Tax cuts aim to boost search for gas

By CHRIS DANIELS, energy reporter

New Zealand needs gas. And to get that gas the country needs exploration companies to start drilling holes here and not in Australia, Papua New Guinea or the Gulf of Mexico.

To achieve this aim, the Government yesterday announced measures it hopes will make the decision to drill in New Zealand a lot easier.

At the top of the explorers' wish-list was a change in royalties. The Crown owns every drop of oil and gas under New Zealand and anyone who finds it must pay a percentage in royalties.

With electricity demand soaring, gas fields need to be found to fuel the stations the Government says need to be built.

Exactly how much the New Zealand taxpayer will forego as a result of yesterday's reduction in royalties is impossible to gauge accurately.

If no fields are found, no money is foregone. If a massive field is discovered, then millions of dollars will not now be pouring into Michael Cullen's coffers.

But a massive field is exactly what the Government wants to be found. Ministry of Economic Development officials estimate that if another field the size of Pohokura (the most recent big discovery) is found, the royalty reduction would mean the Crown losing "tens of millions" of dollars.

Oil and gas producers paid $14 million in royalties between June 1996 and December 2002.

This figure does not include the Maui gas field, which is governed under a different arrangement.

Energy Minister Pete Hodgson said yesterday's package was not an incentive deal for the entire oil and gas industry, but specifically designed to provoke a spurt of drilling for gas.

There was about 10 years worth of gas available for New Zealand and it was now time explorers started looking for the gas the country would need in years 11 and 12, he said.

The chief executive of local oil and gas explorer Austral Pacific, Dave Bennett, said he did not think the Crown would miss out on money as a result of the royalty changes, as it would promote more drilling, and more discoveries.

The changes were welcome, but other countries, such as Australia and PNG had recently made big changes to their regimes, making petroleum exploration even more attractive.

"New Zealand is in competition with other countries for that valuable exploration dollar," said Bennett.

The package was "good as far as it goes", but pending decisions about tax treatment of the industry were important, Bennett said.

"It is very positive, but is it enough?"

The package

The "ad valorem royalty" on gas reduces from 5 per cent to 1 per cent of gross revenue for discoveries between June 30 this year and December 31, 2009.

The "accounting profit royalty" on petroleum falls from 20 per cent to 15 per cent of operating profit on discoveries in the period.

Extra Government spending of $15 million on new seismic exploration.

A study of how non-resident drilling rig workers are taxed, how GST is charged, and the amortisation regime.