Launch of Block Offer 2016

Monday, March 21, 2016 - 09:11
Energy and Resources

Good morning.

It is a pleasure to be back at the Petroleum Conference.

I’d particularly like to welcome our international guests - I hope you have a wonderful time in New Zealand.

Let me start by acknowledging the challenging operating environment the industry is facing at the moment.

You have been through this before - oil prices were around $12 a barrel in the late 1990s - but the current price is a massive drop from what it has been for most of the last decade.

It will take some time to adjust to, but as you know oil and gas is a long term game and one that the Government remains committed to.

If there is one benefit, it is that difficulty breeds innovation. You have to come up with different ways of doing things. These circumstances will help make the industry more resilient and set it in better stead for the future.

I would like to reflect on the long-term successes we have seen.

Since the mid-1970’s New Zealand has produced 510 million barrels of crude, condensate and natural gas liquids; and almost 190 billion cubic metres or 7,000 petajoules of natural gas. Industry has paid billions of dollars in royalties - not to mention taxes - to the Crown. 

For a small country in a corner of the Pacific, those are quite impressive numbers.

And some of the activity going on right now is a vote of confidence in the future of the industry. For example, Shell’s Caledonia Basin seismic survey is providing never known before scientific information in the most frontier of basins.

The uptake of acreage in recent years, for example in the Pegasus and East Coast Basins, is also very promising. We have attracted some very highly regarded international companies and I look forward to their exploration work progressing in the coming years. While on Pegasus, I was pleased to see Statoil are showing further interest in this basin, with their planned farm-in to OMV’s permit. 

Renewables and Natural Gas

I’ve spoken a number of times about the idea of an 'energy trilemma'.  As the World Energy Council puts it, we need to balance the tensions between the need for energy security, society’s need for accessible and affordable energy, and the need for environmental sustainability.

Energy diversity is key to achieving these aspirations and getting the balance right. While the world must progressively transition towards a low carbon future, it can’t and won’t happen overnight.

This is why New Zealand takes a long-term view, with a mixed and balanced approach to our energy future, which sees us pursuing opportunities in both renewable and non-renewable energy.

Oil remains a significant export earner and natural gas is a vital input to industry, electricity generation and is used in more than 300,000 homes in our country.

The industry provides highly skilled and well paid jobs, and pays several hundred million dollars in royalties each year which fund essential infrastructure and services for all New Zealanders.

All of this comes from one petroleum basin, Taranaki, but we have 17 others that are also underexplored.

I am particularly interested in our untapped potential for natural gas. For a long time New Zealand has been considered, rightly or wrongly, “gas-prone”. These days that label may work more in our favour.

As the cleanest fossil fuel, countries are increasingly choosing gas as an alternative to coal for electricity generation. 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 to a lower-carbon global economy.

This role as a bridging fuel is even more relevant in the wake of the Paris Climate Change Agreement, as countries around the world take a hard look at their energy use and how they can reduce their carbon footprint.

Internationally gas is in major growth mode. Japan, South Korea, China, and India are already big consumers of gas for electricity generation. There is real potential for significant growth in our most populous nations, China and India, as they currently rely heavily on coal.

To satisfy this burgeoning demand, tens of billions of dollars have been invested in LNG projects in Australia, and our neighbour is expected to soon eclipse Qatar as the world’s largest LNG exporter.

If there is a major gas find in New Zealand, we are in an excellent position to cater to that Asian market. Not only could we reap economic benefits from gas production but in helping those nations replace coal with gas, we would be making a positive contribution to reducing global emissions.

Policy Settings

This year the Government will be taking the opportunity to ensure regulatory settings are fit for purpose and that our house remains in order.

In the last few years we have significantly lifted our game in regards to health, safety and environmental requirements – including regulating activities in the EEZ for the first time.

This house-keeping has turned to some thornier but essential issues.

In response to the Parliamentary Commissioner for the Environment, we have released guidance around fracking and land farming, and are considering the Commissioner’s other recommendations to improve regulatory oversight of onshore petroleum exploration and development. Industry, local government and iwi have been consulted in this and that input has been valuable. 

The Government is also undertaking work on decommissioning requirements and continuing the review of financial assurance. I can assure you that you will continue to be consulted on all of these important issues along the way.

Feedback from industry on our annual Block Offer approach has been positive. There is always room for improvement and potentially some tweaking to be done, but generally our approach has proved to offer the stability, consistency and transparency industry wants.

