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Speech to Petroleum Exploration Assn - Paul Swain

Hon. Paul Swain
16 November, 2000 – 12 noon Speech Notes

Speech to Petroleum Exploration Assn - Simpson & Grierson - Wellington
‘The Future Role and Importance of New Zealand’s Oil and Gas Industry’

Thank you for the invitation to talk to you today. It's good to see so many of you from across the sector here.

I was recently asked to speak at a minerals and mining conference where I gave some clear messages – I want to reiterate a couple of those messages to you today as I believe they are just as relevant to the oil and gas industry.

The first is that this government supports environmentally responsible exploration and development by your industry.

The second is that explorers and developers are wanted and welcomed in New Zealand.

The third is this government is committed to forming partnerships with business.

New industry
As I've said, we support environmentally responsible exploration by your industry, we want and welcome you here. You represent an industry worth one to one and a half percent of GDP - and a big employer in provincial centres.

The oil and gas exploration industry fits neatly into an example of a traditional industry which is embracing new technologies and the new economy. While the products you are producing are by and large traditional – you are using new technologies for exploration and prospecting.

The need for the oil industry to advance and change was summed up recently by Sheik Ahmed Zaki Yamani - OPEC's spokesman of the 70s and Saudi Arabia's oil minister for most of the 60s through 80s. In September this year he had a go at OPEC when he said:
“OPEC will pay a heavy price for not acting in 1999 to control oil prices. Now it is too late. The Stone Age came to an end but not for a lack of stones. And the oil age will end, but not for a lack of oil.”

I think the oil and gas industry recognises this. Obviously this doesn't mean plug up the wells and move out of town – what it means is new directions and opportunities - witness the recent rebranding and new investments by Shell and BP.

New Zealand as an investment
As I've said we welcome and encourage your investment here. New Zealand is an attractive place to invest and has been internationally assessed as becoming more attractive in recent times. New Zealand recently moved 13 places up the international oil exploration industry survey from IHS Energy Group – the PEPS (pronounced pepps) (Petroleum Economics and Policy Solutions) database - to make it the 24th most attractive country in the world for petroleum exploration investment.

The improvement was made against tough competition for petroleum investment funds among 98 other surveyed countries which have oil prospects.

Perhaps the most encouraging aspect of this survey was in the exploration and production activity ranking which accounts for 50% of the weighting in PEPS total country score. New Zealand jumped a remarkable 17 places in the 2000 rankings for exploration and production activity.

For political risk we are number four in the world, one place up on last year. This continues our long-standing record as a low-risk destination. Our excellent fiscal regime was ranked 17th in the world.

For the SouthEast Asia-Australasia region, New Zealand’s ranking as a exploration destination moved into fifth place ahead of Malaysia and just behind the oil state of Brunei.

New Zealand has clearly entered the international radar screen of petroleum explorers.

Current exploration
Currently our petroleum exploration and development activity is going through a major upsurge with a record 25 wells planned or already drilled this year. This is far ahead of the 10 wells drilled in 1999.

The most significant oil discovery in recent years has been the Rimu field in south Taranaki where American explorer Swift Energy is now estimating a reserve potential of 40 – 100 million barrels of oil equivalent.

Swift has estimated that its Rimu, Kauri and Tawa prospects have a reserve potential of at least 350 million barrels. While much of this is speculation at this stage, if Swift does make such finds it would double New Zealand’s oil reserves, and possibly make New Zealand self sufficient in liquid fuels.

One of the most encouraging things about Swift’s find is that it has encouraged other companies to look for oil in similar structures further north. Fletcher Challenge Energy is currently drilling the Tuihu-1 well north of Rimu with a similar sandstone reservoir as its primary target.
In another part of onshore Taranaki the Denver-based company Westech Energy has found gas as a result of its recent Windsor drilling programme. I also note that Wellington-base Indo-Pacific Energy is to step-up its Taranaki drilling programme in the near future.

