Hon Judith Collins

Minister of Energy and Resources
22 March 2017 Speech Notes
Launch of Block Offer 2017

It’s a pleasure to welcome you all to New Plymouth in the Taranaki province, the heart of oil and gas production in New Zealand.

Although I’m relatively new as Energy and Resources Minister, I’m very enthusiastic about the future of this dynamic and extremely productive industry.

I’d particularly like to acknowledge PEPANZ for organising the conference, and our international guests for showing their interest this year. I hope you enjoy your time in New Zealand.

Industry downturn

There’s no doubt the last few years have been particularly challenging for the industry. Global markets have experienced an oversupply of oil leading to lows in prices not seen in very many years.

This has created an extremely tough operating environment for all in the sector, and New Zealand hasn’t been immune.

I recognise the difficulties you’ve all faced through the downturn as many of you have had to make very tough decisions about where your expenditure goes.

And there has been a human toll, too, with many parts of the industry having to downsize.

But this is a resilient industry, and we can take comfort in the fact that market downturns are symptomatic of the cyclic nature of the industry.

It’s promising to see signs that global oil prices may have reached their lowest point in this commodity cycle, indicating a sustained recovery.

Additionally, the current high level of merger and acquisition activity globally, and particularly in New Zealand, indicates a continued willingness to invest in the sector.

Economic benefits

As we look back on where the industry has come from, now is a good time to take stock of just how much of a vital role oil and gas plays in the world economy. It’s a role that will continue for some time yet.

The contribution the sector makes to economies around the globe is particularly significant. While it’s widely appreciated just how integral petroleum is to the transportation and energy generation sectors, it’s not as well-known just how much it contributes to quality of life more generally.

It’s commonly used in chemicals, plastics and synthetic materials. This includes everything from clothing to asphalt for roads, fertilisers for agriculture, to smartphones that have become so prevalent around the world.

And there are no signs the contribution the sector makes in keeping economies going will abate any time soon.

This will be particularly evident as a world population that’s expected to increase from around 7.5 billion currently to around 9.7 billion by 2050 puts increasing demands on global resources.

The International Energy Agency projects that oil and gas will make up about half of the world’s energy consumption in 2040. Most of the projected growth in oil demand to 2040 will come not from fuel for passenger vehicles but from freight, aviation and petrochemicals, where alternatives are scarce.

Climate change

Of course, economies around the world have a responsibility to limit the effects of climate change. There’s much we can do and a great deal of work is underway globally, including in New Zealand, in encouraging greater use of renewable forms of energy and greater uptake of electric vehicles.

But looking at the broader picture, we also need to take a balanced approach.

If nations abide by the Paris Agreement pledges, the IEA forecasts that 37 per cent of electricity will be generated from renewables globally by 2040, meaning petroleum products will still form a large part of the energy mix for decades to come. That’s why taking a long-term view of global energy supply is in everyone’s interests.

It’s important to emphasise, too, in the debate around the sector’s contribution to carbon emissions, that not all oil is burned and turned into energy sources such as transport fuels and electricity generation.

The petroleum industry has a role in transitioning to low carbon fuels. Natural gas has 40 per cent lower carbon emissions than coal for electricity generation, making it a key transition fuel. It’s believed natural gas could displace coal as an energy source in countries such as China and India, where coal is heavily used.

Local Benefits

I’d like to put the focus on the local industry for just a moment, and pay tribute to the contribution it makes to this region. It’s appropriate that this year’s conference is held in New Plymouth. New Zealand and Taranaki in particular, has had a long and productive history in oil and gas dating back to the 1800’s.

Over time, it’s grown to become a major contributor to the nation’s economy, with fields developed in Taranaki in the 1950s still producing oil and gas today.

Oil is New Zealand’s sixth largest commodity export, and gas is a major contributor to domestic industries, households and electricity generation. Annually, oil and gas production contributes more than $2.5 billion to New Zealand’s GDP.

Jobs in the sector are typically highly skilled and well-paid, and there are flow-on effects too, with other parts of the economy benefitting from the industry’s demand for goods and services.

All of New Zealand’s oil and gas is produced from fields in the Taranaki region at present, and some of these fields are expected to continue producing oil and gas into the 2030’s and 2040’s. Significant potential exists for discovery and development of new fields not just in Taranaki but other parts of the country too, if exploration activities are successful.

Looking at New Zealand more broadly, in addition to our producing oil and gas fields in the Taranaki Basin, we offer 17 known petroleum basins across our Exclusive Economic Zone. These frontier basins are largely underexplored and are considered to have significant potential for commercial petroleum discoveries. But more about that soon.

Regulatory regime

I’d like to take a moment to recognise the petroleum sector’s commitment to workplace health and safety. I know that for you, ensuring your employees are safe and that your work is carried out to international best practice is part of your bottom line.

