Loosen tax rules to encourage gas finds, experts tell Government
by Pattrick Smellie
Nov. 18 (BusinessWire) - Improving the economics of New Zealand gas developments is "crucial" to the Government's desire
for an upsurge in oil and gas developments, says a government-commissioned review of the petroleum tax regime by experts
in such regimes.
The Aberdeen University Petroleum Economics Consultants (AUPEC) report identifies the prevalence of marginal gas finds
in New Zealand as a key issue in the Government's drive to put energy resource exploitation at the centre of its
economic agenda, and urges cancellation of an impending increase in gas royalties.
Energy Minister Gerry Brownlee this morning announced eight areas of action that the Government will pursue over the
next year to allow oil and gas resources to deliver "a step change in New Zealand's economic performance", and released
four pieces of independent analysis that will inform policymakers' thinking during the coming revamp.
"Consideration of special fiscal measures for non-associated gas (i.e., where oil is not also present) is recommended,
in order to minimise the number of marginal gas developments that are economic before tax but fail to be developed
because they would uneconomic after tax," says the AUPEC report, which Brownlee has had since July.
"Special terms would also address issues of perceived risk and capital rationing" that act as deterrents to potential
gasfield explorers and developers. Plans to increase the royalty rate on gas extraction were unjustified. The ad valorem
royalty regime "penalises marginal developments and is a candidate to have its rate significantly reduced, at least for
new gas projects. Consideration should be given to degerring the planned increase in the ad valorem royalty."
A further change might be to modify the accounting profits royalty from a cumulative cashflow basis to a rate of return
approach.
However there was no need to treat oil exploration the same way. AUPEC found the New Zealand fiscal regime "highly
competitive against all the comparator countries except Papua New Guinea, when tested under Great South Basin
conditions."
The GSB has long been touted as a potentially massive source of untapped mineral wealth, but has so failed to garner
significant exploration. Exxon Mobil announced in early spring that it had studied seismic data from the area and was
looking for partners to fund exploration, an indication it did not see value in proceeding.
"Under the likely costs and base case hydrocarbon prices used in this study, petroleum explorations investments in New
Zealand, as represented by the GSB, are economically marginal at a cost of capital which is moderate and may not reflect
all the risks and effects of capital rationing," AUPEC concludes.
Among the studies released today are reassessments of 10 New Zealand oil and gas basins within the country's huge
exclusive economic zone. To date, Taranaki is the country's only proven commercial oil and gas resource, with
substantial exploration and production activity ongoing. Exploration permits in other areas have only been
intermittently explored although the Government has increased funding for seismic data acquisition, a new programme of
which commenced this week.
AUPEC also proposed extending such "special fiscal terms" to the exploration and development of methane gas hydrates, an
emerging hyrdocarbon source that has as yet not been commercially developed anywhere in the world.
(BusinessWire) 12:01:40