Encouraging gas finds "crucial for NZ
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