THE WEALTH BENEATH OUR FEET THE NEXT STEPS

THE VALUE OF THE OIL AND GAS INDUSTRY TO NEW ZEALAND AND THE TARANAKI REGION. A FRESH PERSPECTIVE ON THE INDUSTRY AND ITS ECONOMIC IMPACT. O&G INDUSTRY SUMMARY

208 PETAJOULES (PJ) OF GAS New Zealand produced Oil is our produced from our fields in 2013. The energy equivalent to: 4TH HIGHEST • 10,000 lightbulbs on for 10,000 35,500 EXPORT EARNER years or barrels of oil per day • 200 round trips to the sun from during 2013 earth in a Ford Falcon XR6

Natural gas is used by over Natural gas provides instant heat, 10,000 energy & continuous hot 11,720 COMMERCIAL USERS water supply for over such as restaurants, hotels, JOBS (FTEs) greenhouses & hospitals 245,000 NZ HOUSEHOLDS

Gas underpins Gas provides Natural gas is used as an input in manufacturing to create 19% 22% ADDED VALUE of our electricity generation of our primary such as methanol for export, (2nd only to hydro) energy supply or urea for use on our farms

Oil and gas contributed OUR GAS RESERVES $1.5B IN ROYALTIES Since 2008, drilling increased by 31% to government revenue activity has averaged (2013-2014) over the last 4 years – 40 WELLS PER YEAR sufficient to meet annual equivalent to the annual demand for 14.5 years budget for the NZ Police

CURRENT PRODUCING FIELDS: 20 O&G fields are in production, all in Taranaki. Key oil & condensate fields (in descending order of remaining oil & condensate reserves) Maari, Pohokura, Maui, Kupe, Mangahewa, Turangi, Tui, Cheal, & McKee Key gas fields(in descending order of remaining gas reserves) Pohokura, Maui, Mangahewa, Kupe, Turangi, Kapuni, McKee, Kōwhai & Ngātoro FOREWORD

hen we first measured for new jobs and greater, localised Over the last five years, the economic the full economic economic development. case for harnessing our mineral wealth significance of the oil has become even more compelling. 1 Has the strategy delivered a return on and gas industry in investment over the past five years? This report underscores that the W2010, it made headlines for redefining What can be learnt from an economic resources most able to effect economic the scale of the oil and gas industry and perspective, and how we can further transformation are not those that lie its value to New Zealand’s economy. foster healthy and informed debate on deep beneath our feet, but the people Since then, the nation has experienced the industry? who continue to apply leadership, an unprecedented period of exploration innovation, and an entrepreneurial spirit As sentiment towards oil and gas activity, both on and offshore. While to the industry. evolves, how well is the contribution of success has been variable, it has raised energy understood in economic terms, Wealth seeks to inform discussion, the profile of the industry, particularly in the actual physical impacts on the debate and decisions around the role in a number of frontier communities towns and communities that stand to the oil and gas industry will play in New which have either embraced or rejected host the industry, and in the benefits Zealand’s economic and social future. the presence of this new type of that it can deliver? economic activity. Ultimately, we must work hard to The last edition concluded with a wish- develop our economic potential so our Prospectivity remains high around list that, based on the data presented, children and grandchildren have cause the country, with attention shifting would see the potential of oil and gas to thank rather than criticise us for beyond the traditional ‘energy province’ deliver maximum value to the nation as developing the wealth beneath our feet. of Taranaki. More positive economic a whole. That list included: returns from offshore activity hold the key to maximising the benefits to • A change to our philosophical the nation. definition of the oil and gas industry The commercialisation of our mineral • Building stronger partnerships to wealth is a cornerstone of the foster the industry government’s economic agenda. In • Shifting the government partnership STUART TRUNDLE assessing how far the nation has come model Chief Executive, Venture Taranaki towards realising the potential of the March 2015 ‘wealth beneath our feet’, it must be While some progress has been made asked how well that policy has gone towards these items, more can still be towards meeting regional aspirations done to leverage these opportunities. THE WEALTH BENEATH OUR FEET EXECUTIVE SUMMARY

rom the first commercial it is presented to inform discussion, maximum benefit from the resource mining attempts in the 1860s debate, and ultimately the strategic while safeguarding the environment to its current position as our decision-making that will enable the and the health and safety of both its fourth largest export earner, industry to reach its potential. Or not. workforce and the communities in Fthe oil and gas industry has been a core which it operates. The industry and its contribution have component of New Zealand’s economic grown considerably over the last half- The wider regulatory framework spans evolution. decade, and notwithstanding radical the permitting process, royalties, When the original edition of The Wealth shifts in energy demand or further health and safety and environmental Beneath Our Feet was launched in 2010, and sustained instability in global management. At each step of the way a it quantified, for the first time, just how commodity prices, the second edition number of checks and balances exist to significant the economic contribution of of Wealth Beneath Our Feet finds this manage the impacts of the industry, and oil and gas was to the economy. Based trend has the potential to continue, a number of local, regional and central on data from 2009, the report found and to keep fuelling the economy and a government agencies have active roles that oil and gas injected $1.9 billion into greater number of communities around in this process. the nation’s GDP. Adding in induced the nation. Not to be understated is the effects, the industry contributed $2.5 Understanding of the industry engagement of Iwi throughout the billion annually, and created 7,700 jobs. generally rests on the exploration and process. The unique relationship Perhaps more importantly, the earlier production phases – the finding and between Māori and the environment edition found there was significant extracting of the mineral resource. But has a profound impact on the evolution potential for oil and gas to contribute that is just one phase of a complex of the oil and gas industry in New more – the industry had the potential to and extensive industry that spans a Zealand. In seeking to build a greater 2 make a step-change contribution to the comprehensive midstream supply chain understanding of this relationship, New Zealand economy. and downstream users, and provides prominent Māori leader Dion Tuuta a critical component of New Zealand’s shares his perspective on the Five years on, this new edition looks energy security. overarching positions of Māori towards at whether progress has been made oil and gas exploration and production, towards that goal, and goes far Some 96 percent of New Zealand’s and explores how these views need to beyond an updated economic impact Exclusive Economic Zone lies be given greater currency if we truly assessment to take a much deeper underwater, which presents both want to leverage the nation’s mineral look into the industry, its activity, its challenges and opportunities for the wealth for the benefit of all current and potential and the challenges it faces if it long-term prospects of the industry. The future residents of Aotearoa. is to continue to add value. process of identification, acquisition, exploration, appraisal and – ultimately The 150-year evolution of New Zealand’s While this report again measures – development and production of the oil and gas industry has fostered the economic value of oil and gas to resource constitutes the upstream credible and capable supply chains. New Zealand, and to the Taranaki phase. The processing, storage, These local companies are a critical region where all national production is refinement and transporting comprises component of the sector’s output, and currently domiciled, it also recognises the midstream component of the sector, are an important touch point between the landscape in which the oil and gas while the marketing, distribution, what is seen as a global industry and the industry sits has changed markedly: trading and retailing of the end result communities in which it operates. new exploration opportunities have comprises the downstream initiatives. been opened up, public awareness Certain stages of the production and scrutiny of the sector’s activity This report analyses the activity and process are more conducive to has evolved, and so has the regulatory impact of all three phases, which work leveraging local suppliers, with project framework under which it operates. in concert to deliver the full value of oil characteristics, timeframes, cost and and gas. skill competitiveness, geographic This report is not an argument for or location and local knowledge being against the presence of an oil and gas Driven by necessity, oil and gas is one of determinant factors. As projects move industry in New Zealand. It is, rather, an the most tightly controlled industries, beyond the development phase into assemblage of up-to-the minute data, with a raft of legislative, regulatory, ongoing production, there is likely case studies, analysis and projections policy and procedural controls that to be a greater component of local that define the industry and its impact seek a balance between extracting the involvement. at this particular point in time. As such OIL & GAS INDUSTRY CONTRIBUTION TO

