7 Aug 2015

Oil industry confident despite downturn

11:06 pm on 7 August 2015

The New Zealand oil and gas industry remains confident it can weather the downturn in petroleum exploration internationally.

oil drilling rig

Photo: 123RF

The industry said conditions here were special, and companies viewed their investments as long-term ones that rose above fluctuations in world markets.

The comments followed analysis done for the Reuters news agency which showed there are far fewer oil rigs operating around the world than previously.

It came as the price of benchmark Brent crude slipped below $US50 a barrel and stayed there, well under half its peak in the middle of last year.

The fall in prices has been widely attributed to booming production in the United States of so-called shale oil and shale gas.

This is extracted in large quantities across the south and Mid West using horizontal drilling, fracking and other technologies.

This caused the Organisation of Petroleum Exporting Countries (OPEC), especially Saudi Arabia, to boost production in a bid to drive the shale producers to cut their output.

But all that did was to increase supply for everyone, cutting crude prices across the board and dis-incentivising oil exploration everywhere.

All this has happened as New Zealand handles its annual block offer programme.

Under this scheme, mainly international companies compete for the right to search for oil and gas across large blocks of territory both within New Zealand and offshore.

A worldwide decline would normally affect New Zealand, and a recent block offer in Mexico failed disastrously.

The block offer here is handled by petroleum officials at the Ministry of Business, Innovation and Employment, which never makes comment part way through its processes.

But the Petroleum Exploration and Production Association of New Zealand, or PEPANZ, was not discouraged by the worldwide problems.

It said oil prices rise and fall cyclically and oil companies cannot be too affected by this.

Chief executive Cameron Madgwick said people looking at investing took a longer term view.

"They are not necessarily looking just at what is happening in the current cycle, they are looking forward and ahead to different parts of the cycle," he said.

Mr Madgwick added that people were looking even longer term in New Zealand now than previously.

"What we saw in last year's permit awards were work programmes that were a little bit longer dated than some of the work programmes that had previously been bid.

"It is hard to say what will happen this time but given the global supply and demand imbalance, you might see people bidding longer work programmes again."

Mr Madgwick added that New Zealand did have the advantage of what he called a low sovereign risk.

"It is unlikely that the New Zealand Government would seek to nationalise the energy resources here, and people look at that when they are comparing international investment opportunities."

Mr Madgwick said New Zealand also had sound regulations and clearly understood taxation and royalty payments.

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