We all know the likelihood of a major spill is low, and we have never had a major spill in New Zealand. While the government has developed a robust regulatory regime, your focus on upholding excellent health and safety standards- which often go above our requirements- helps ensure New Zealand is protected from a damaging event.

I do understand the importance of ensuring that you can continue to develop your practices as the sector evolves and that our wider regulatory regime allows this to happen.

In 2013, the Government amended the Crown Minerals Act – the key legislation setting out how rights to New Zealand’s petroleum and mineral resources are managed. The amendments encouraged development of the Crown’s mineral estate, simplified the legislation where appropriate, and ensured better coordination between government agencies.

A key focus for me this year is making sure our regulation remains world-class; ensures that risks are appropriately managed; and that health and safety and Crown Minerals Act objectives are met.

We have several main areas of work underway at present.

Some offshore oil and gas fields are, for the first time in New Zealand, nearing the end of their lives and we need to think about how best to decommission them. NZ Petroleum and Minerals is working with other government agencies to develop the regulations for decommissioning and I am leading the group of Ministers involved in this.

We need to make sure the environment is protected but I want to make sure that risk and cost are appropriately balanced.

Following concerns raised by the Parliamentary Commissioner for the Environment about liability for the failure of onshore petroleum wells and NZ Petroleum and Mineral’s investigation into historic abandoned wells last year, I’d like to announce that consultation has begun on potential responses to this issue.

Realistically the likelihood of well failure is low and operators are usually responsible for managing any issues. To give perspective, of the almost 1000 wells drilled in New Zealand to date, third parties have only had to pay in four cases. As an industry we need to work out the best way to manage this. The consultation document is available on MBIE’s website, and I’m looking forward to hearing your views. If you’re interested, there is a presentation on this topic tomorrow.

We’re also looking at offshore financial assurance. Last year my officials worked with the Ministry of Transport to develop legislation to ensure that operators of offshore installations have appropriate levels of insurance to cover the costs of potential oil spills.

All of this work is about being clear in our expectations of industry and creating the regulatory certainty you need to get on with the job.

It’s about balancing economic and environmental interests, while ensuring New Zealand remains a predictable and globally competitive investment destination.

I’d now like to move onto the next part of the today’s proceedings, which is to formally launch Block Offer 2017.

Block Offer 2017

When we introduced the annual Block Offer in 2012, our goal was to increase exploration activity in the petroleum sector by building an efficient, stable and transparent process.

That goal is built on year on year, with Block Offers continuing to provide investors with the opportunity to develop portfolios featuring multiple basins of varying levels of maturity.

Since 2012, we’ve awarded 45 exploration permits through the Block Offer process, attracting new operators to our shores including Chevron, Statoil, Woodside and ONGC Videsh.

This indicates to me that we’ve captured international attention in a relatively short period of time, boding well for the future potential of our oil and gas resource.

We all know the impact the drop in oil price has had on exploration across competitive tenders globally. But we also know petroleum development is a long-term game. It’s important we maintain that focus, and continuing our Block Offer puts the spotlight on New Zealand as a compelling place to invest.

We offer a very favourable proposition to potential investors.

Along with our well-developed infrastructure and the potential of our resources, the other point about investing here is that we’re highly regarded as a good place to do business.

You’ll soon be presented with more detail about what’s in this year’s Block Offer, which comprises a total of 481,735 km² across eight release areas. I’d like to just draw your attention to a couple of highlights in this year’s Block Offer.

Hawke Bay

The East Coast-Pegasus Basin is one of New Zealand’s most prospective basins, with known petroleum systems and natural oil and gas seeps. The Hawke Bay release area is located in that basin. In Block Offer 2016, areas in Hawke Bay more than six nautical miles from shore were included in the tender area. We have included areas of Hawke Bay outside three nautical miles from shore in Block Offer 2017 to allow more shallow-water acreage and more of the known gas prospects in the area to be investigated. The current market conditions favour relatively lower-cost opportunities such as shallow-water exploration.

Southland

This is the first time parts of the Southland Basin have been included in the Block Offer. The Southland Basin is an onshore basin that is considered to have very similar geological characteristics to the Taranaki Basin and has been lightly explored for oil and gas. The current market conditions favour relatively low-cost onshore opportunities such as the Southland Basin.

Nominations

I’d also like to signal the beginning of the Block Offer 2018 process – which starts with the request for industry nominations.

This year’s nominations process for Block Offer 2018 has been made more robust to ensure consistency in how proposed areas are considered. This is industry’s chance to signal areas that are of interest to them in terms of prospectivity, and I invite you to make a nomination. This will be covered in more detail by New Zealand Petroleum & Minerals during this Conference.

Conclusion

Thank you for the opportunity to address you. Putting the tough few years behind us, I believe we can look forward to a new cycle in which activity in New Zealand and globally increases as operator margins start to improve.

I look forward to your interest in investing in our industry.

ends

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