Analysis of oil and gas exploration and discovery in New Zealand - a basis for supply forecasting

Abstract

The long term sustainability of oil and natural gas supply in New Zealand will depend upon several factors, in particular the size and location of commercially exploitable resources, and the success of industry in locating undiscovered resources. A growing body of geological research supports a good case for the likely occurrence of oil and gas in several sedimentary basins, and exploration effort (primarily directed at finding oil) has increased from the very low levels of the early 1990s. This research analyses the record of exploration and discovery in New Zealand since 1970 to provide answers to three questions: What is the level of reward obtained from investment in oil exploration? Given the reward for effort relationship what level of exploration investment will be required to provide reasonable assurance of new discoveries of a magnitude to maintain New Zealand's current petroleum self sufficiency level? What factors determine the levels of exploration investment in New Zealand? A simple recursive modelling approach is used to establish answers to the three questions. Using data for the period 1970-93, a reward for effort relationship is estimated at 0.92 MMBOE per kilometre drilled. This figure is remarkably close to the value 0.90 calculated by Cook (1985) using cumulative 1950-85 data. Given current New Zealand oil and gas reserves, petroleum usage growing at 1.6% per annum, and the calculated reward for effort relationship, the level of exploration required to maintain New Zealand's current level of petroleum self sufficiency is estimated at 40 wells per year. At current drilling costs, the exploration programme will require annual investment between $240 million (onshore) and $800 million (offshore). Six variables were hypothesised as detenninants of oil and gas exploration effort, and 1970-93 time series data was used to test these relationships. The cost of drilling, world oil price, and New Zealand petroleum demand were found to be statistically significant explanations for exploration effort. Government policy appears to be only weakly related to exploration effort. Variations in oil price, drilling costs, and petroleum demand, are introduced to determine their possible effects on future exploration effort, and from this some policy conclusions are drawn.