This involvement is extensive. Activity in EMPLOYMENT & GDP 2013 the industry in 2013 comprised: • A total of 52 exploration and NEW prospecting permits in play ZEALAND TARANAKI • 24 production permits • 32 wells drilled – 18 exploratory, 5 GDP GDP appraisal and 9 development wells The O&G industry (including The O&G industry (including • 15 million barrels of oil and 2 million feedstock) directly contributed feedstock) directly contributed barrels of LPG produced • 208 PJs of gas produced, 181 PJs of $1.0b in GDP $982m in GDP which was fed into domestic supply

Oil and gas reserves were estimated in The industry contributed The industry contributed January 2014 to be 2,642.4 PJs of gas, and 138 million barrels of oil – sufficient to meet current annual demand for $2.79b in GDP $1.57b in GDP 14.5 years. (including indirect & induced effects) (including indirect & induced effects) The crux of this report is the updated economic analysis of the oil and EMPLOYMENT EMPLOYMENT gas industry. Venture Taranaki commissioned specialist economists The O&G industry (including The O&G industry (including 3 MartinJenkins to analyse a range of feedstock) directly employed feedstock) directly employed data, with the key outcomes identified at right. 5,068 FTEs 4,340 FTEs In contrast to the 2010 report, direct employment has grown from 3,730 FTEs to 5,068, while the entire industry The industry created The industry created contributes a total of 11,720 full-time employment for employment for jobs, up substantially from 7,700 five years ago. 11,720 FTEs 7,070 FTEs When it comes to the industry’s (including indirect & induced effects) (including indirect & induced effects) contribution to the nation’s wealth, overall GDP rose from $2.5 billion in the 2010 report to $2.79 billion. COMPANY TAX & ROYALTIES The value of the industry to the Crown accounts has also dropped, reflecting IN NEW ZEALAND normal fluctuations in production PEPANZ estimates the New Zealand Government collects approximately output. Royalty payments in the year in company tax from exploration and production to June 2014 totalled approximately $300 million $300 million – down from $432 million companies each year. in 2010. In the year to June 2014, the government received $371 million These components are critical in royalties and energy resource levies from oil & natural gas production outcomes of having the industry here, & sales. as through the full range of government Over the last four years, the industry has contributed about programmes and services they $1.5 billion in royalties & energy resource levies. redistribute the returns of the wealth beneath our feet to all New Zealanders. Royalties are used by the government to help pay for the broad range of products & services which New Zealanders utilise. THE WEALTH BENEATH OUR FEET THE VALUE OF THE OIL & GAS INDUSTRY TO NEW ZEALAND

GLOBAL O&G MARKET Exports (direct) Offshore and local direct investment Oil: $1.6 billion into New Zealand by industry Methanol: $1 billion (estimated) Exports (indirect) Undetermined: Natural gas used to underpin energy needs of major industries and products for export.

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Enhancement of Economic Knowledge, Technological Infrastructure business systems, vibrancy, diversity careers, scientific stretch, development capability, health of skills discovery innovation and safety

But the industry has impacts on the There are also benefits to the nation production, which accounts for half of nation that go far beyond the economic through the surety of energy supply, all exports by value. and employment figures, providing a primarily through the provision of retail The industry is also contributing to range of intangible benefits associated gas supplies through the North Island’s changing perceptions of our nation and with the presence of a highly technical reticulated network. region, infrastructure development, and capital-intensive industry. New Zealand’s energy self-sufficiency business growth and skill transferability, Attracting global businesses, which in 2013 was 83 percent, with oil with innovation and knowledge gained in turn have brought internationally contributing 33 percent of all in oil and gas being applied to a range of benchmarked skills and systems and primary energy supply, and gas growth sectors. The direct involvement a world-class workforce, have had a a further 22 percent. of oil and gas companies in a wide range substantial impact on the Taranaki of community, social and sponsorship The value of oil exports in the year region. The results span a heightened scenarios is also having a significant to June 2014 was $1.61 billion. Again health and safety and environmental impact on the regions where they there are additional benefits to awareness, strengthened international operate. national growth aspirations through connectedness and a greater vibrancy the fostering of a culture of innovation While a greater understanding of the and richer social fabric, all facilitating and increasing export diversity to help extent of the supply chain has helped factors in the region’s sustained offset a traditional reliance on primary shape the revised economic and economic growth. EXECUTIVE SUMMARY

TANGIBLES Royalties: $371 million Total jobs: 11,720* Company tax: $300 million (estimated) GDP: $2.79 billion PAYE: undetermined

Exploration and Midstream/downstream production processing Jobs: 8,481 Jobs: 3,237 GDP: $1.74 billion GDP: $1.04 billion

NEW ZEALAND ECONOMIC AND SOCIAL WELLBEING Energy companies and electricity generation Businesses and households Contribution to and security of New Zealand’s energy supply Provision of heat, warmth, light, transportation, fuel, production 22% of New Zealand’s primary energy supply 19% of electricity generated

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Transferability Business Potential for Diversification, to other sectors, Community expansion, export economic leverage fostering investments development transformation advancement

