Energy Minister Collins sees exploration activity returning in latest block offer

Energy Minister Judith Collins expects oil and gas exploration activity will return as margins start to improve.

She was launching the government's 2017 block offer for five offshore, two onshore, and one mix of on and offshore areas spanning 481,735 square kilometres, with bidders having until Sept. 6 to lodge their applications. The tender follows a particularly weak year in 2016 when there was just one successful bid, by Todd Corp, for a permit in the Taranaki Basin. That year there were four offshore and one onshore areas covering 525,515 sq km available in the tender.

"The global exploration and production industry is cyclical - the low number of permits granted in last year's block offer reflects a significant downturn in the sector," Collins said in a speech to a petroleum sector conference in New Plymouth. "However, activity in New Zealand and globally is expected to pick up as operator margins improve."

Domestic exploration has dwindled after last year's slump in global oil prices below US$30 a barrel made forays into remote parts of the world, such as New Zealand, less appealing for major international players. Since then prices have partially recovered, with Brent Crude recently at US$50.81 a barrel, although that is far below levels to make offshore or deepwater exploration attractive. Mining, which includes oil and gas exploration and extraction, accounts for about 1.4 percent of the economy and has shrunk 13 percent over the past two years.

Collins told the Petroleum Exploration and Production Association of New Zealand conference that the growing volume of merger and acquisition activity both locally and abroad bodes well for investment in the domestic sector, especially as the "frontier basins" in the broader Exclusive Economic Zone remain "largely underexplored".

The block offer announced today consists of offshore areas in Northland/Reinga, Pegasus/East Coast, Hawke Bay, Taranaki, and Great South/Canterbury, and onshore areas in Taranaki and Southland, plus a mix of off and onshore in Taranaki.

Collins said the Hawke Bay offer includes an area three nautical miles from shore to allow for more shallow-water acreage and known gas prospects in the region, while the onshore Southland Basin was included for the first time. Both were being offered at a time when the market favoured relatively cheap shallow-water and onshore exploration, she said.

Against this backdrop, Collins said some oil fields were nearing the end of their lives, and NZ Petroleum & Minerals is working with other government agencies to develop regulations for decommissioning.

NZX-listed New Zealand Oil & Gas recently sold its stake in the Tui oil field off Taranaki to Tamarind, an energy company backed by Blackstone Energy Partners, which specialises in end-of-life capability.

Collins said concerns raised by the Parliamentary Commissioner for the Environment about liability for the failure of onshore wells led to a consultation on potential responses to the issue, and that officials are also looking at offshore financial assurance to ensure operators have appropriate insurance cover for the cost of a spill.

"We need to make sure the environment is protected, but I want to make sure that risk and cost are appropriately balanced," she said. "It's about balancing economic and environmental interests, while ensuring New Zealand remains a predictable and globally competitive investment destination.

(BusinessDesk)