In uncertain times, like we are in now, consistency is crucial. Companies have to manage their way through this low-oil price environment but our role as Government is to ensure our investment environment stays consistent and predictable.

Block Offer 2016

On that note, it is my pleasure to announce the areas that will be part of Block Offer 2016.

Since 2012, the National Government has granted 44 exploration permits throughout New Zealand by way of the annual Block Offer.

We’ve attracted new operators to our shores including Chevron, Statoil, Woodside and ONGC Videsh, which indicates to me that the Block Offer is an effective means of promoting New Zealand’s potential.

As in the past, this year’s tender features a mix of onshore and offshore areas. These areas were selected based on industry nominations, prospectivity assessments and they follow consultation with iwi, hapū and local authorities.

Block Offer 2016 includes four offshore release areas: in the Reinga-Northland Basin, Taranaki Basin, Pegasus and East Coast Basins, and Great South-Canterbury Basin. There is one onshore release area in Taranaki.

The total acreage included in the tender is approximately 525,500 square kilometres (525,515). This includes about 1,060 (1,062) square kilometres onshore.

We will give industry more than five months to prepare bids for this tender. All bids are due by 7 September this year.

The guidelines for making a bid are clearly defined in the Invitation for Bids, which is available at New Zealand Petroleum & Minerals’ booth at this conference and on their website. My intention is that permits will be announced in December this year.

Now, let’s turn to the areas included in Block Offer 2016.

Let’s start with the offshore release areas.

The Release Area in the Northland- Reinga Basin includes 186,000 square kilometres (186,181) of available acreage.

While we have seismic data for this basin dating back to the 1960s, it is large and still relatively unexplored. It is believed to be prospective for oil and gas, and it shares a lot in common with the Taranaki Basin.

The potential of this frontier basin is now beginning to be understood; Statoil were awarded their first permit in the basin for Block Offer 2013, and successfully bid for a second permit in Block Offer 2014.

The Taranaki Basin is a proven province. It has seen some significant discoveries – such as the Maui, Pohokura, Tui and Maari fields - but there is still plenty of scope for further exploration.

The Release Area in the offshore Taranaki Basin includes almost 61,000 square kilometres (60,978) of available acreage.

With multiple permits granted in Taranaki each year since the Block Offer began in 2012, this basins’ potential is clearly understood.

The Release Area in the Pegasus and East Coast Basins includes more than 68,000 square kilometres (68,662) of available acreage.

These two basins are considered among New Zealand’s most promising. Both are prospective for oil, gas, and gas hydrates gas, and both are under-explored.

This year’s Block Offer includes new acreage on the East Coast, following a Government funded survey over the area. The results of the survey are available in this year’s Petroleum Exploration Data Pack.

Two permits were granted to Anadarko in the Pegasus Basin for Block Offer 2012. Block Offer 2014 saw three 15-year petroleum exploration permits granted in these basins to a joint-venture between Chevron and Statoil, and one to OMV.

The Release Area in the Great South and Canterbury Basins includes approximately 208,000 square kilometres (208,632) of available acreage.

These basins have seen exploration activity since the early 1970s, with a number of sub-commercial discoveries.  Both basins are considered prospective for gas, condensate and oil.

In this Government’s first Block Offer, Shell received a permit in the Great South Basin, with permits granted to Woodside and NZOG in Block Offer 2013.

Now, to the onshore Taranaki Release Area – where just over 1,000 (1,062) square kilometres is available in this year’s Block Offer.

Onshore Taranaki is where New Zealand’s petroleum industry began. The basin is prospective for oil, gas and condensate, and has been producing oil and gas commercially since the early 1900s.

Today the basin has 20 producing fields. Considering that almost a third – 14 out of 44 – of the permits issued since 2012 have been in onshore Taranaki, it is clear the area still has untapped potential.

In closing, it is my pleasure today to officially open Block Offer 2016.

Today also marks the beginning of the Block Offer 2017 process – with the request for industry nominations. I expect to launch that Block Offer in a year’s time.

The Block Offer is in integral component of New Zealand’s mixed and balanced approach to energy and I believe it offers some excellent opportunities for investment in our petroleum industry.

As I said at the beginning, these are trying times. We know commodity prices are cyclical, and hopefully we have reached the bottom of this cycle.

We also know that petroleum development is a long-term game and opportunities grasped now could have significant pay-offs in the decades to come.

I look forward to your interest.

Thank you.