Opening Address to the New Zealand Petroleum Conference

  • Gerry Brownlee
Energy and Resources

The theme of this year's New Zealand Petroleum Conference is "Transformation".

It's a highly appropriate theme, because New Zealand's natural resources, particularly oil and gas, have the potential to significantly boost our economy.

The government I am a part of is serious about taking advantage of our natural resources to create a more prosperous and secure New Zealand.

For far too long, New Zealand has not taken advantage of the wealth hidden in our hills, in our oceans, and in the ground.

New Zealanders have believed that as a country we are bereft of natural resources in comparison with places like Australia.

Nothing could be further from the truth. The reality is that New Zealand has the 4th largest exclusive economic zone in the world with 15 recognised basins which are potentially capable of producing hydrocarbons.

Incredibly, only one basin - Taranaki - currently has producing fields.

In my time with you today I'd like to talk about what this government has done so far to unlock New Zealand's petroleum potential, and what we're looking to do in the future.

In particular I'd like to provide an update on the workstreams in the government's Petroleum Action Plan which I announced nearly a year ago

In light of the events in the Gulf of Mexico, I also want to talk about our responsibility to the natural environment.

This government is committed to an environmentally responsible regime for managing our petroleum estate and is advancing that work as a matter of priority.

Current state of the oil and gas sector

Let me first talk about the current state of the oil and gas sector in New Zealand.

It's been a very solid last twelve months, building on the great successes of 2007 and 2008.

The petroleum sector has played an important part in getting New Zealand through the recession.

In the 2009/10 financial year petroleum exports totalled $2.1 billion. Petroleum is our fourth largest export earner.

In the 2009 calendar year, New Zealand produced 19.6 million barrels of oil, from 18 producing fields.

New Zealand produced 145 billion cubic feet of gas from 20 producing gas fields, up from 141 billion cubic feet in 2008.

Ultimate recoverable (P50) reserves increased 5.4% on the previous year to 7,118 billion cubic feet.

From a Crown revenue point of view as well, things are very positive. In the 2009/10 financial year the Crown royalty and levy take was $450 million.

2009 and 2010 has seen a number of exciting fields and projects come on-stream such as Kupe and Pohokura.

The Kupe joint venture partners have spent in excess of NZD$1.3 billion building a world class production facility to provide gas, condensate and LPG to New Zealand and world markets.

Kupe recently announced almost $700 million of additional oil and gas reserves. This means the project life of Kupe will be longer than expected which is very pleasing indeed.

AWE has nearly doubled reserves at Tui since the award of a mining permit which extended the life of the project.

Onshore fields such as Cheal have demonstrated increased production potential from varying stimulation techniques.

Origin is developing New Zealand's first underground gas storage operation at the depleted Ahuroa gas condensate field.

The exploration scene is also exciting. The past twelve months has seen the largest exploration programme ever undertaken in New Zealand.

The Kan Tan 4 semi-submersible drilling rig is currently in New Zealand and is part way through a programme of drilling multiple exploration and appraisal wells in the Taranaki and Northland Basins.

The Kan Tan is also going to drill the Korimako and Tarapunga 1 wells in the Northland Basin. These will be the first wells drilled in eleven years in that basin.

Drilling wells is the only way of confirming the presence of a resource, and even wells with uneconomic shows - and there have been a few of those - contribute to a greater understanding of our petroleum systems.

I would have to say the most exciting developments of the last twelve months have been the entry of Petrobras and Anadarko into New Zealand, two of the largest oil and gas companies in the world.

Petrobras was awarded an exploration permit in the Raukumara Basin while Houston-based company Anadarko recently farmed into three permits in deep water Taranaki and offshore Canterbury.

The fact that these two companies have been willing to invest here has really sent a signal to the rest of the world that New Zealand is prospective and open for business.

That's precisely the message the government is trying to send.

Government actions to date

We've taken a number of actions as a government to support the oil and gas sector.

