While some of the program seems fine, explorers are now saying the revised definition of discovery is so restrictive that it will exclude all but rank wildcats where no wells have drilled before - something that is difficult to do, particularly in well-explored onshore and near-shore Taranaki.
“It’s crazy; they (Crown Minerals) started with the minimum they could to encourage more exploration, now they have made that even less,” Austral Pacific Energy boss David Bennett told EnergyReview.Net from Wellington this morning.
“In my opinion they should do away with the AVR (ad valorem royalty) completely and just rely on the APR (accounting profits royalty) for both oil and gas.”
Bridge Petroleum executive director Kevin Johnson said he was very disappointed with the “new” definition of discovery which seemed to exclude nearly everything, including the recent Bridge-Westech Radnor find in onshore Taranaki.
Petroleum Exploration Association of NZ executive officer Mike Patrick said his organisation had submitted the phrasing “new discovery for new development” but Crown Minerals had not accepted that.
A Crown Minerals spokesman today told ERN that the intent of the new royalty regime announced in June had not changed. “Maybe people are trying to change the meaning of discovery. The definition is not a difficult exercise to understand and I am surprised at some of the industry’s reactions.”
He confirmed that Radnor - which was drilled into the structure previously explored by the Stratford-1 and 1A wells - would not be classified as a new discovery and thus eligible for reduced royalty rates. Neither would Austral’s Cardiff-2 well as that was essentially a redrill of previous Shell wells.
“If it (a well) finds a new pool, a new reservoir, then that’s new, but not otherwise. This policy is forward looking, not incentivising something that’s already been done.”
Last June the industry welcomed the government’s announcement that it would be reducing royalties for gas discoveries from June 2004 to 2009 - the AVR would drop from 5% to 1%, while the APR would reduce from 20% to 15% on the first NZ$750 million gross sales of petroleum offshore and the first NZ$250 million for onshore discoveries.
However, that excitement has now evaporated with confirmation of the meaning of “new discovery”.
Johnson said Bridge still believed Radnor was a new discovery.
“That Stratford block had lain dormant for years for predominantly technical reasons. We picked it up and drilled Radnor-1 on what we thought was the clear understanding that any commercial find would be classified as a new discovery. To try to suggest that it is anything other than that is mischievous.”
“Radnor is the classic example of what the government said it was trying to encourage. If Radnor does not qualify, then what on earth will?” he asked.
Associate Energy Minister Harry Duynhoven released the revised draft replacement petroleum program last Friday, saying it was aimed at incentivising exploration in this country.
The Crown Minerals document says: “Discovery means one or more petroleum accumulations that were not previously known to have existed and that have been intersected in the same well and, in which through testing, sampling or logging there has been established a probability of the existence of mobile petroleum.
“Discovery includes sub-commercial discoveries and all petroleum within the same structural and/or stratigraphic accumulation or accumulations. The date of discovery is the date on which the accumulation was intersected.”