*Direct jobs = 5,068, total impact: 11,720

employment results in this report, it is Any new region is encouraged to look The future of the industry can be also an indication of a strengthening closely at Taranaki’s experience with determined by which one of the possible role for this supply chain, which largely the oil and gas industry, though it is scenarios plays out over the coming comprises local content, and the important to manage expectations. years. Potential outcomes range from a growth of the industry into new areas Oil and gas exploration takes time, and major find – either on or offshore and in of New Zealand. impacts will not occur overnight. While varying parts of the country – through to Taranaki’s oil infrastructure often sits no further finds. This growth beyond the traditional largely unnoticed in a rural landscape, proving ground of Taranaki has the Further complicating the outlook, this may not be the case in other potential to further increase the value unconventional plays such as shale oil, regions, where a range of geological and proposition of the industry. While coal seam gas or gas hydrates could other physical factors may be vastly there will be a level of reliance on the have a greater role in the future shape different. capabilities developed over 150 years of the industry, as could a greater of industry evolution in Taranaki, there While a commercially viable oil contribution of renewable sources to will also be opportunities to establish discovery beyond Taranaki offers the overall energy mix – skill transfer localised supply chains and service hubs significant potential for delivering an into areas such as geothermal are an as emerging regions come on stream. All economic game-changer, the future indication of the growth in this area. of which will have implications in terms of oil and gas remains uncertain. of employment and economic return. THE WEALTH BENEATH OUR FEET

WHAT IS KNOWN IS THAT STRONGER TIES WITH LEVERAGING INNOVATION REGIONS AND REGIONAL THE FUTURE WILL NOT BE The oil and gas industry is technically DEVELOPMENT MORE OF THE SAME. advanced, yet innovation within The aspirations and concerns of the sector is generally not widely Shifting public perceptions, evolving regional New Zealand can differ from known. Given national aspirations, technologies, more challenging those of central leadership, and there these successes should be identified, exploration locations, and tightening is an opportunity for greater alignment celebrated and more actively fostered. investment decisions will all impact on between the two. Developing stronger Industry health and safety systems are the shape of New Zealand’s oil and gas relationships and a collective vision often leading-edge, and knowledge and industry going forward. could enable opportunities, sensitivities processes could add significant value to Drawing the findings of this report to the and concerns to be considered and other sectors, lifting our competitiveness logical next steps, there are a number strategies evolved. This is important and safety record across the board, and of areas that must be considered by where community expectations may ultimately saving lives. all stakeholders if New Zealand and its not be adequately met using resource FAST TRACKING FUTURE present and future generations are to management tools. ENERGY maximise the wealth beneath their feet: CREATING A WINNING There is opportunity to transfer BLUEPRINT FOR INDUSTRY INDUSTRY expertise and capabilities developed GROWTH While offering an attractive investment in oil and gas to help New Zealanders New Zealand has been successful in prospect is important, the Block towards a more progressive energy attracting inward investment and a Offer process could also actively future. The Industry should be viewed blueprint for industry growth will help consider factors such as a potential as an active enabler and participant ensure the returns are maximised for operator’s company values, approach in helping the nation reach its future the nation. to community engagement, utilisation energy aspirations. Progress has already of local content, deployment of begun, and this should be promoted, 6 Such a blueprint will seek to amplify technologies to minimise environmental encouraged and celebrated. the economic production of resources, impacts, and contribution to regional sustain and promote the supply BENEFITS TO PRESENT AND development. chain, and build a stronger and more FUTURE GENERATIONS collaborative partnership between BUILDING PUBLIC CONFIDENCE Built over millions of years, New government and the industry. Education, awareness and promotion Zealand’s oil and gas resource is The blueprint will look beyond the about how the industry operates, its precious, and its returns should extend current successes to identify, assess and contribution to economic and social beyond redistribution via the Crown plan for scenarios that could impact on outcomes, and its stringent health, accounts. The intergenerational impact future decades of oil and gas investment safety and environmental regime can of realising the wealth beneath our feet and production in New Zealand. help build public understanding and could see more targeted reinvestment confidence. Relationships and trust into infrastructure, innovation and WHOLE OF GOVERNMENT also matter, and there are opportunities regional value creation to help ensure APPROACH to strengthen this aspect. Assurance the industry delivers its potential Realising the full potential of oil and is needed that response strategies value to all New Zealanders – present gas requires a whole of government and capabilities are sufficient to offset and future. approach that goes beyond New Zealand’s distance to global departmental priorities and builds a resources should things go wrong. shared understanding of the oil and gas THE IMPORTANCE OF THE industry and its barriers to growth. SUPPLY CHAIN Progress has been made, but needs The supply chain must be considered to be extended across infrastructure, in any definition of the industry, as capability development, skill attraction, must the important contribution to exporting, energy markets, supply chain employment. While a local content growth and retention, environment policy is far from a regional panacea, and technological advancement if greater understanding of the supply the nation is to gain maximum value chain and the opportunities to leverage from its mineral resources and their local capability and capacity is still development. required. CONTENTS PAGE 52 PAGE PAGE 28 PAGE PAGE 38 PAGE

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THE OIL AND GAS INDUSTRY AND ITS SUPPLY CHAIN IS A MAJOR CONTRIBUTOR TO THE NEW ZEALAND ECONOMY. THIS REPORT OFFERS A FRESH PERSPECTIVE ON HOW WE CAN LEVERAGE THE WEALTH BENEATH OUR FEET.

DEMYSTIFYING THE INDUSTRY IMPORTANCE OF AROUND NEW ZEALAND An introduction to New Zealand’s oil LOCAL CONTENT What’s happening exploration-wise and gas industry – from exploration to Oil and gas is a global industry with a around New Zealand. Page 78 exports. Page 8 huge impact on local companies. Page 38 THE FUTURE OF OIL AND GAS REGULATORY FRAMEWORK Opportunities to grow, diversify and A look at the comprehensive regulatory ACTIVITY leverage the industry. Page 86 landscape surrounding the industry. A snapshot of current exploration and WHERE TO FROM HERE? Page 22 production activity. Page 48 What needs to happen to get the MĀORI AND THE OIL AND ECONOMIC CONTRIBUTION – greatest benefit from our natural GAS INDUSTRY EXPENDITURE, JOBS & GDP resources? Page 92 Just what does the oil and gas What does oil and gas mean for Māori? APPENDICES Dion Tuuta offers a perspective. industry contribute to the employment Page 95 Page 28 and GDP of Taranaki and New Zealand? This chapter reveals all. Page 52 ACKNOWLEDGEMENTS EVOLUTION OF AN INDUSTRY Page 97 New Zealand’s oil and gas industry OTHER BENEFITS began almost 150 years ago. Page 32 Beyond dollars and jobs, what else does the industry mean for the nation? Page 62 THE WEALTH BENEATH OUR FEET

