Interim Report Gives Fraccing Green Light

BMI View: An interim report on fraccing in New Zealand has concluded that while further regulation is needed, the practice should not be banned. In the context of efforts by the government to increase activity and interest in the country's upstream, the report is welcome news for the oil and gas sector. With falling gas production and reliance on imported oil, the upside potential upside from New Zealand's plans to open new basins and deepwater, hold regular licensing rounds and tap its unconventional potential is significant.

In the latest boost for New Zealand ' s oil and gas sector, an interim report prepared for Parliament has concluded that hydraulic fracturing, or fraccing, should not be banned and may be done safely if properly regulated. The report drew scepticism from opposition legislators , some local officials and environmental groups, but was well received by the industry. The conclusions will furthe r support government efforts to expand oil and gas exploration.

The report, issued by Parliamentary Commissioner for the Environment Jan Wright, staves off calls for a mo ratorium on fraccing, but found existing regulation to be insufficient , with new measures therefore required . Fraccing has long been employed in New Zeeland ' s oil and gas sector, but with the government targeting a dramatic increase in exploration and production (E&P) , concerns over the practice employed so successfully in the US shale boom are on the rise in the environmentally conscious country.

Although current hydrocarbon production is limited to the Taranaki Basin, New Zealand is thought to have sizable deepwater and unconventional resources, including coalbed methane (CBM) , gas hydrate s and shale reservoirs, with the latter successfully commercialised by fraccing elsewhere . New Zealand ' s East Coast Basin is the site of thick shale formation s , which , according to New Zealand Energy Corp , share many characteristics of the highly productive Bakken formation in North Dakota , US . TAG Oil is another independent actively targeting un conventional plays in the area ; however , exploration is in early stages.

Interest in New Zealand ' s upstream comes as the country looks to ease its oil import bill, and while the country remains largely self sufficient in gas production , given its absence of imports, output has fallen almost 29% from 2000 to 2010 , according to EIA data.

New Sources Could Ease Import Burden
New Zealand Oil Production & Imports, 2000-2010 ('000b/d)

Exploration Moves Ahead Down Under

As we noted in June, the latest licensing round was an important step in government effort s to boost interest in the country, as it introduced a new competitive tendering process and committed to an annual schedule of bidding rounds , among other changes ( see our online service, June 11 2012, ' New R ound Offers Fresh Offshore Opportunities ' ) . Although results from the October 2012 bidding round have not yet been released , we had anticipated moderate interest in the absence of significant discoveries that would attract strong interest from larger players.

Yet , even with final results unknown, in November 2012 it was announced that the government had already reserved five onshore and three offshore blocks for tentative inclusion in the 2013 bid ding round. Despite offshore production being relatively nascent, interest in the country's deepwater acreage in particu larly is fairly strong. Indeed , US independent Anadarko has confirmed plans to use a drilling ship under construction for its 2013 / 14 drilling campaign offshore New Zealand. Anadarko is the operator of the PEP 38451 exploration permi t , which was notably the first to open up the Taranaki basin's deepwater acreage.

Given New Zealand ' s low above- ground risks, despite strong concern for the environment in the tourism- dependent nation and active efforts by the government to increase the attractiveness of its upstream , we expect favourable interest in future licensing round s . Promisingly 2010 - 2011 saw new players enter the country ' s upstream , including Anadarko ( an independent with a successful exploration record in Africa ) , Brazil ' s national oil company (NOC) Petrobras and Anglo-Dutch major Royal Dutch Shell .

Their presence, along with more licensing rounds further opening up new basins and the country's deepwater, bodes well for continued interest in New Zealand's underexplored territory. With deepwater drilling anticipated and further regulatory action likely in the wake of the fraccing report, 2013 will likely be an important year for New Zealand's oil and gas sector , as licensing rounds advance and exploration campaigns continue.

This article is tagged to:
Sector: Oil & Gas
Geography: New Zealand, New Zealand, New Zealand, New Zealand