Oil and gas exploration activities in New Zealand : the need for future investment

Abstract

New Zealand achieved 50% of self sufficiency in liquid fuels by 1990, which then declined to 36% by the year 1996 due to falling local production and the growing domestic demand for oil and gas. In spite of this falling ratio, effort on petroleum exploration shows a downward trend throughout the recent past. Existing petroleum reserves are expected to be depleted totally in the near future. Therefore this study is aimed at discovering the factors affecting oil exploration in New Zealand with special attention to reward for effort levels. The reward for effort model provides a reward-effort factor of 0.92 (0.92 MMBOE of oil or gas per km drilled). According to this figure, the level of exploration needed to maintain 36% self-sufficiency in oil supply in 2010 is 13 wells per annum by the year 2000 (to allow a 10 year lead time from discovery to development for offshore fields). NZ$ 78 - 260 million per annum is required to achieve this target. Cost of drilling has a negative effect on the exploration rate while world oil prices and the demand for oil in New Zealand show positive effects on the exploration rate. Although the effect of government policy did not make a statistically significant contribution to the model, its effect cannot be totally excluded. A downward trend in exploration activities in the recent past is likely to have been driven by local and international economic and fiscal factors, New Zealand's geographic location and the unpredictable weather in the region. Scenario testing provides evidence on the possibility of maintaining the current level of self-sufficiency over the corning decade if the current trend in exploration continues to discover new reserves, and provided that cost and price fluctuations remain within the range observed for the past 10 years. Unfortunately, the available data base made the analysis difficult but reveals the direction for further research with a more complete data base. This analysis provides a basis for government to review exploration policies.