One of our first actions upon taking office was to repeal the ban on new thermal electricity generation, recognising the poor signal this sent to explorers.

We extended the 183-day tax exemption for seismic vessels and exploration rigs to the end of 2014 to make it easier for explorers to work in New Zealand waters.

The government has contributed to increasing our knowledge about our petroleum basins through sizeable investment in a seismic data acquisition programme.

The MV Reflect Resolution shot over five thousand kilometres of 2D seismic in the Pegasus, Bounty, Campbell and the Whanganui Basins last summer, to encourage future exploration in those areas.

Exploration companies have been taking advantage of the Reflect Resolution being in New Zealand by gaining additional seismic work that wouldn't have otherwise been completed.

In addition to newly acquired seismic data, Crown Minerals has recently released almost six thousand kilometres of reprocessed 2D seismic data collected during the 1970s and 1980s.

The government plans to conduct a survey of the Northeast Slope Basin, east of Whangarei, and to continue to make even more quality information available to the industry.

More recently, Crown Minerals has greatly upgraded its online permit and its industrial, geological, and geophysical database.

This will improve the day to day operations of permit holders and potential permit holders.

Providing better information about New Zealand's petroleum resources will increase the attractiveness of investing in exploration for local and foreign companies.

That is why every one of you here at this conference has received the newly released New Zealand Petroleum Basins Handbook.

This technical guide to New Zealand's petroleum basins has been updated to include new information, and more detail.

The government is also supporting the global development of technologies such as carbon capture and storage which may allow New Zealand to harness the economic potential of our lignite resources, while allowing us to offset the carbon dioxide emissions.

In addition to being members of the Carbon Sequestration Leadership Forum and the CO2CRC research partnership, the government has recently become a full legal member of the Australian led Global Carbon Capture and Storage Institute.

Petroleum Action Plan

Almost a year ago I announced the government's Petroleum Action Plan to unlock the potential of our resources.

The Action Plan has seven workstreams and is designed to build on the work that I've just been talking about.

I would like to give you an update on each of the workstreams and tell you what the government has been doing.

The first part of the plan is about explicitly positioning the government as pro-active and pro-development of petroleum resources.

The government wants to send the message that New Zealand is prospective for hydrocarbons and open for business.

Tomorrow the Hon Bill English, the Deputy Prime Minister and Minister of Finance will address you.

That should give you an indication of the importance the government places on the oil and gas sector.

The government has recently released a revised New Zealand Energy Strategy. The whole strategy is about "developing our energy potential" and growing the economy to deliver greater prosperity, opportunities and security for New Zealanders.

The new strategy has our petroleum and mineral resources at the very heart of it.  It is a clear message that the government is keen to see those resources developed.

The message that New Zealand is open for business is reflected in our much improved score in the highly regarded Fraser Institute survey of the petroleum industry.

New Zealand has become a more attractive place to invest in since last year, jumping from the 33rd most attractive petroleum jurisdiction in the 2009 survey to 18th this year.

As a country, New Zealand rose to 5th place in 2010.

Respondents commented that New Zealand is a friendly, politically stable country that has easy access to data, and is committed to development with transparent understandable rules.

The second part of the action plan is about developing a co-ordinated investment strategy to improve the knowledge of New Zealand's petroleum resources.

New Zealand's frontier petroleum basins are underexplored and, as a consequence, there is limited information available to confirm the presence and scope of active petroleum systems.  We know that this type of information is critical for attracting higher levels of investor interest. 

The data acquisition programme I mentioned before has been a real stimulus and is now starting to pay dividends. 

The government is now looking at the next steps for its investment in knowledge.

Given the significant value of producing fields and the much greater potential of future discoveries we need to be managing the petroleum estate in a much more strategic way.

The Ministry of Economic Development and GNS Science are currently bringing together the information required to manage our petroleum basins as a portfolio - enabling the government as owner of the resource to make smart decisions about investment in geoscience alongside decisions about investment promotion and management of acreage.

