NZ's push to become a multi-basin nation

Oil and gas companies might spend up to $2.3 billion on almost 90 new oil exploration and production wells over the next two years. What could that mean for the country and regions outside Taranaki? David Williams reports.

John Kidd says oil and gas is ultimately a risk game.

"The more wells you drill, the more success you will have. It's just a statistical reality."

Mr Kidd, Edison Investment Research's New Zealand head of research, has led a report which says 88 potential wells have been identified in New Zealand, with 28 offshore, including off the Taranaki and Canterbury coasts and in the Great South Basin.

The industry appears to have had more energy in recent years, as new entrants such as TAG Oil from Canada and Texan explorer Anadarko shake up an industry that at times, Mr Kidd says, has appeared dormant.

Young and hungry explorers are spending money and drilling wells, he says, in a market which appears to have come of age.

"Almost from the bottom up it has really pushed the sector along."

Taranaki is not just the powerhouse – it's the only house. It is New Zealand's only producing oil and gas basin.

Regional figures show the industry's $2 billion impact on Taranaki, with more than 5000 people employed, either directly or indirectly.

By comparison, agriculture is worth $4.6 billion to the region, with an estimated 3720 jobs, and tourism provides a $124 million boost, employing more than 1800. 

Oil is New Zealand's fourth largest export, worth $400 million in royalties and $300 million a year in company tax.

Mr Kidd says the industry's narrow focus is broadening as companies start to invest money in understanding New Zealand's frontier basins.

If New Zealand wants a model from a similar-sized country it need look no further than Norway.

Huge offshore oil and gas deposits were discovered in the late 1960s.

The royalties and profits from its North Sea oil revenues have been invested since 1996, and that "pension" fund now stands at more than $US500 billion.

Norway, a nation of five million people, has become the envy of the world – and the world's second-largest gas exporter and the seventh-largest oil exporter.

Instead of borrowing to fund schools and hospitals, Norway withdraws about 4% a year from its fund to pay for public services.

However, even Norway has been caught by the eurozone crisis. Tighter bank regulations mean it now wants pension funds to finance the expansion of its oil and gas industry.

Search for a new Maui

Mr Kidd says a non-Taranaki commercial-scale find would be transformational for New Zealand, which could lead to South Island cities getting piped gas, as Wellington and Auckland have.

For Southland, he says the change would be greater than the dairy boom or its institute of technology's "zero fees" incentive.

The oil and gas sector is highly productive.

"Sure, it's very capital intensive but it's also very labour intensive as well.

"You just need to look at New Plymouth and the Taranaki region and see the level of business that goes on.

"Zero fees is exactly that – it's offering a subsidy or a discount to attract people, whereas something like the oil and gas sector there's a very long flow down there – because you need people on the frontline to run these assets, you need the people to build it, you need the people to service those people who build it.

"There is a lot of value-add through the supply chain."

Venture Taranaki chief executive Stuart Trundle says the oil and gas industry creates jobs through the port and engineering firms, but most beneficiaries are self-employed Kiwis and small business owners.

"These aren't the stereotypical oil people, it is people running the corner pie shop, it is the dairy, who are benefitting and being employed through the indirect benefits of having a major employer in town."

He says in some cases the investments in Taranaki oil and gas projects over the last few years have their genesis in exploration programmes in the 1990s.

Important there are appropriate local, regional and national safeguards and they are regularly monitored, he says.

Industry sparks rebirth

BusinessNZ chief executive Phil O'Reilly says oil and gas has sparked the rebirth of New Plymouth.

"I don't know whether you went there 20 years ago, I did, it wasn't too flash and it's a really nice place to be now. And a lot of that's to do with the health and wealth that comes out of supporting those kinds of activities."

He also says research and development from the likes of government science organisation GNS could also be "an internationally tradeable skill-set".

David Robinson, chief executive of Petroleum Exploration & Production Association of New Zealand, tempers the hype with reality.

He says there is competition to get rigs, especially this far south, and not all the prospective wells might be drilled.

There is also legislation going through parliament governing the country's exclusive economic zone, and new drilling regulations under consideration.

He says it can take a decade or more to prove up a commercial well including prospecting and exploration permits, seismic surveying, analysis, contracting a rig and getting consents, drilling and appraisal.

That said, the Taranaki economy outperforms every other regional economy "by a margin", he says, on the back of strong dairying and, the icing on the cake, oil and gas.

What could it mean for the South Island, should a commercial-scale find be discovered?

"It would be a great shot in the arm for those local economies.

"If we can make commercial discoveries in the Canterbury basin or Great South basin, as well as Taranaki, we would become a multi-basin nation, and that makes quite a significant difference in terms of the way overseas investors look at New Zealand.

"That will attract more investment because the chances of finding commercial oil and gas increase."