Govt encourages search for oil

Press, 18 December 1985, Page 38

Govt encourages search for oil

PA Wellington The Government has devised a new oil exploration policy to encourage the search for oil and gas reserves, the Minister of Energy, Mr Tizard, said yesterday. The new prospecting regime will axe the October 1984 moratorium on the issuing of new exploration licences. Mr Tizard said the new policy would make available 50 licence blocks in the off-shore Taranaki basin.

Applications for these blocks were expected from oil companies throughout the world.

Mr Tizard said a feature of the new regime would be the awarding of all licences on the basis of the best work programmes offered in response to block offers. “Another measure of the new regime enables the Government to have an 11 per cent free ‘carried’ interest in all new oil exploration ventures,” he said.

“As well as its free 11 per cent carried interest, the Crown, through the Ministry of Energy, may also contribute 15 per cent to the cost of any venture to secure a total 26 per cent interest in any licence issued,” Mr Tizard said. The Crowns interest

would, in all cases, be administered by the Ministry of Energy, with Petrocorp acting as its agent. “Petrocorp, in its own right, may apply for licences in competition with other applicants,” Mr Tizard said.

The Government had agreed to abolish the energy resources levy of 45c a gigajoule for all gas discoveries made from any new fields, but the royalty of 12.5 per cent on the selling value of any petroleum discovered would remain unchanged.

Mr Tizard said there would be increases in the fees and rentals payable for applications ana licence areas. Formulation of the policy had been a long process which took into account 30 written submissions from oil companies and other interested parties. Mr Tizard expected the new policy would remain for five years. He said the 33 on-shore and 17 off-shore wells had been drilled during the last five years. A leading oil company lawyer said he was totally opposed to the removal of tax incentives for oil exploraton, but could find no logical reason why they should remain, reports “The Press” business reporter in Wellington.

The lawyer said the whole thrust of the Government’s economic policy, as evidenced by last week’s farming pack-

age, was towards industry neutrality. Therefore, oil exploration should be no different from other sectors.

At present oil explorations companies are allowed to write-off all expenditure in the year it occurs and carry the losses forward. There is a third tax deduction allowed for oil and mining cash subscriptions. In addition, companies have used the non or limited resource loan technique to gain further tax advantages.

The use of this technique was attacked by the watchdog group, Publiceyes, earlier this month, with the group claiming the Government lost S3OM in tax over the last two years. The oil specialist lawyer said that the non-recourse loan was a legitimate financing tool used for leverage purposes. He said that if a company is successful in finding oil then the payback for the Government is immense. The Under Secretary for Finance, Mr Trevor de Cleene, has attack non-recource loans as applied in the music and recording industry. He has given strong hints that the loans will be dropped for the oil industry when the tax review is announced later this week.

The tax laywer said tha abolition of the non-recource loans would not inhibit oil exploration as the rewards were sufficient to encourage companies to keep searching. The most important tax provision was the one which allowed expenditure to be written off in the same year.