I expect proposals for an integrated strategy in October

This focus on more active management of the petroleum estate leads on to the third part of the Action Plan, which was a review of the Crown's capability and resourcing to manage the petroleum estate.

It's often forgotten, but the petroleum estate is one of the most valuable assets in the Crown's portfolio. 

The Crown received $450 million in royalties in the 2009/10 financial year from petroleum and $540 million the year before that.

MED is currently working with investment bankers Woodward Partners to provide an accurate valuation of the Crown's royalty cash flows from the petroleum estate.

The last time this was done was in 1998.

Woodward Partners is also examining the value of royalty streams which might reasonably be forecast to arise from future discoveries in the Taranaki basin and in other frontier basins where as yet no commercially-viable fields have been confirmed.

I intend to release the valuation by Woodward Partners soon.

It's obviously very important that such a national asset is well managed.

The review was conducted by Martin Jenkins and Associates, partnering with Macquarie Capital, in the front half of this year.

The review found that Crown Minerals had, with limited resources, done a good job in the last few years in managing our mineral and petroleum estate.

The overall conclusion of the review was that a significant increase in the Crown's capability is required in order to deliver on the objectives of the Petroleum Action Plan as well as the Government's objectives for the development of other mineral resources.

I'm therefore announcing today that the Government is going to create a larger and more high profile Crown Minerals group within the Ministry of Economic Development. The new unit will have a much more commercial and strategic approach.

There will be a substantial increase the number of staff in the unit so it has better access to the requisite commercial and technical skills. This will enable the unit to better meet the needs of both industry and the Government.

The new unit will have greater industry experience, substantially increased technical ability relating to the commercial realisation of discoveries, and increased levels of resources across the board, especially in relation to compliance and permitting.

The new unit will be a key driver of the integrated investment strategy I referred to a few moments ago.

We will also be establishing an advisory board to oversee the new unit, with a range of technical and commercial perspectives to support the development of commercial resource management approaches.

We envisage appointing to the board independent senior executives with international and local experience in the petroleum and minerals sectors.

The fourth plank of the Petroleum Action Plan was about improving the quality of information provided by industry participants.

The quality of petroleum reserve data had become a source of concern as annual reported reserves have fluctuated substantially from one year to the next.

Decisions regarding investment in developing the Crown's oil and gas resource should be made with the benefit of the fullest and most accurate information possible.

The Ministry of Economic Development recently released an options paper with suggestions on how we could improve the quality of information on petroleum reserves.

Submissions have now closed and I expect to receive advice on them from my officials in the near future.

I anticipate announcing decisions before the end of the year.

Next was reviewing our regulatory, royalty and taxation arrangements for petroleum.

Our fiscal regime needs to be internationally competitive while ensuring that the Crown receives a "fair return" on behalf of all New Zealanders who own the resource.

It was pleasing that the AUPEC report issued last year found that our royalty regime is generally fit for purpose.

I want to reassure you that we not planning any major reforms to the royalty regime.

6th in the action plan was a review of the Crown Minerals Act.

To help ensure that New Zealand is a highly attractive destination for petroleum and mineral exploration and production investment we need to ensure that our legislative regime is fit for purpose.

We are now consulting on a ‘mid-level' review of the Crown Minerals Act.

The aim is to update, streamline, and future-proof the Act, which provides the framework for management and allocation of rights to Crown-owned minerals.

The proposed changes will bring added clarity and efficiencies to the permitting system, which will remove unnecessary costs to both the government and permit holders.

We are also reviewing the associated Minerals Programmes and regulations.

I hope to present legislation amending the Crown Minerals Act to Parliament before the end of the year with the aim of having new programmes and regulations entering into force with the amended Act in July 2011.

I look forward to reading your submissions on the review.

The final action point is developing a pathway for realising the potential of New Zealand's methane hydrates endowment.

Methane hydrates have been known to exist around the New Zealand coast since the 1970s. They were then a scientific curiosity and later a potential hazard to oil and gas exploration.

