Media release 2/2/2018
Fossil Fuels Aotearoa Research Network

Another Nuclear-free Moment for Minister Megan Woods?

Dr Terrence Loomis

Ever since the Prime Minister announced last October that "fossil fuels were not New Zealand's future, and future block offers would be reviewed," Energy and Resources Minister Megan Woods has been under the gun to be seen to be taking meaningful action to implement the new Government’s energy policies while not doing too much (yet) to upset the oil and gas industry.

First there was OMV’s application in November to allow Schlumberger’s Amazon Warrior to carry out seismic surveying off Taranaki, amid vocal opposition from environmentalists and marine scientists. The PM claimed existing legislation restricted Ministers’ ability to intervene, and the exploration permit was granted.

Today came news of another nuclear-free moment for Minister Woods. New Zealand Oil and Gas (NZOG) announced that it had applied to NZ Petroleum & Minerals (NZP&M;) for an extension to its work programme, ostensibly to analyse new information about the Barque prospect off the coast of Oamaru which it says arose from discussions with potential farm-in partners. The company has until April 10th to commit to drilling an exploratory well or surrender the permit.

There’s a lot more to this request than meets the eye, which is why the Minister needs to intervene in the decision process.

To begin with, this is NZOG’s second extension request. They were supposed to drill or quit the Clipper permit two years ago but were granted an extension in October 2016. The company claimed the request was due to “a change of conditions to allow further study of this permit, in recognition of its considerable economic potential and the need for further high-quality scientific analysis." At the time, the company was selling assets and struggling to find farm-in partners to share the drilling costs of a well. Some industry analysts speculated NZOG might be wound up.

The extension was predicated on a ‘further study’ being done of the permit’s economic potential as well as geological analysis. The latter analysis should have already been done since NZOG, supported by PEPANZ’s Cameron Madgwick, was already touting the Barque prospect was a potential ‘game-changer’ that contained twice as much oil as the Maui field. NZP&M; was given the impression the company would be undertaking an internal economic feasibility.

In fact, in conjunction with its Australia joint venture partner Beach Energy, NZOG approached New Zealand Trade and Enterprise (NZTE) with a request for a $50,000 grant (later doubled to $100,000) to hire consultants Martin Jenkins to undertake what was initially pitched as an ‘economic impact assessment.’ Subsequently it was presented in the media as a ‘regional development study’ of the kind MBIE had been carrying out around the country though it was not. NZTE’s ‘partnership’ in the study, according to internal emails, was to add ‘gravitas’ of government involvement when presenting the final report to the public, company shareholders (at NZOG’s October 2017 AGM), and most importantly to potential take-over bidders and drilling farm-in partners.

In reality the final report, which contained numerous flaws and misleading assumptions, was little more than a sales prospectus partly funded by the New Zealand taxpayer to garner local business support and attract big-money investors. Even OGOG, which in January was successful in its takeover bid for NZOG, acknowledged drilling the Barque prospect would be a risky and costly deep-sea exercise ($NZ85-$115m) which they are reluctant to commit to.

As a consequence, NZOG has been left struggling to secure a farm-in partner to share the costs. The clock is ticking. The company has nine weeks to notify NZP&M; whether they will proceed with an exploratory well, or give up the permit and walk away. They are no doubt hoping that PEPANZ lobbying and a groundswell of Canterbury regional business support will help save the day.

The Clipper permit decision is far from a standard operational matter. It’s yet another critical decision-point for the new Government as it seeks to flesh out its policy framework of addressing climate change and phasing out fossil fuels.

Minister Woods needs to intervene in the NZOG’s extension request not only because the company may have misled NZP&M; over the reasons for granting a second extension and the apparent irregularities around the NZTE grant and economic report, but because it provides an opportunity to signal an end to what could be construed as continued government support for oil and gas exploration which would be contrary to the Government’s stated long-term energy and resources policy direction.

--Ends.

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