New Zealand exploration permit offer still viable

Demand for licences for offshore oil exploration is lower than expected.

The Government's latest block offer of oil and gas exploration permits is likely to be over-shadowed by block offers this year in Mexico and the US, says an analyst from energy research consultancy Wood McKenzie.

Kiwi-born and Singapore-based Suzannah Toulmin, the keynote speaker at yesterday's annual NZ Petroleum Conference in Auckland where a number of protesters staged an all-day sit-in, said Mexico had a lot of potential and proven discoveries that were de-risked by what's also on offer on the US side of the border.

There was, however, likely to be some interest in New Zealand's tender despite global oil prices being at their lowest in 10 years and unlikely to hit the levels they were at in 2014 until the end of the decade, she said.

The block offer totals 525,515 square kilometres, covering most of the country's available acreage. It includes four offshore release areas, Reinga-Northland, Taranaki, Pegasus and East Coast Basins, and Great South-Canterbury Basin, plus one onshore release area in Taranaki.

Plunging oil prices resulted in oil and gas explorers last year taking up the smallest and most conservative range of new petroleum exploration licences since the government began its annual 'block offer' bidding process in 2012, and no new players stepped up.

Toulmin expects most interest in 2016 for the Pegasus and Canterbury basins which offer a lot of potential for frontier exploration while the other areas remain challenging, and she also expects onshore Taranaki to have some willing takers.

She said there are a few things working in New Zealand's favour - low oil prices have meant service companies have dropped their fees so it's cheaper now to contract a seismic vessel and deep water drilling rigs, the government ranks highly globally in terms of a local fiscal take from exploration companies, and the exploration permits provide a lot of flexibility on the timing of any drilling.

Companies have until September 7 to bid in the 2016 round.

New Zealand has 18 basins as yet unexplored but the track record for frontier exploration in the past 10 years has not been rosy, Toulmin said. "What's needed is a really large discovery to transform things - at least 100 million barrels equivalent or even larger."

Over New Zealand's 100-year history of exploration, the success rate has been above 50 per cent which is well above the global average of around 40 per cent but most of it has been in the Taranaki basin. BusinessDesk