With the assistance of research into New Zealand hydrate deposits by the scientific community, we now recognise they are a potentially rich and important source of energy, assuming technology can be developed to release and commercialise the gas.

Last year the government had an options analysis for commercial and economic development of offshore methane hydrates carried out by the New Zealand Centre for Advanced Engineering. It is an excellent piece of work.

The study concluded that there are very significant deposits of hydrates off the east Coast of the North Island of New Zealand and that, subject to technology being available to commercialise these resources, they could provide either a long term underpinning of energy security for the country or even a major LNG export opportunity.

A first pass at the research to date suggests the hydrate resource could be as large as 800 trillion cubic feet of recoverable reserve.

These deposits are potentially some of the most accessible in the world as they occur close to shore and in water depths from only 1000m, which is much shallower than those identified in areas such as India, the Gulf of Mexico, Japan and Korea.

I have asked my officials to address the ways we can realise the potential of New Zealand's gas hydrate endowment.

I anticipate we will be partnering with industry to explore ways to commercialise our hydrate resources.

Petroleum Action Plan Summary

Since I announced the Petroleum Action Plan late last year, there has been gathering momentum across the key actions.  Decisions made by the government have been informed by the knowledge and expertise of the industry, and I thank you for your input.

With the Government turning its focus on the petroleum and minerals sectors, some interest groups have raised concerns that the development of natural resources will be in conflict with or at the expense of the environment.

The Government does not agree with this. In fact, people need to shift their thinking on exactly this issue.

The development of New Zealand's natural resources and the protection of the environment are not mutually exclusive actions.

I would strongly argue that it is only through a strong economy that New Zealand can afford the expenditure required to look after and improve our environment.

A strong economy allows the government to spend money on biodiversity, on improving water quality, on insulating our houses, on protecting our endangered species and preserving our heritage.

All those things cost money. None of them are free. A strong economy allows expenditure on them.

It is no accident that the poorest economies in the world have the poorest environmental standards and are the most polluted.

There is a strong correlation between economic growth and environmental protection.

So rather than stop ourselves from using our natural wealth, this government has made it clear we want to develop our natural resources in an environmentally responsible way.

Environmental, Health and Safety

The Deepwater Horizon event in the Gulf of Mexico has been an important reminder of the need to effectively manage the potential risks associated with the petroleum industry.

There is much to be learned from the Gulf of Mexico event, and New Zealand staff from Maritime New Zealand assisted in the Gulf. 

Like the rest of the world, we are looking forward to the results of the investigation into the incident.

I have instructed officials from Maritime New Zealand, the Department of Labour, and the Ministry of Economic Development to undertake a review of our environmental, health and safety regulations to ensure New Zealand's are fit for purpose.

Shortly I will receive the report coming out of this body of work and I look forward to reviewing it and sharing it publicly in due course.

The government is currently developing legislation to provide clarity for activities in New Zealand's Exclusive Economic Zone beyond our 12 nautical mile territorial waters limit. 

The review I've just mentioned will help inform development of that legislation.

The Environmental Protection Agency which the government has established is likely to play a lead role.

I also want to congratulate the petroleum industry for proactively improving their environmental systems. 

Pohokura recently won an Environmental Award from the Taranaki Regional Council for its sustainable development and technical innovation while other companies are actively funding environmental research projects in areas in which they are operating.

All of the oil companies that I've talked to in my two years as Energy and Resources Minister have demonstrated an impressive commitment to environmental risk mitigation and best practice in environmental monitoring.

Conclusion

I began my speech by saying that the petroleum industry has the potential to transform New Zealand's economic performance.

This Government is taking active steps to unlock that potential through the Petroleum Action Plan.

We want to ensure that New Zealand continues to be an attractive global destination for exploration and production investment.

In closing can I thank you all for coming to the 2010 Petroleum Conference.

I hope you enjoy learning more about New Zealand's petroleum potential and enjoy the wonderful city of Auckland.