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Oil and gas sector jittery about immediate impact of move away from fossil fuels

Tuesday 27th March 2018

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While New Zealand's government said a transition away from fossil fuels will take several decades, concern about the immediate future is running high in the sector given investment already sunk into exploration.

Earlier on Tuesday, Minister of Energy Megan Woods told an annual oil and gas conference the government is committed to  "a long-term transition away from fossil fuels and towards renewable energy" and underscored no existing oil and gas production permits would be affected, with some forecast to continue production until 2046.

Her speech came after Prime Minister Jacinda Ardern last week announced the government is considering discontinuing the previous government's annual Block Offer programme, which invites bids for new onshore and offshore oil and gas exploration. Today Woods said a decision whether to make the block offer was "weeks away." 

However, different participants at the oil and gas conference were more concerned about whether they would face challenges moving from existing exploration permits to production if they were to strike oil or gas. 

New Zealand Petroleum & Minerals petroleum national manager Josh Adams also told the audience that existing rights will remain. However, when asked if an existing exploration permit guarantees the right to apply for a mining permit if a discovery is made he said: "that is a really good question and in terms of the uncertainty that you guys are going through at the moment, I fully understand that."  He did not answer the question but said part of his role is helping the ministers understand the pros and cons of their proposals. 

Gabriel Selischi, senior OMV vice president for Australasia, said the question was fundamental.  "If we invest in exploration and have a find and we have difficulty converting it to a development, that is something is I will have difficulty explaining" to management, he said. 

OMV recently spent $578 million to buy Shell New Zealand's remaining assets and will own 93.75 percent of the Maui field and 74 percent of Pohokura, assuming competition, overseas investor, and New Zealand Petroleum & Minerals approvals are granted. The deal also includes the Great South Basin venture, which includes a drilling commitment currently estimated to be US$50 million. 

Selischi said that any transition away from fossil fuels needs to have a business case and must be done in cooperation and consultation with the industry.

Selischi noted that the oil and gas industry already faces challenges in New Zealand due to global competition for capital, its size and the availability of resources like drilling rigs. In order to invest the industry asks for stable and predictable conditions over a number of years and clear regulations regarding approvals and verifications.

If the current situation means "we go into an environment in which we have more delays, we will also be in quite big trouble," he said. He also called for rational dialogue based on scientific evaluation and fair treatment by all stakeholders.

Selischi said OMV is "quite sensitive about its image." There was a heavy police presence outside the conference centre as around 200 protestors blocked entrances, chanted, beat drums and banged on the side of the building and doors.

"We want to be judged in a fair way - so what is happening outside is quite a concern for us," he said.

New Zealand Oil and Gas chief executive Andrew Jefferies said in the last year his company had faced a crossroad when it had two competing takeover offers, one that would have led to the divestment of assets and one that did lead to investment in New Zealand's unique opportunities.

OG Oil & Gas offered 78 cents per share to secure a controlling stake in the New Zealand firm, trumping a rival bid by Zeta Resources, saying it wanted to preserve NZOG's exploration opportunities, especially the Barque prospect off the Canterbury coast. The offer was declared unconditional in January.

"New Zealand also stands at a crossroad," he said. "Investment in our industry growth or divestment?" 

He underscored that "stopping exploration in New Zealand will not reduce the global carbon emissions."  According to Jefferies, if the country doesn't invest in ethically produced, low carbon gas in New Zealand "then the world will use more energy-intensive fuel", and New Zealand will import more petroleum from overseas and "some from places with regimes where the rule of law and human rights are not on the agenda," he said.

"Why would New Zealand pay for that in preference to our own fuels and our own values?" 

(BusinessDesk)



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