Block Offer 2015 Permit Awards

Wednesday, December 16, 2015 - 10:52
Energy and Resources

Good morning.  It’s my pleasure to host you in Parliament for this morning’s Block Offer awards for 2015.

It is clear that this has been a challenging year for the sector.  New Zealand has, along with the rest of the world, felt the ramifications of the global commodity price, which has been lower for longer as a result of increased supply and decreased demand.

Over the past year we have seen some operators seeking to defer or alter their work programmes, as they rethink their commitments. Of course these changes happen fairly regularly for a range of reasons, which may or may not be linked to oil prices but price has to, generally speaking, be a significant factor.

I’ve spoken many times about the vital contribution the sector makes to the New Zealand economy.  Those who question this need only look to the commodity price change and its impact on Government revenue. This year we saw royalties earned by the sector fall around a $100 million to $258 million in the last financial year. And of course across the globe, we have seen companies dramatically reduce their exploration budgets.

Yet while the industry is changing, it will also recover. Perspective is important, and petroleum is, and will remain, an important part of the global energy mix. The International Energy Agency’s World Energy Outlook is forecasting that oil and natural gas will account for almost half of the world’s energy needs until at least 2040.

Indeed, the Government’s confidence in the sector, and our commitment to the Block Offer, remains strong.

The Block Offer process has been designed to attract investment across business cycles.  Our interest is not only in this current cycle, but in looking forward to the future.  Work programmes for frontier permits granted over the last three years are still in their early stages, with exploration drilling still several years away.  By the time drilling in our frontier basins commence, the picture will be quite different.

Some have questioned the Government’s commitment to the Block Offer and petroleum exploration, suggesting we should embrace the fall in commodity prices as part of a general push toward renewable energy. 

I have absolute faith in New Zealand’s renewable advantage, and I take every opportunity to promote it here and on the international stage.  But petroleum products are prevalent in almost every part of our day to day lives.  I am committed to a mixed and balanced approach to our energy potential, and will continue to pursue an “all of the above” policy as New Zealand and the world transitions towards a low-carbon future.

And, of course, what is lost in this criticism of the Government’s approach is the future potential for natural gas. 

Gas is cleaner than coal and plentiful in New Zealand.  It contributes more than twenty per cent of our primary energy and thus is an important energy source.  It is primarily used for electricity generation, but uses beyond electricity are becoming increasingly important.

Worldwide, and particularly in the United States, countries are increasingly choosing natural gas over coal.  According to the United States Environmental Protection Agency, greenhouse gas emissions fell to their lowest level in 17 years in the world’s largest economy, largely due to a rapid drop in coal-fired electricity, and the rise of electricity generated by cleaner fuels, particularly natural gas.

The International Energy Agency predicts natural gas demand will continue its expansion as the fastest growing fossil fuel, and speak of it as a very important bridging fuel. A major find in New Zealand could help in this transition away from coal and to a lower-carbon global economy.

In 2012 this Government adopted the annual Block Offer approach as part of a carefully considered strategy to generate competitive interest in New Zealand exploration.

It is a good time to ask if the block offer strategy has achieved what we set out to do: enhance competition, attract a wide range of investors and promote development of offshore capability.

Have we created a system that is transparent and offers businesses predictability?

I think the answer is a resounding ‘yes’.  Since 2012 we have seen a significant increase in the number of permits granted each year: In three years the Block Offer process has delivered 35 exploration permits – compared to only five for the three years beforehand. The total committed spend over those three years was over $254 million. 

But beyond the numbers, the major success of the Block Offer has been the quality we have seen in the bids received and the operators we are attracting.  It’s been about the calibre of the bids, the quality of the work programmes and the transparency of the process.

Are we attracting interest in New Zealand as an exploration destination? Undoubtedly.

Successive block offers have shown that oil and gas explorers want long term opportunities in a mix of previously explored and frontier acreage, which means New Zealand has much to offer companies, even as their appetite for risk changes.

And, finally, is New Zealand’s sales proposition able to stand up, even in the face of the current global price uncertainty? I’m pleased to say the answer is yes, and this year’s results confirm it. 

The exploration industry may now be far more sensitive to budgets.  But they are also sensitive to quality of opportunity, and portfolio strength.  In this context exploration companies will seek mature basins, will look to leverage existing infrastructure, and will follow recent discoveries.

So while New Zealand is certainly not immune to global trends, we can respond to them.  We know that industry will consider “riskier” acreage less attractive in the current environment.  It’s completely predictable that companies will want to reduce risk, defer any uncommitted expenditure and target areas that are proven.

The Block Offer was designed to help stimulate frontier investment, but it has also generated significant interest in onshore and offshore Taranaki: 19 of the 35 permits granted in the last three years have been in the Taranaki basin.

And the results this year confirm that while we might think of Taranaki as mature, it’s far from the case. It’s clearly a “proven” province – but industry interest shows its full potential is yet to be realised.

All of the nine permits to be granted this year are in the Taranaki basin. It’s a Taranaki story in 2015.

This has to be seen as an affirmation of Taranaki’s ongoing appeal – with three onshore and six offshore permits.  All permits are awarded to operators already established in New Zealand – they are familiar names and they know New Zealand well. Names like OMV, Petrochem and Todd Exploration, and more recent entrants such as Mont D’Or.

Ladies and gentlemen, the results for Block Offer 2015 show clearly that the annual Block Offer process can attract and sustain investment from domestic and international companies. The New Zealand sector is enduring and resilient.

As Minister, I remain committed to the future of the Block Offer – I hope to see you for the launch of Block Offer 2016 next March.