'End of an era': New Zealand Oil & Gas drops last oil permit in what was meant to be a 'new North Sea'

OMV was the last company to drill for oil off the coast of the South Island at the state of 2020, using the Chinese-owned COSL Prospector. Photo / Supplied

The Great South Basin, long touted as a possible "new North Sea" appears set to produce not a single barrel of oil or gas, with the last remaining exploration permit set to be surrendered to the Crown.

Having spent more than $30 million across two South Island permits, Wellington-based New Zealand Oil & Gas told the NZX on Wednesday that it was dropping the Toroa permit, a permit of nearly 5000 square kilometres southeast of Stewart Island.

Over several decades a string of companies have spent hundreds of millions of dollars on seismic testing and drilling wells in the Canterbury and Great South Basins, most recently OMV which drilled a well at the start of 2020 off the Otago coast.

Even though OMV's well did not find enough hydrocarbons to justify a commercial development, as recently as October 2020, former Energy Minister Judith Collins said she had seen reports which suggested New Zealand could have "the North Sea in the south".

But in recent months OMV and Beach Energy also announced they were relinquishing permits.

OMV also dropped a massive permit off the Wairarapa Coast, meaning New Zealand now has no active exploration permits outside of the Taranaki Basin, which for decades has been the only part of New Zealand to produce commercial hydrocarbons.

Dr Richard Cook, chief petroleum geologist at Crown Minerals, pictured in 2009 with a sample of condensate taken from the Great South Basin in 1979. Photo / Mark Mitchell

Industry body Pepanz described the news as "the disappointing end of an era and a further blow to New Zealand's energy security".

However environmental groups celebrated the news.

New Zealand's wildlife was "safe from the risk of a catastrophic oil spill", Greenpeace campaigner Amanda Larsson said.

"We are one step closer to being the clean, green nation that so many New Zealanders want us to be... Burning dirty fuels like oil, gas and coal is causing a climate crisis."

Siana Fitzjohn, who had to be rescued from an OMV contracted drilling rig after boarding it on a protest vessel associated with the Extinction Rebellion (Greenpeace distanced itself from the protest amid warnings about legal action) described the news as a "welcome relief".

"It is testament to the resilience of communities who have resisted offshore oil and gas in Aotearoa," Fitzjohn said.

"We can look forward to a future with no oil drills or oil spills on the horizon."

Industry figures have claimed discoveries in the basin - anticipated to be cleaner-burning gas - could have been better for the environment than much of the world's existing discovered oil reserves.

"A successful find could have helped lower emissions here in New Zealand and around the world by replacing coal for industrial use and electricity generation," Pepanz chief executive John Carnegie said.

Greenpeace protesters outside the OMV offices in New Plymouth in 2019. PHOTO / Matthew Andersen

"Just last month it was announced the Huntly power station is bringing a third coal-fired electricity unit out of storage due in part to looming shortages in the gas market. This is a worrying foretaste of the future."

Carnegie said a new field could have created thousands of jobs and earned the Government "billions in taxes and royalties" but now New Zealand was no longer seen as a safe place to invest.

For Andrew Jefferies, chief executive of NZOG, the move to drop the permit was of personal disappointment.

An industry veteran, he moved to New Zealand 14 years ago from the North Sea, believing that the Great South Basin could have represented a new frontier basin, albeit one where discoveries were likely to be cleaner burning than off the coast of Scotland.

"Greenpeace and myself agree on one particular thing, and that is that you don't want to burn half of the resources that have been discovered in the world, because they're heavy oil and bitumen, and they take a lot of refining to get to something you can use," Jefferies said.

For decades, international oil companies largely overlooked the South Island because it was expected to be "gassy" Jefferies said, but now that gas was in favour, a combination of an unwelcoming regulatory regime, unsuccessful wells nearby and the impact of Covid-19 on rig costs and availability meant NZOG could not attract partners to invest capital to drill an exploration well.

He believed it was a lost opportunity to provide cleaner fuel.

"The opportunity was effectively to help the world push through the next 30 or 40 years where we're going to need those lighter hydrocarbons."

While the oil industry has been hit by increasing protests - much of which have been targeted at OMV, New Zealand's dominant supplier of gas - Jefferies said he had enjoyed his trips to the South Island.

"Sometimes the strongest support was not the most vocal," he said.

"Some people are definitely not in favour of the oil and gas business, but there's a lot of people who would like to see jobs and opportunities in the South Island, so that their whanau don't have to travel to Western Australia to work," Jefferies said.