Another encouraging aspect of New Zealand exploration over the last few years has been the finding of petroleum in the East Coast Basin. The Kauhauroa and Tuhara gas finds near Wairoa by the Westech-Orion joint venture, while complex in nature, have shown that potential commercial discoveries can be found outside Taranaki. The offshore prospects on the East Coast Basin look particularly promising. Westech-Orion is to drill its first offshore well, Tawatawa-1, off the Wairarapa coast early next year.

It is also good to see that the South Island is not left out of this activity. Indo-Pacific Energy and AMG Oil are currently drilling their second wildcat well on the Canterbury plains. And Denver-based Anschutz Corporation is continuing its exploration programme in the offshore Canterbury Basin.

I wish the companies involved in all these ventures every success.

Currently there are 49 petroleum exploration permits in New Zealand. Twenty one of these are outside Taranaki, the early centre of petroleum activity, and cover parts of the East Coast, Northland, Canterbury, Westland and West Southland Basins.

There has recently been a big increase in taking out new permits. I am informed that over the next few months there could be some substantial additional explorers entering the New Zealand exploration scene.

I would also like to take the chance of reminding this audience that in the first half of 2001 there will be a Blocks offer for onshore and offshore acreage in both the Taranaki and Canterbury basins. The Government plans to continue with a combination of Acceptable Frontier Offer permitting and Blocks Offers where competitive work programme bids are sought.

Oil short term, gas long term.
From the Government’s point of view it is oil that New Zealand needs now. More oil will help boost the economy and improve our foreign exchange earnings. But we also need to locate more gas to fulfil our long-term energy requirements.

There are few other industries than yours where big economic gains for the country can be achieved so quickly.

The government wants to have a positive relationship with the exploration industry. I am pleased that most exploration companies working in the country show a high level of compliance to the work programmes.

This is one of the main reasons for the recent increase in the level of well drilling and seismic acquisition. On occasions it is necessary to take action against companies failing to meet the government’s expectations. For the whole industry such actions do have the effect of freeing up new territory for exploration by other companies.

Partnership
This leads me to the issue of partnership between government and the industry. Open dialogue is important and while I've spoken of what the industry has achieved it is important to note the government is working to get the playing field as level as possible for you to do well on. We are addressing issues like compliance costs and access issues already, and the feedback I have had from the industry is that we are having a better dialogue now than there has been in recent years.

Compliance costs
I know compliance costs are a significant issue and as Commerce Minister I have put compliance costs clearly on the agenda. We have produced a four pronged approach which will be run under the banner of "Simplicity 2002".
That four pronged approach is:
A Business Compliance Cost Panel.
The Panel makeup should be finalised by Christmas and up and running early next year.
Implementing the 1998 Recommendations of the Commerce Select Committee
Officials will report to me on the implementation of that committee's recommendations by the end of this month and I will establish an officials committee that will deal with the issues from the Business Panel.
One of the recommendations of the 1998 committee was that information flows to government organsations are rationalised so that SMES are asked for information only once.
Industry specific test panels
I expect an implementation plan for industry specific panels by the end of this month.
Business Compliance Cost Statements
The government will publish a new business compliance cost statement as part of all new legislation. This is a very significant step for government.

In my new role as Associate Revenue Minister I am being delegated the tax simplification and compliance cost issues – these will fit neatly the compliance reduction programme.

I am certain issues relating to the Resource Management Act will be raised as well.

Access
One of the other issues that you have raised is that of access to crown land in particular Timberlands Westcoast land. I am chairing a ministerial group that will be making recommendations on the allocation of Timberlands Westcoast land. One of the issues I am keen to address as a result of this work is access for mining and exploration industries - and I would expect to have some announcements early next year. Currently we are awaiting a report from a government appointed working party who have been charged to address the land allocation issue.

Deputy Prime Minister Jim Anderton told a recent mining conference he was determined to see government and industry work in partnership to clear the roadblocks in the way of sustainable development. I support him in that and I believe it applies to your industry.

Conclusion

Before I wrap up I would also like to take this opportunity to thank my officials for their work they do in this area. The fact that I am constantly reminded by people from the industry what are a valuable and knowledgable group of advisors they are is proof of the good job they are doing.

Thank you for your time. In closing I'd like to reiterate that the 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.

ENDS

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