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Ensco oil rig DEMYSTIFYING THE INDUSTRY An introduction to New Zealand’s oil and gas industry – from exploration to exports.

nergy is a critical factor in Over the last decade the world’s energy our lives, communities and needs have increased, and continued global economies. It powers population growth and activity in production chains, logistics, developing economies will require even Eindustry and is embedded in virtually more energy in the future. To meet this everything we eat, the products we use, demand the requirement for fuel is our transportation and basic needs such anticipated to grow, particularly from as heat and light. Currently 81.7 percent renewable sources which are forecast of global energy consumption comes to grow 6.4 percent annually. Amongst from fossil fuels: 31.4 percent from oil, fossil fuels, gas demand is projected to 29 percent from coal and 21.3 percent grow 1.9 percent per year, while oil and from natural gas. coal are anticipated to decline. New Zealand is part of this global energy A geographically small country, New Zealand’s vast economic footprint spans its story. Exploration and production territorial waters and extended continental shelf. New Zealand has the world’s significantly contributes to domestic fourth largest Exclusive Economic Zone (EEZ), equivalent to around three-quarters needs and contributes to meeting global of Australia’s land mass. Approximately 96 percent of ‘New Zealand’ is underwater demand through responsible export – a fact that holds significant implications for our economic potential and development of our energy resources industries such as oil and gas. New Zealand is resource-rich, yet only fractional and expertise. This is underpinned by amounts of our seafloor have been mapped or examined in detail. an energy strategy which considers our nation’s economic, social and NEW ZEALAND’S EXCLUSIVE ECONOMIC ZONE AND EXTENDED environmental aspirations. CONTINENTAL SHELF Despite the importance of energy, widespread understanding of oil and gas exploration, production and processing remains largely focused on the consumer experience ‘at the pump’ or media reports on oil and gas industry activities. This chapter seeks to demystify the process and foster greater understanding of oil and gas and the industry that surrounds it.

CONSUMPTION BY FUEL

Billion tonne of oil equivalent 18 9 15 Renew.* Hydro 12 Nuclear Coal 9

6 Gas

3 Oil 0 1965 2000 2035

*includes biofuels Source: BP Energy Outlook 2014

SHARES OF PRIMARY ENERGY %

50 Oil

40

Coal 30

20 Gas

10 Hydro Nuclear 0 Renewables* 1965 2000 2035 *includes biofuels THE WEALTH BENEATH OUR FEET

New Zealand promotes its oil and expense, particularly where exploration NEW ZEALAND’S gas resource potential to attract requires expensive equipment, such as PETROLEUM RESOURCES exploration companies, whose offshore drilling rigs. investment can benefit our country By international standards, New Industry activities are carried out under through contribution to our energy Zealand is an under-explored petroleum the Crown Minerals regime in which supply, export programme, economic destination. explorers bid for rights to explore for development and social wellbeing. oil and gas over defined geographic New Zealand’s 17 petroleum basins In New Zealand, the Crown holds areas. Successful bidders are awarded cover two million square kilometres that title to all petroleum resources. an exploration permit which is may contain commercial oil and gas New Zealand Petroleum and Minerals, accompanied by a work programme and deposits. which sits within the Ministry of associated obligations. These must be Business, Innovation and Employment, met within a defined timeframe. WHAT IS A BASIN? administers the Crown’s interests If a discovery is made, the permit holder and drives the policy framework that Sedimentary basins are applies to convert the exploration governs the sector and our energy natural depressions in the permit to a mining permit, and following strategy. earth’s surface which, over a successful application, proceeds millions of years, have What makes New Zealand to development and operations and accumulated deposits attractive for oil and gas eventually decommissioning and of sediments, and are exploration? restoration. considered good potential for • Our oil and gas reserves Permits are held by exploration oil and gas exploration. and production (E&P) companies, • Proactive industry policies which range from ‘juniors’ – smaller • Ease of doing business companies within the oil and gas To date, all production in New Zealand sector – to ‘supermajors’ – significant • Political stability has come from the Taranaki Basin. 10 global energy companies – of both New The Great South, Canterbury, Reinga- • A skilled workforce Zealand and international origin. Northland, and East Coast basins have • Solid exploration track record These companies are supported also attracted recent interest, and extensively by the service industry We are, however, a small nation several other near and on-shore basins which provides goods, services and geographically distanced from the have had a small number of exploratory expertise to enable the fulfilment of world’s major economies. This adds wells drilled. However these and the far permit obligations. offshore frontier basins remain largely unexplored. The Taranaki Basin covers an area of 330,000 square kilometres and has an extensive track record of successful discoveries that constitute New Zealand’s only commercially producing oil fields. The region serves as the base for most oil and gas exploration companies operating in New Zealand, as well as a specialist support industry. Although more than 400 wells have been drilled in the Taranaki basin since 1950 – spanning both onshore and offshore – it is still considered under- explored compared to similar basins overseas, and is viewed as holding considerable potential for future discoveries.

Under Maui platform DEMYSTIFYING THE INDUSTRY

NEW ZEALAND’S PETROLEUM BASINS

Norfolk Basin

Northeast Havre Reinga Slope Trough Basin Basin

New Caledonia Northland Basin

Raukumara Basin Deepwater Taranaki

Bellona Taranaki East Basin WKW* Basin Coast Basin

Challenger Plateau Basins Pegasus Basin West 11 Coast Chatham Slope Basin Basins

Fiordland Basins Canterbury Basin Bounty Trough

Western Southland Basins Great South Basin

Pukaki Basin

Outer Campbell Basin

Campbell Basin

*Waikato, King Country & Whanganui Basins. THE WEALTH BENEATH OUR FEET

HOW THE INDUSTRY WORKS UPSTREAM • Decommissioning which spans the closure and removal of facilities and The oil and gas industry can be viewed The upstream phase has a series of restoration of the site once oil or gas as three sequential components – distinct steps which reflect the lifecycle is no longer produced. upstream, midstream and downstream. of oil and gas field development: In the New Zealand industry, the Upstream involves the exploration and • Identification and acquisition of upstream component includes: production (E&P) activities associated oil and gas opportunities including with finding oil and gas reserves, and interpretation of data. • Numerous companies actively the process of extracting the resource exploring throughout New Zealand, • Exploration and appraisal where the from the ground. In some cases this can although the focus remains on prospect is examined in greater detail extend to specialist processing such Taranaki. by obtaining physical evidence and as separating the oil and gas into its confirmation of its potential. • Producing fields (currently in various components. Taranaki) with most gas fields • Development whereby if the oil and Midstream entails storage, further also producing oil (condensate gas resource is deemed commercial, processing, refining and transportation and LPG), and oil fields often also facilities are constructed to extract, of the oil and gas. Downstream are the producing gas. separate, stabilise and store the end users of the processed oil and gas resulting production. • Pre-processing facilities at resource, although the line between most fields to separate oil and midstream and downstream activities • Production and operations of the condensate from raw gas and is frequently blurred, and is sometimes facility which enables the crude oil, sediments. viewed as a single downstream phase. natural gas, and natural gas liquids to reach the market and generate • Gas-gathering pipelines, interlinking revenue. to form a transmission network.

