It is good to see the NZ government promoting oil & gas exploration. My opinion is that they are not doing enough. Here is an NZ Oil & Gas Presentation for 2011, which provides a good overview of the NZ industry. There are several points I would make:
1. The effective tax rate on oil & gas production is 20-25% of profits - based upon the 20% royalty and a nominal income tax because although the tax rate is 28%, any discovery resulting in production is only going to be realised after capital has been recouped and a scaled up exploration and development program has been advanced, i.e. Don't expect much income recovery.
2. There is a significant income for NZ from local, competitive energy supply, though oil is likely to be processed in Australia. There will be a lot of jobs and engineering work.
3. The NZ government ought not to wait for these private companies to give the country attention; it ought to expedite their own exploration efforts. i.e. Spend $50mil over the next 2 years contracting geophysical surveys over the most prospective areas. This will give a better idea for future exploration, as well as attract private interest. Establish a state oil company and seek private equity so that there is a 'bidder of last resort', and this enterprise ought to be sold off when the market for risk capital arises, or the risks fall.
The motivation for this approach is:
1. NZ has yet to have a significant oil discovery. Until that happens, NZ will not be taken seriously
2. NZ should not be letting foreign nations decide its fortunes
3. NZ needs to place some faith in its oil and gas potential
4. NZ needs to recognise the huge potential of its offshore areas - they trump the offshore mineral potential, and yet the governments primary focus is on these areas. They are getting all the political focus.
5. NZ is in a global recession. Commodity prices are high, and NZ needs to invest in income generation. There is no better area to do this than oil and gas!!!
6. NZ could have a $1 trillion future fund to match Australia's in 2030 if it appreciates its offshore oil potential
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