What does New Zealand’s offshore suspension mean for the oil and gas industry?

In April 2018, the New Zealand government announced that it would no longer grant new offshore oil and gas exploration permits. Jacinda Ardern, the newly elected Prime Minister of New Zealand, signalled during an interview in October 2017 that the annual licensing process for offshore blocks would be cancelled, after a review of future block offers by the new government.

Currently, the government has only suspended grants for new offshore exploration licenses. The announcement included a pledge to honour all current licenses, although it is not a binding agreement. This means that the current government could impose further restrictions or a new government with a different outlook could overturn the suspension very easily. Companies are free to continue exploration and production activity in permits that they already hold. This limits the immediate impact on existing projects, but interest in offshore New Zealand has waned over the past few years. Since 2016, international oil companies, including Shell, Statoil, and Anadarko, have moved towards exiting the country and the latest government policy is likely to further discourage companies from new investments in the area.

Company oil and gas production entitlement in New Zealand

Source: Upstream Analytics                                                                                                                                                                                     © GlobalData

There are 21 existing offshore exploration licenses, with 15 valid until 2027 – 2030, allowing participants to potentially conduct geological surveys and exploration drilling for over a decade. However the government’s suspension of new offshore permitting is an indicator even if a discovery is made, a new permit for production may not be granted. In the longer term, the government’s stance may also affect extensions for licenses with producing fields.

The suspension of new offshore licensing is unlikely to have an immediate impact on the oil or gas sector, but does signal the possibility of increased restrictions in the future. The recent announcement does not affect existing exploration and production permits, but creates significant uncertainty about whether upstream investments will be economically practical if current licenses are not extended or re-awarded in the future.

 

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