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UPSTREAM (E&P) MIDSTREAM DOWNSTREAM

Identification and Processing Marketing acquisition Petrochemicals Trading Exploration and appraisal Storage Retailing Development Transportation Distribution Production and (pipelines, ships, trucks) operations Storage

Decommissioning Refining DEMYSTIFYING THE INDUSTRY

IDENTIFICATION AND MIGRATION OF OIL FROM SOURCE ROCK TO TRAP: ACQUISITION Before commencing any potential Cap rock exploration activity, the E&P company will engage in an extensive due diligence Gas Oil process which will address strategic, commercial, political, economic and Reservoir rock technical aspects of the opportunity. Potential prospects are usually assessed Oil and gas competitively on a global basis and against the company’s broader Source rock investment portfolio. A critical aspect of their assessment is Source: Oil – an Introduction For New Zealanders (2008), MED, by Ralph D. Samuelson prospectivity – an analysis of signs that may indicate a potential hydrocarbon discovery. While prospectivity is centred on the geology of an area and likelihood of an oil and gas discovery, focus on a specific region where zones In addition to gathering and interpreting a considerable amount of data, with a favourable geology occur. They geophysical data, seismic surveys research, interpretation and judgement will look for ‘leads’ which are areas of can be undertaken which utilise the is engaged in coming to a decision to potential interest within plays, then reflection of sound waves to identify progress or otherwise. gather data to assess whether potential layers of rock and build a picture of the Similar to detective work, the traps of oil and gas may be present, underground formations. A series of early phases of investigation and which in turn leads into ‘prospects’. sensors, called geophones, is used to exploration require geoscientists pick up reflected pulses, either on the 13 In New Zealand the Crown, as the owner to look for signs that oil and gas ground in onshore surveys, or towed of the resource, has embarked on a may be present deep beneath the behind boats offshore. process of promoting opportunities by ground in sufficient quantities to be building a comprehensive library of data Recent technological advancements commercially successful. and information which is made available in seismic surveying have given rise to Crude oil and natural gas are naturally- to potential explorers. On the basis of complex 3D mapping, and more recently occurring substances formed from this acquired data the Government will time-lapse ‘4D’ results which provide the accumulation of plant and animal define exploration areas which are then insights over the course of a field’s life. organisms millions of years ago, which put to competitive tender in an annual have been compressed in source Block Offer process, which includes the rock thousands of metres beneath prepared data packages to encourage the surface. This organic matter bidders. subsequently breaks down to form Interested explorers will embark on hydrocarbons within the rocks when their own technical and commercial due the right combination of pressure and diligence as part of the tender process, temperature is reached. The mobile including any legal work to establish oil and gas migrates upwards through appropriate agreements where there porous rocks and faults until stopped is more than one participant in the by an impermeable layer, or cap. tender. Tenders are generally awarded Accumulations of oil and gas build up, on the basis of the company’s proposed contained within a reservoir trap and a work programme and its capability rock seal. to meet statutory, health and safety, Explorers will look for these petroleum and environmental requirements plus systems which may indicate the technical ability. presence of oil and gas. Within a global EXPLORATION AND APPRAISAL search, exploration companies will gather initial data about a country’s If awarded a prospecting or exploration geology, history and track records of permit, the E&P company will then discovery when considering investment seek to develop a more comprehensive options. An explorer’s ‘play’ will typically picture of what lies beneath the ground. Helicopter Seismic Drilling Rig THE WEALTH BENEATH OUR FEET

CLOCKWISE FROM BOTTOM LEFT: Drilling operation, seismic modelling, Kan Tan IV loadout.

This data is then processed and guarantee of a commercially viable water, while a semi-submersible rig can interpreted by geoscientists, who hydrocarbon presence. operate in slightly deeper waters and is more easily moveable. A drill ship ascertain rock properties and the Prior to commencing a drilling comprises a drilling rig that works from 14 possible presence of hydrocarbons. operation the exploration company This process will likely also draw on will undertake a pre-drilling evaluation the top of a specialist ship, and can other data such as rock samples, of the operational risks, including operate in deep water. previous well results, and any other environmental, geological and Starting an exploration well is called information about the geology of the financial considerations, as well as ‘spudding’ and commences with a region, but the only way to truly know a comprehensive site survey of both starter hole which is shallower and what lies beneath is to drill a well. surface and subsurface conditions. This wider than its subsequent extensions. will identify any critical factors that need This is followed by insertion of sections The drilling process entails going to be considered in the drill programme, of steel ‘casing’ pipe, which are slightly through the cap rock and into the and inform the necessary consents smaller than the initial borehole and reservoir to physically acquire required to meet environmental, are then back-filled with cement. The ‘down hole’ data that provides a regulatory or other conditions. more definitive understanding of casing provides strength to the borehole potential reservoir sands, evidence This stage will involve careful and is an important safety device that of hydrocarbons, and petrophysical consideration of aspects such as drill can respond to and isolate any high properties. The drilling process provides location, trajectory, site preparation, pressure zones encountered in the continuous rock and fluid samples infrastructure, access roads, the drilling process. Casing also protects which are analysed by a geologist. disposal area for drill cuttings and underground aquifers from being mud, and storage, safety and security contaminated by oil and gas, by isolating Drilling in a new area is usually referred systems. Once all conditions are met, the well bore. The casing process to as a ‘wildcat’. If significant quantities a drilling company will then be brought continues as the well is drilled deeper, of oil and/or gas are found then it in and the drilling rig set up. with progressive insertions of smaller is termed a ‘discovery’. If nothing casing units and additional cement. substantial is found, then this is called Offshore drilling operations will a ‘dry hole’ which is usually plugged and generally utilise a Mobile Offshore During the drilling phase drilling fluid abandoned. Drilling Unit (MODU) to drill the initial or ‘mud’ is pumped down the well to well. Rigs or drill ships vary greatly contain any pressurised gas or liquids, Drilling is an expensive undertaking that depending on factors such as cost and cool and lubricate the drill bit, and lift requires extensive and sophisticated availability, water depth, transportation rock fragments back to the surface. equipment and skilled people. requirements, or depth of target zone. The rock samples are assessed by a Sometimes numerous wells may be A ‘jack up’ has long legs that can sit ‘mud logger’ (geologist) as the drill required to fully scope the size and on the sea bed with the rig sitting at moves deeper, identifying the rock scale of a discovery, and this is still no a pre-determined height above the layers the drill is passing through. DEMYSTIFYING THE INDUSTRY

