Action Needed To Grow New Zealand’s Petroleum Sector

The Petroleum Exploration and Production Association of New Zealand (PEPANZ) today called on the next Government to review fiscal policy settings, invest in further geological studies of New Zealand’s petroleum basins and establish a dedicated royalties fund to allow future generations to benefit from New Zealand’s mineral wealth.

These were among 18 actions outlined in PEPANZ’s election year policy platform, launched at Parliament this evening, advocating the steps the next Government needs to take to grow New Zealand’s petroleum sector and maximise its contribution to both the national economy and regional economic growth. 

PEPANZ Chief Executive Cameron Madgwick says the petroleum sector is one of the world’s most internationalised industries, and while New Zealand’s regulatory environment is generally in good shape, it is important the Government takes steps to ensure the country remains an attractive investment destination.

“The upstream oil and gas sector plays an incredibly important role in New Zealand’s economy – generating over 11,000 jobs nationally, contributing over $2.5 billion to New Zealand’s Gross Domestic Product, and delivering the Government around $500 million in royalties and taxes every year.

“Royalties are currently paid into the consolidated fund along with other revenue such as income taxes, meaning that New Zealanders have no visibility of the important contribution the sector makes to the country’s finances,” says Mr Madgwick. 

“We believe that as oil and gas resources are a non-renewable public resource owned by all New Zealanders, government revenue earned from their extraction should be set aside in a dedicated fund for the long-term benefit of all New Zealanders. While ultimately a decision for the Government, possible uses of the fund could include investment in regional infrastructure, education or health.”

Mr Madgwick says it is also timely for the Government to review fiscal settings given the current challenges facing the industry from a low oil-price environment.

“International global exploration activity has slowed markedly since late 2014, with international discoveries falling to the lowest level since the 1940s. Companies are being extremely cautious about where they invest their capital,” says Mr Madgwick.

“New Zealand is competing with other locations for mobile investment capital. Therefore, it is important that we have our settings right to be attractive as an investment destination given some of the country’s logistical challenges – such as the small size of our domestic market and the cost of mobilising equipment to this part of the world.

“The Government should also be looking to invest in early stage data acquisition to help better understand the geology of New Zealand’s petroleum basins. New Zealand is underexplored by international standards, and increasing the understanding of what resources might exist will encourage further exploration and investment by petroleum companies.

“Previous investments in early stage data acquisition, such as in the Pegasus Basin, have directly led to petroleum companies making substantially larger financial commitments to explore these areas and increased the potential of future royalty payments if these exploration efforts are successful.”

Mr Madgwick says the Government also needs to take steps to improve the operation of New Zealand’s Emissions Trading Scheme (ETS) to ensure all sectors of the New Zealand economy are treated equally when it comes to combating climate change. 

“Agriculture is responsible for nearly half of New Zealand’s greenhouse gas emissions but is currently excluded from the Emissions Trading Scheme. We believe if New Zealand is to reach its very ambitious emissions reduction target, agricultural emissions need to be included in the Scheme,” says Mr Madgwick.

“Climate change is a global issue that requires global engagement and action. The industry absolutely recognises the profound challenges that exist with a changing climate and to do this we need to reduce emissions across all sectors.”

Mr Madgwick says that while activity in the oil and gas sector is subdued worldwide, the current low levels of activity mean that there is likely to be an oil shortfall in the years ahead, driving prices up.

“New Zealand needs to take steps now to make sure it is in the best position possible to take advantage of a future upswing in oil and gas prices and maximise the returns it receives from its natural resources.”