration permit is the first of many steps an operator is required to take in order to develop Crown-owned minerals. Permitting enables the start of projects which can have a life cycle of up to 50 years. Once an operator is granted an onshore exploration permit or out to 12 nautical miles offshore, they are also required to apply for any necessary resource consents under the Resource Management Act 1991, make access arrangements with land holders, and meet health and safety requirements.

The new Exclusive Economic Zone and Continental Shelf (Environmental Effects) Bill will apply to activities beyond 12 nautical miles offshore in the Exclusive Economic Zone (EEZ). The Bill establishes a new regime to manage environmental effects of activities in the EEZ and continental shelf. The Bill is currently before Parliament. The Bill will come into effect once a complete set of regulations is developed later this year.

Last year the government put in place a number of interim measures in environmental regulation before the EEZ legislation comes into effect and to ensure a smooth transition to the new regime.

More information is available here.

An assessment of future royalty income is available here.

Click here for a list of FAQs.

ENDS

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