Once target depth is reached, a series of HIGH FINANCIAL RISK BUT POTENTIALLY HIGH REWARD wireline logging tools are used and fluid, Exploration activity carries a high level successful must generate returns not oil and gas samples may be collected to of financial risk, despite advances in only to justify the costs of the current help determine viability. geological modelling and prediction. development, but accommodate the When the drilling process has finished, It costs many millions of dollars to costs of those that were unsuccessful. the well can be sealed (suspended) investigate and drill a well, and even There remains limited ability to predict while the results are analysed. Appraisal more to develop it, yet on average whether a discovery will be oil or gas, wells are drilled to reduce uncertainty only one in ten exploration wells are and while companies generally target on the potential extent of the discovery considered a commercial success. oil prospects as opposed to gas – oil including confirming rock properties, As a result, exploration companies are is more valuable and sold on global where the oil/water or gas/water often global companies with a business markets – natural gas has accounted for contact boundaries sit, and the physical portfolio that enables them to spread over 70 percent of New Zealand reserves structure of the reservoir itself. financial risk across multiple territories, discovered to date, and most finds Drilling additional wells incurs further countries and stages of development. reflect a mixture of both oil and gas. cost, however greater investment in The rewards of those wells they deem this phase can help clarify the risks and opportunities associated with the potential discovery and inform the strategy concerning how to maximise MANAGING EXPECTATIONS the field may not meet the threshold of profitability. commercial viability. Determining a commercial success If the well and its drilling operation involves a complex analysis of scientific, A field not considered viable at one is considered a success, then it is geological, technical, financial, point in time may be revisited as ‘completed.’ Additional production infrastructural and institutional technological, infrastructural or tubing is added to the casing and these considerations, by a multitude of customer factors change. are perforated to create a pathway for 15 skill sets. In some cases, where the cost of drilling oil and gas to flow to the surface. is not justified by the potential reward, A series of valves are added to the top Even when oil and gas is found, the exploration permits may be surrendered of the well to control the flow, known as quantities and the costs of developing before a well is even drilled. a ‘Christmas tree.’

HOW LONG DOES IT TAKE? Oil and gas exploration and development is a long term process. The time from securing a permit, to drilling and making a decision concerning whether or not to develop a field can take many years. An overview of an upstream life cycle is shown below, providing a typical range for a successful field over the life of the process. Upstream life cycle Years 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 … … 40 41 42 Identification Basin Modelling 1-2 yrs Blocks tendering 9-18 mths Exploration Exploration 5 yrs Appraisal 1-5 yrs Development 1-5 yrs Production 3-40 yrs Decommissioning 6 mths-2 yrs

Source: Arete THE WEALTH BENEATH OUR FEET

TARANAKI O&G FIELDS

DEVELOPMENT Once oil and gas is extracted from PRODUCING FIELDS INCLUDE: a field, it will generally be piped to Once the size and scale of the discovery Off shore: a production station where the raw is known, then facilities are required to product can be cleaned, separated into • Maui (gas condensate) enable the resource to be extracted, its components, and processed into a • Tui (oil) separated, stabilised and stored i.e. more stable and appropriate state to the construction of pipelines and a • Pohokura (gas condensate) reach customers and markets. production station. The next step is a • Maari-Manaia (oil) comprehensive field development plan, New Zealand production stations vary • Kupe (gas condensate) based on a production profile informed in size, structure and configuration, by the technical and commercial though facility construction usually Onshore: analysis, which will determine what comprises an intensive period of activity • Kapuni (gas condensate) facilities are required at the site, and the and this can have a strong impact on • McKee (oil and gas) number and phasing of further wells to economic benefits and employment. be drilled. Once the facility is built this activity will • Waihapa Ngaere (oil and gas) end, but all require ongoing operation • Kaimiro (oil and gas) Common activities during this phase and maintenance which can necessitate include; technical specifications being • Kowhai (gas condensate) ‘shutdowns’ or ‘turnarounds’ when defined, consents and regulatory the facility is shut down for a period to • Onaero approvals being secured, facility enable comprehensive maintenance • Mangahewa (gas condensate) designs drawn up, contracts let for the work, plant modifications and statutory fabrication and construction, and • Ngatoro (oil, gas and condensate) inspections. the resulting facilities being prepared • Rimu/Kauri/Manutahi (oil, gas and for the operational phase. To extend the production life of a condensate) field, wells may be ‘worked over,’ a The development phase can run for • Cheal (oil) process by which problems in the well several years, especially in complex • Copper-Moki (oil and gas) bore are fixed to enhance flows, or 16 large-scale developments, and is techniques such as enhanced recovery • Turangi (gas condensate) usually accompanied by intensive work may be employed to access further • Sidewinder (gas condensate) activity, employment and contractor hydrocarbons. opportunities and economic benefits. • Puka (oil and condensate) The outcome is a completed and fully DECOMMISSIONING operational facility. Should the economics of the NEW ZEALAND’S OIL AND PRODUCTION, OPERATION project shift into negative territory, GAS PRODUCTION STATIONS AND MAINTENANCE wells and surface facilities can be INCLUDE: decommissioned, effectively ending The production phase commences • Production Station (Opunake) their commercial life. The only facility with the first commercial quantities of to be recently decommissioned in • Pohokura (Waitara) hydrocarbons flowing through the well New Zealand was the Maui floating • McKee-Mangahewa (Tikorangi) head – referred to as bringing the facility production, storage and offloading ‘on line’. Once producing, a field can • Kupe Production Station (Manaia) facility (FPSO) in 1997. begin to generate revenue, offsetting • Cheal Production Station (Stratford) the high up-front cost of development. A number of onshore and offshore fields • Sidewinder Production Station Explorers and associated investment in Taranaki may reach end-of-life in (Inglewood) partners will pay a share of this financial the coming decades, which will result • Turangi Production Facility (Tikorangi) return to the Crown in the form of in their decommissioning, although royalties as well as payroll taxes and continued advances in extraction • Kowhai Production Station (Tikorangi) taxes on profit. technologies have the potential to • Kaimiro Production Facility extend the lifespan of production (Inglewood) facilities. THE DEVELOPMENT PHASE • Rimu Production station (South CAN RUN FOR SEVERAL Although decommissioning signals Taranaki) YEARS, ESPECIALLY IN the end of commercial returns from • Waihapa Production Station a facility, the activities involved in (Stratford) COMPLEX LARGE-SCALE undertaking decommissioning can • Kapuni Production Station (South lead to significant work for supply DEVELOPMENTS, AND IS Taranaki) USUALLY ACCOMPANIED BY chain companies, generating economic INTENSIVE WORK ACTIVITY. returns for the region. • Copper-Moki (Stratford) DEMYSTIFYING THE INDUSTRY

