Govt axed offshore oil and gas sector with no Cabinet paper, minimal analysis

Tuesday 5th June 2018

The government axed granting any future offshore oil and gas exploration licences without a formal Cabinet paper and with minimal analysis from officials, according to a dump of documents and emails from Energy and Resources Minister Megan Woods.

The documents had been widely sought under the Official Information Act and BusinessDesk's application asked for Cabinet paper or papers that supported the decision, as would be usual for a decision affecting a multi-billion industry with long-lived assets and employing several thousand people.

There was none.

Instead, an oral discussion occurred and was noted in a Cabinet Minute of April 9, which relied on Woods's delegated authority under the Crown Minerals Act 1991 to make decisions about whether and where to offer future parcels of exploration acreage. The decision was announced publicly on April 12.

In a statement today prefacing the release of the documents, Woods said: "The Cabinet decision was the culmination of exhaustive consultation between the Coalition partners and senior Ministers which started in December 2017 immediately after the announcement of that year’s block offer.

"Despite the fact it was an oral item, there was more discussion than most items with written papers," she said. "The decision was a political decision, looking out 30 years and taking steps towards 2050 being emission neutral. This is a signal about the future."

Today's document release comes amid reports suggesting oil industry research firms may take legal action against the government, seeking compensation for millions of dollars spent gathering information on offshore oil and gas basins for future sale to explorers.

With no future release of new offshore exploration territories, the commercial value of seismic survey and other data collected by such companies is now questionable.

The exclusively circulated global oil industry newsletter, Upstream, reported on June 1 that affected firms include WesternGeco, a subsidiary of the global geophysical research firm Schlumberger, Houston-based Petroleum Geo-Services, and Norwegian TGS, with any legal action likely to be coordinated by the International Association of Geophysical Contractors, also headquartered Houston, Texas.

Upstream reported the president of the IAGC, Nikki Martin, as saying the government's decision had undermined the sector's confidence in New Zealand as an investment destination and that "IAGC members are still considering avenues to realise a return on their significant investment".

"An arbitrary end to exploration disrupts business certainty, as major investments in New Zealand have already been made by companies with a reasonable expectation of future activities."

NZ Petroleum & Minerals, an arm of the Ministry of Business, Innovation and Employment, has long encouraged the acquisition of seismic data ahead of exploration licences being granted, with such activity regarded as essential to promoting oil and gas production in New Zealand. The previous National Party-led government championed that approach early in its nine-year term, although falling oil prices saw interest in offshore exploration dwindle from about 2014.

The documents released today show no evidence of ministers seeking to consult the oil and gas sector, as has previously been claimed had occurred. Ministry of Business Innovation and Employment officials briefed sector participants on the decision the day before its announcement, reporting reactions in emails late on April 11 as variously "mature/subdued" and "disappointed/resigned/philosophical' with "no red flags so far".

Other communications between ministers and officials showed the preparations that went into a speech Woods gave at an industry conference in late March, which delivered a clear warning that the previous government's process of making exploration acreage available through the Block Offer process was likely to change.

The papers also indicate back and forth negotiations with coalition partners, particularly Green Party co-leader and Climate Change Minister James Shaw. He argued against an early suggestion that would have stopped exploration licences being issued for one year while the Interim Climate Commission considered the role of oil and gas in the transition to the government's goal of net zero carbon emissions by 2050.

Shaw argued the ICC had a big enough agenda and could consider the role of gas in the electricity system when it considered how to achieve net zero emissions electricity generation by 2035.

On April 11, Woods sent an email to an unnamed recipient at Parliament saying: "I no longer expect the consideration of offshore oil and gas to be an explicit deliverable of the Interim Committee."

MBIE also warned in an April 6 memo the government that if gas supplies dwindled, it was likely that methanol produced in New Zealand would move to China, where it would be produced from coal, resulting in greenhouse gas emissions "three to four times that of methanol produced from gas."

Canadian-owned Methanex used 41 percent of all gas produced in New Zealand last year. Its three New Zealand plants, north of New Plymouth, are of global scale and produced 2.4 million of the 8.5 million tonnes of methanol that Methanex produced at plants around the world in 2017.

"When gas supply is constrained ... Methanex is the first to be affected and forced to scale back its operations," MBIE said.

(BusinessDesk)

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