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East Coast oil & gas study shows economic opportunity

Hon Steven Joyce
Minister for Economic Development
Hon Simon Bridges
Minister of Energy and Resources

7 March 2013 Media Statement
East Coast oil & gas study shows economic opportunity

A joint economic development study has highlighted the potential of developing an onshore oil and gas industry and thousands of new jobs on the North Island’s East Coast.

The East Coast Oil and Gas Development Study, released today in Napier by Economic Development Minister Steven Joyce and Energy and Resources Minister Simon Bridges, was commissioned to look at the benefits, impacts and risks of petroleum development.

It was a joint study between the Ministry of Business, Innovation and Employment (MBIE), the eight councils on the East Coast from Gisborne to the Tararua region and regional economic development agency, Business Hawke’s Bay.

“The study shows that if significant oil discoveries on the East Coast were found they could become a real game changer for households and businesses in that region and across New Zealand,” Mr Joyce says.

“East Coast communities could enjoy similar benefits to a region like Taranaki, where oil and gas operations contribute $2 billion to New Zealand’s annual GDP and supports more than 5000 regional jobs.

“Besides the potential economic benefit and boost to employment, the study gives a realistic assessment of the East Coast’s oil and gas reserves, what sort of infrastructure is required, as well as outlining the environmental risks.”

Mr Bridges says the study is about stimulating discussion between Government, East Coast councils, the community, local iwi and industry about the opportunities if such development was to eventuate.

“It was intended to provide much needed information to all stakeholders in the region but not to make any recommendations,” Mr Bridges says.

“It gives a range of scenarios that might result from any oil and gas exploration and makes it clear that because any impacts would be region-wide, it makes sense for those discussions to happen at the regional level.

“There are areas of the East Coast that have high levels of unemployment and those communities only need to look to the example of Taranaki to see how an oil and gas industry operating in that region has meant more jobs and higher wages.

“The report allows the East Coast region to assess whether it wants to take those opportunities for jobs and economic growth.”
The study is available at:
Questions & Answers

1. Why undertake a study into a petroleum development on the East Coast?
The petroleum sector has generated billions of dollars of investment in the Taranaki region, and significant revenue for the government in company taxes and royalties. Over $3 billion has been collected in royalties since the 1970s, operating alongside existing industries such as tourism.

It is important for any development potential on the East Coast to reflect local conditions, such as the geology and local environment. The study considers the opportunities, any risks associated with development and how these are managed, so as to inform public debate on future opportunities.

2. Why does the government want to increase gas and oil exploration interest in New Zealand?
Development of New Zealand’s oil, gas and mineral resources is part of a balanced approach to New Zealand’s energy future – that includes exploration and production alongside are very high levels of renewable energy.

Oil and gas are important contributors to the New Zealand economy, and there is potential to increase the returns from responsible development of our resources. For example, oil is New Zealand’s 4th largest commodity export and gas is an important contributor to domestic industries and electricity generation. Production contributes in excess of $2.5 billion to New Zealand’s GDP.

The government receives about 42 per cent of a petroleum company’s accounting profit, which includes both taxes and royalties. These taxes and royalties help pay for services that benefit all New Zealanders, such as schools, hospitals, roads and broadband.
It is also expected that regional benefits including job creation and training, community investment and infrastructure development would occur with oil and gas development.
3. Who undertook the East Coast Oil and Gas Development Study?
The study was a joint initiative between the Ministry of Business, Innovation and Employment (MBIE) and eight district, regional and unitary councils on the East Coast.

Independent experts were commissioned to undertake different aspects of the study, such as on the region’s geology, and economic modellers assessing the potential impact of such a development for the region in terms of GDP and jobs:
• GNS Science (GNS) prepared a report on aquifers in the region, and geological input reports.
• Michael Adams of Michael Adams Reservoir Engineering produced a report on development scenarios.
• NZIER produced a report on the Economic Potential of Oil and Gas Development in the Study Region.

4. Has a study like this been done before?
The closest comparable study is ‘The Wealth Beneath Our Feet’, which considered the contribution of Taranaki’s oil and gas industry to the region and nationally. It was published in December 2010 by Venture Taranaki, the region’s development agency. It showed that the Taranaki oil and gas industry directly employs around 3,560 FTEs in Taranaki, and a further 1,500 FTEs in sectors supporting the industry.

When looking at the national impact of the Taranaki oil and gas industry, employment rises to 7,700 FTEs (including induced and indirect effects). The industry, including flow on effects contributes $2 billion in GDP to the local economy and $2.5 billion to the New Zealand economy. The study is available at www.taranaki.info/news/files/211.pdf

The former Ministry of Economic Development (now part of MBIE) also produced a report in 2012 looking at the potential of the oil and gas sector for the country. This Government study analysed the value to the economy of the development of a “second Taranaki”. Key points were:

• Total New Zealand GDP could grow by an average of $2.1 billion or 1.7% for each year of a 30-year development of a second basin, with the creation of 5,500 jobs.
• The oil and gas sector is capital intensive and brings with it high-paying jobs and high levels of investment in innovation.
• It’s estimated that a single field in that basin could generate between $557 million and $3.2 billion in regional GDP over the life of the development.
• The sector represents one of New Zealand’s best opportunities for growth.

