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Hon Paul Swain - NZ Petroleum Conference

Associate Minister of Energy
Hon Paul Swain


Embargoed to 7pm, 21 March 2000

Keynote speech – from Associate Minister of Energy Hon. Paul Swain
to the 2000 New Zealand Petroleum Conference – Convened by Crown Minerals.

Welcome to the 2000 New Zealand Petroleum Conference convened by Crown Minerals.
I'm pleased to see here today the large attendance of local and overseas representatives - this reflects the increasing tempo of exploration activity in New Zealand and the international nature of the petroleum industry.
First of all I would like to take this opportunity to congratulate you on your recent successes. I was thrilled to hear about the new findings by Swift Energy and Fletcher Energy from this conference yesterday. That is extremely good news for this country and should not only see New Zealanders benefit directly through the taxes and royalties collected by the government but also through a revitalised international interest in New Zealand as an oil and gas exploration destination.
We at central government realise and appreciate the importance of the petroleum industry in New Zealand and the valuable contribution it makes to our economy.
Given the recent higher prices for oil, and the strong ongoing gas use in New Zealand, the annual value of local petroleum production is well in the vicinity of two billion dollars – a significant addition to our economy.
It is important to consider the impact the petroleum industry makes on the economic and social wellbeing of the communities in which it operates.
In Taranaki more than a third of the private sector workforce of 34,000 people benefit from the energy sector. It's estimated that for each person working in the region's petroleum industry another 14 people are employed indirectly. Jobs range from workers in the petrochemical or engineering industries to shopkeepers in the corner dairy. One of the most real examples of the practical benefits I have heard of is the fact that one of the companies in Taranaki spends $4,000 a week in the local pie shop!
In light of this Government's emphasis on regional growth and employment the sort of regional growth experienced in the Taranaki is welcome.
It has been said that:
“The contractual relationship between host government and explorer requires cooperation if it is to work. The host Government brings its resources; the explorer the technology, financial resources, management and technical skills – all designed to release the value of the resources for the benefit of both parties.”
The importance of this statement is that it highlights the type of symbiotic relationship that must exist between the owner of the petroleum resource (the New Zealand Government in this instance) and the oil explorer, if oil exploration is to flourish. The New Zealand Government, on behalf of the people of New Zealand, must offer an exploration environment that is wanted by explorers.
At the last New Zealand Petroleum Conference in 1998 the then president of the Independent Petroleum Association of America George Yates, defined what an explorer looked for in choosing an exploration destination. The factors are:
 prospective petroleum geology;
 low country or sovereign risk;
 favourable country or fiscal terms;
 favourable taxation regime;
 markets for oil and gas; and
 an industry infrastructure.
Very simply, New Zealand satisfies all these counts.
In a survey of 99 countries Petroconsultants Inc (now IHS) ranked countries in order of their political and business risk in the petroleum industry. New Zealand came in 7th, meaning essentially no country risk. To put this ranking in perspective, by comparison the USA ranked 31st.
While the government is keen to see New Zealand continue as a good place for petroleum exploration, we also want to ensure there is maximum benefit for all New Zealanders. As my colleague the Deputy Prime Minister and Minister of Economic Development Jim Anderton has indicated we want to take a more strategic approach to industry growth and job creation.
Details of this will emerge over the next few months - however one of the concerns I have is the over-dependence of the New Zealand economy on commodity exports. There is a real desire from this government to promote the growth of value added knowledge-based goods and services. One of the real benefits that your industry offers over and above the extraction of oil and gas is the development of science and technology which is the cornerstone of the new economy.
There are many other advantages to New Zealand from the petroleum industry in addition to the obvious export earnings. The Government collects its own revenues through the usual corporate tax, and either 5% of the net revenues attained from the sale of petroleum or a 20% share of accounting profits from a petroleum development - whichever is the greater in any given year.
There are two special features of this hybrid royalty scheme. The first is that it ensures that there is always some minimal return to the Crown. The second is that it is designed to effectively mirror the economic profile of a development.
New Zealand's geology is a big drawcard – our country is best classified as being under-explored for hydrocarbons. This may seem a contradiction for a country currently producing some 15 million barrels of liquids and 200 billion cubic feet of gas per year, but New Zealand's most explored and only producing area, the Taranaki Basin, is still under-explored by international comparison.
The Basin has only had some 250 wells drilled; a well density of only about 1 well per 10,000 acres onshore and 1 well per 100,000 acres offshore. By comparison the similarly sized San Joaquin Basin in California has some 67,000 wells drilled.
Despite this comparative lack of exploration, drilling success figures are encouraging. The figures for the Taranaki Basin very favourably with the world average commercial discovery rate.
Last year 10 wildcat or exploration wells and two development wells were drilled in New Zealand. Nine of these were onshore and three offshore. On a regional basis, five wells were drilled in the Taranaki Basin, six in the East Coast Basin and one offshore Northland Basin.
Currently there are 52 exploration permits over six of the country’s petroleum provinces. Of these, 13 are located in the East Coast region of the North Island, three in the Canterbury Basin, three in the onshore Westland region, two in West Southland, one in Northland and 30 in the Taranaki Basin. There are currently two exploration permit applications under consideration.
In terms of markets and infrastructure New Zealand has a modest, thriving oil and gas industry with a growing local market for gas. There is a gas pipeline system covering the North Island, while an oil pipeline transfers production from New Zealand’s sole refinery in Northland to its largest city, Auckland. There is increasing generation of electricity from gas, while New Zealand exports over $500M per year of methanol, produced from natural gas.
The local petroleum infrastructure includes seismic logging and drilling companies, as well as a range of offshore and onshore service providers.
The other side of the symbiosis equation, what the explorer offers, can be very simply answered:
 financial resources, to actively explore; and
 technical expertise, to carry out their exploration programmes.
I might add here that the government’s attitude is to let explorers actively pursue their agreed work programme, and in so doing operate responsibly within New Zealand’s ‘clean green’ environment. The exploration and extractive petroleum industry in New Zealand has an enviable record of operating in an environmentally responsible manner.
That brings me to the government's views on energy efficiency. It's a matter at the heart of the government's energy policy. Some examples of actions we will be investigating or taking to secure improved energy efficiency are:
 enhancing the activities of The Energy Efficiency and Conservation Authority (EECA);
 funding energy efficiency programmes for state houses, schools, rest homes, etc
 raising energy efficiency standards in the New Zealand Building Code;
 public education on the value of energy efficiency;
 giving priority to efficient, wide use of public transport, giving subsidies where pertinent; and
 encouraging the transition to fuel efficient transport and the increased use of CNG and LPG dedicated vehicles.
In concluding can I once again congratulate Swift Energy and Fletcher Energy on their finds. I'd also like to reiterate that the new government values the contributions of the petroleum industry to the New Zealand economy and I encourage you in your efforts to explore New Zealand; to discover and to develop New Zealand’s petroleum resources.
I wish you an enjoyable and profitable Conference.


ENDS

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