TARANAKI O&G FIELDS

Gas Field Kapuni / Maui pipeline to: Auckland Oil Field Power Station Petrochemical Plant

Production Station Pohokura Motunui (Mx) Pipelines Moturoa Urenui / Ohango Roads Port Taranaki Waitara (Mx) New Plymouth Mangahewa McKee Turangi Kaimiro Kahili Windsor Ngatora Tariki / Ahuroa

Radnor

TCC / Stratford Pateke Waihapa / Ngaere Amokura Oaonui Cheal Tui FPSO 17 Ammonia Urea Kapuni

Maui A Kiwi Cogen Inaha

Maui B Rimu

Kauri

Kapuni pipeline to: Palmerston North Kupe Platform Hawkes Bay Wellington

Maari Platform + FPSO

Manaia Km 0 10 20 30 40

Source: (Ministry of Business, Innovation and Employment, 2014) THE WEALTH BENEATH OUR FEET

RAROA – THE RETURN ew Zealand’s largest producing oil field, Maari, sits 80km IN TOTAL THE 3-WEEK PROJECT Noff the South Taranaki coast. Discovered in 1983, Maari was developed 22-years later when OMV NZ became the UTILISED MORE THAN 60,000 MAN- major investor in the field, and later its operator after their HOURS, WITH UP TO 250 PEOPLE A DAY development proposal navigated the complex subsurface – PREDOMINANTLY FROM NELSON AND challenges to enable production. TARANAKI – BROUGHT IN TO RETURN THE When production began in 2009 it drove a number of RAROA TO OPERATING CAPACITY. technological achievements, such as the world’s tallest- self-installing wellhead platform, the longest well drilled in 18 New Zealand and the world’s largest casing with a drilling application. At its offshore location, oil is produced from six wells which are linked to a normally unmanned wellhead platform before being piped to the floating production and storage vessel (FPSO) Raroa, anchored 1.5km away. The Raroa’s production facilities are capable of processing 40,000 barrels of oil daily. Maari provides employment across two areas. More than 110 full-time staff and contractors are required for routine field operation – the day-to-day running of the Maari facilities. This includes maintaining the offshore installations, supply boat, warehousing facilities and operation, and support teams in both New Plymouth and Wellington. In addition to the routine operation, the field generates project-related employment which can stimulate a surge in expertise and personnel requirements over limited periods. One such project was upgrade and repair work to the Raroa, undertaken in 2013. This required the removal of all oil on board, disconnection from the wellhead and towing of the vessel to Nelson for refurbishment and upgrade of its process equipment. Of particular note was the replacement of the 45-tonne swivel, which enables the vessel to rotate around its mooring. This project also presented an opportunity to undertake maintenance work at the field, such as the replacement of TOP: Raroa leaving Port Nelson after the refit. mooring lines, which required a specialist team and vessel. MIDDLE: Fully refurbished Raroa back in the field. In total the three-week project utilised more than 60,000 BOTTOM: Overview of the Maari Field (showing subsea infrastructure, man-hours, with up to 250 people a day, predominantly WHP, FPSO, offtake tanker and support vessel). from Nelson and Taranaki – brought in to return the Raroa to operating capacity. DEMYSTIFYING THE INDUSTRY

Whangarei is used to support nearby gas-fired peaker electricity generation plants as well as injecting gas into the Vector transmission network to meet supply Auckland and demand fluctuations.

Morrinsville Most Taranaki production facilities Hamilton Tauranga enable the preliminary separation of the Cambridge Whakatane Rotorua produced fluids into fractions of oil, gas, Opotiki water and sediment, to meet wholesale markets and allow a more stable and Taupo safely transported product. Where Gisborne New Plymouth onsite production facilities do not yield marketable products, specialist facilities KAPUNI have been developed, such as those at Hawera Hastings the Kapuni Gas Treatment Plant, Oaonui MAUI Wanganui Palmerston Production Station, and the McKee North Production Station. They are able to Levin Pahiatua extract high value oil and liquid fractions such as natural gas liquids (NGL) and New Zealand’s two main gas Lower Hutt transmission networks liquefied petroleum gas (LPG), which is Wellington Vector pipeline system used in New Zealand as a vehicle fuel, Maui pipeline for heating, cooking and, of course, firing the Kiwi barbecue. New Zealand’s natural gas is also used as a non-energy component in the 19 manufacture of a number of products MIDSTREAM major gas network and pipeline system, for domestic and export markets. South to be used by consumers to heat Taranaki’s Ballance Agri-nutrients The midstream part of the industry homes, meet business energy needs manufactures ammonia and then urea comprises the refining of raw crude and support electricity generation. from natural gas, for use domestically oil and natural gas into marketable as farm fertiliser and feedstock, and New Zealand has two main gas products, and their transmission to to make urea formaldehyde resin used transmission networks – the Vector those markets. in the building industry. Methanex NZ network and the Maui pipeline. The Maui is one of the world’s largest methanol Whereas our natural gas is used or gas pipeline spans 313km from the Maui producers, and converts natural gas to processed domestically, our oil is production station to the Genesis Energy methanol at its North Taranaki plants, predominantly exported, as its high power station at Huntly, Contact Energy before exporting through Port Taranaki quality attracts good prices on the power stations at Otahuhu and Stratford, to the global commodity market. In international market. and the Southdown cogeneration plant, this sense Methanex is an important which together add over 2,100 MW to GAS participant in the New Zealand gas the nation’s electricity capacity. Prior market as it provides an outlet for Within New Zealand, our natural gas is to the discovery of Maui and Kapuni, gas that is excess to domestic market used in the following ways: and the subsequent development of requirements, as well as providing a the pipeline infrastructure, coal played • Electricity generation value-added export product from our a more prominent role in underpinning natural gas supply. • The industrial sector electricity generation. Vector owns and • The residential sector operates the other transmission pipeline Methanol from Methanex is also piped network, around 2,300km in length, to AICA New Zealand, a specialist • The commercial sector which carries gas to major load centres resin manufacturing plant in New • As a feedstock in the petrochemical around the North Island, with offtake and Plymouth. The firm established in sector (non-energy use) connection points to cities and towns. the region to take advantage of the availability of methanol and urea which It is possible to store gas in depleted After being piped and processed via it uses in the manufacture of specialist gas fields, as is the case in the Ahuroa the production stations, gas from formaldehyde-based resins for wood field near Stratford. The stored gas New Zealand’s fields can feed into a products such as plywood and laminate. THE WEALTH BENEATH OUR FEET