5. Is everywhere shown on the East Coast study area map open to development?
No, the map shows the extent of the coverage of the economic study only. This does not mean the whole area is open to potential activity. Actual activity typically involves much smaller areas.

Before any activity can occur, permits under the Crown Minerals Act, consents under the Resource Management Act, and land access agreements are required. The study area does not include land listed in Schedule 4 of the Crown Minerals Act 1991, and in any case such land would not be considered for development. Schedule 4 covers areas of particular natural significance and includes national parks and nature reserves.

6. Does the area under the study include any areas listed in Schedule 4?
Sensitive public conservation land listed in Schedule 4 of the Crown Minerals Act 1991 has been excluded (principally Urewera National Park, but also Huramua Nature Reserve north of Wairoa), and would not be considered for development.

Schedule 4 covers areas of particular natural significance and includes national parks and nature reserves.

7. What conservation land is covered by this study?
Some non-Schedule 4-listed conservation land was included in the study.

The study was designed to get an idea of what, if any, petroleum resources might be available in the Study Region and the benefits and risks of exploration. It considered the extent of the overall geological formations where petroleum resource may be present.

The Government recognises the importance of conservation land and ensuring that it remains protected from inappropriate development. Before an individual site is developed, more detailed assessments will need to prepared as part of the resource consent application and will be subject to rigorous requirements in accordance with the Resource Management Act.

8. How will the government provide protection and appropriate management of sites of local, cultural and historical significance?
The Crown recognises the importance attached to sites of local, cultural and historical significance and the responsibility to ensure they are actively protected from development where appropriate.

Under the Minerals Programme for Petroleum, the Crown has responsibilities with regard to the active protection of areas of particular importance to iwi. Before any development can take place, companies are required meet the requirements of environmental legislation that manages the effects of activity via the Resource Management Act 1991, and has provision to recognise the significance of particular sites.

9. What impact will development have on water quality and aquifers in the region?
The protection of water quality is critical in any development proposal and one of the input reports for the East Coast Study was a study of the aquifers in the region to provide information on their exact location so as to support informed decisions.

All drilling operations in New Zealand are subject to stringent regulations that regulate such activity and take into account any potential adverse effect on water quality and aquifers.

The petroleum industry has been operating effectively for over 40 years in New Zealand, and over that time there has been a strong safety record.

10. How is the government responding to concerns about health, safety and environmental controls in New Zealand?
The government is committed to ensuring that New Zealand has a world-class regulatory environment for the safe and environmentally responsible exploration, production and transportation of our petroleum resources.

The government has been, and is, undertaking a number of initiatives this year to strengthen the overall regulatory regime for petroleum activity and ensure an appropriate balance between economic benefits and health, safety and environmental concerns. These include:
• strengthening upfront provisions in the Crown Minerals Act 1991 regarding the health, safety and environmental credentials of operators
• putting in place a comprehensive regime to manage the environmental effects of all petroleum exploration activities in EEZ and out to the extended Continental shelf
• strengthening the regulation of wells and well drilling activities following international best practice
• the establishment of the High Hazards Unit with a marked increase in the number of inspectors and the appointment of a Chief Inspector
• the recent announcement to establish a new, stand-alone health and safety agency
• strengthening guidelines for minimising acoustic disturbance to marine mammals from seismic operations
• strengthening regional partnerships to increase our oil spill response capability.

The changes will provide a robust health, safety and environmental framework governing activity through the full life cycle of petroleum development activity. The initiatives also ensure better coordination and collaboration between government agencies involved across the life of a petroleum development operation.

11. How will the government ensure benefits of oil and gas development are seen at a local level?
Regional benefits including job creation and training, community investment and infrastructure development are also expected should development occur.

The East Coast Oil and Gas Study provides a set of scenarios. If the resource proves to be prospective and can be economically recovered, this could mean between 200 and 2,300 jobs in the region, and over time the proportion of locally based workers would increase. These would include high wage jobs, and potential growth for supporting sectors such as mining and engineering services.

Much of the benefit remains within the region. In the case of Taranaki, for example, the only region currently producing oil and gas in New Zealand, Venture Taranaki estimated that the local industry generated 5,090 direct and indirect fulltime-equivalent positions in 2009. Government receives about 42 per cent of a petroleum company’s accounting profit, which includes both taxes and royalties. These taxes and royalties help pay for services that benefit all New Zealanders, such as, schools, hospitals, roads and broadband.

12. What oil companies are operating in the region?
There are a number of permits across the area, and NZP&M is currently consulting on a proposal to offer further permit areas for exploration as part of Block Offer 2013. East Coast permits have been awarded to the following companies:
- TAG Oil
- Westech Energy New Zealand
- Marauder Resources East Coast (NZ) Limited
- NZ Energy Corporation.

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