LEFT TO RIGHT: Methanex (rear) and the Pohokura Production Station (foreground), Raroa facilities

Midstream gas activities include: Although New Zealand has a refinery, DOWNSTREAM located at Marsden Point, Whangarei, • Gas processing facilities to ensure very little domestic oil is processed The downstream oil and gas industry gas meets pipeline specifications there or consumed in New Zealand, covers the marketing, trading and local for transmission. This may largely due to the high quality of distribution of petroleum products to include separation of liquids into New Zealand’s oil deposits, and the end users. Its delineation from upstream condensate, NGL or LPG and high return it can command on the is usually defined at its point of sale, removal of various impurities such international market. Only 4 PetaJoules such as the fiscal meter for gas sales, as nitrogen, CO2 or sulphur. (PJ) of domestically-produced oil was weighbridge for LPG, or the tanker • Gas transmission networks utilised in New Zealand in 2012, and loading arm for condensate and oil. linking Taranaki fields to markets, only 2 percent of the oil processed at Downstream activities include: comprising the Vector network Marsden Point came from domestic linking urban centres throughout sources. The majority of oil sold in • Gas trading, marketing and the North Island, and the high- New Zealand is imported from the retailing. capacity Maui pipeline between Middle East and South East Asia. • Oil product marketing and trading. Taranaki and the Waikato. 20 Midstream oil activities include: • Local distribution by truck. • Wholesale and industrial users • Pipeline and road transport • Storage and retailing. such as electricity generators and infrastructure from source to petrochemical plants. • Refining/processing of imported storage near Port Taranaki. crude oil products, largely from • Import–export links, including • Export from Port Taranaki the Middle East and Asia, at methanol exports, LPG imports principally to Australasian Marsden Point refinery. and exports to balance supply/ refineries. demand variances, and urea to The types of companies involved meet 40 percent of domestic • Transportation of processed include oil refineries, petroleum product demand. products to storage centres distributors, retail outlets and natural nationwide via ship, pipeline or gas distributors. OIL direct imports. While New Zealand’s natural gas production is sold largely domestically, our oil outputs are predominantly exported. Oil from New Zealand’s onshore fields is transported either by pipeline or road-based tanker to storage and export facilities at Port Taranaki. Offshore, oil from the Tui and Maari fields is collected directly from floating production storage and offloading (FPSO) vessels via tanker then exported directly to international markets. At other offshore fields, such as Kupe and Pohokura, product is collected by unmanned platforms then transported via sea-floor pipeline to shore for further processing. Storage tanks at Port Taranaki DEMYSTIFYING THE INDUSTRY

NATURAL GAS INDUSTRY SUMMARY 2014

MAJOR GAS Manga- Maui Kowhai/ Poho- Rimu/ Side- McKee Kapuni Turangi Kupe Cheal FIELDS hewa Ngatoro kura Kauri winder

Todd Shell 83.75% Shell 50% Greymouth Shell 48% Origin Origin TAG Oil Taranaki OMV 10% Todd Energy 100% OMV 26% Energy Energy 50% 100% PRODUCERS 100% Todd Energy 50% Operator Todd 26% 100% Genesis Operator Greymouth Cheal Operator 6.25% Operator Operator Operator Energy 31% Todd Energy Origin Energy Petroleum Operator STOS Shell NZOG 15% STOS Mitsui E&P 4% Operator Origin Energy WHOLESALERS Wholesale market (bilateral)

TRANSMISSION MDL Vector HIGH PRESSURE Powerco Nova Vector Gas Net Grey- Contact Mercury DISTRIBUTION Energy mouth Energy Energy LOW PRESSURE Gas Genesis Energy On-Gas Pulse RETAILERS Energy Online

Methanex Ballance Contact Energy Other major users supplied Users supplied CONSUMERS Agri-Nutrients directly from transmission system from distribution Chemical Genesis Energy (Kapuni) Limited NZ Steel system Methanol Mighty River Carter Holt Harvey Ammonia/urea Other industry 21 Manufacture Power Degussa Peroxide manufacture Electricity Fonterra Commercial generation Todd Energy Residential Kiwi Cogeneration Refining NZ Transport Southdown Cogeneration (as compressed Tasman Pulp and Paper natural gas

Source: MBIE; Rockpoint; Arete THE WEALTH BENEATH OUR FEET

he oil and gas industry is regulated, with legislation, policies and procedures to ensure the value of TNew Zealand’s petroleum resource is maximised whilst having safeguards to protect our natural environment and the health and safety of our workforce and public. WHO CAN EXPLORE IN NEW ZEALAND, WHERE THEY EXPLORE AND THEIR WORK PROGRAMME The New Zealand Government owns all of the nation’s petroleum resources and grants permits for exploration and production rights in return for royalties on production. The methodology and timeframe for the issuing of permits is regulated by New Zealand Petroleum and Minerals. The Crown Minerals Act 1991 sets out the legislative framework for 22 prospecting, exploration and mining of Crown-owned minerals for the benefit of New Zealand. The Act establishes the rights to search for and produce petroleum, the effective management and regulation of those rights, and the financial return for the Crown. Operator’s activities are also governed by a range of other laws and regulations, depending on the activities they undertake. The regulators involved may include the Environmental Protection Authority, Worksafe NZ, Maritime NZ, the Department of Conservation, and local and regional councils. BLOCK OFFERS AND PETROLEUM PERMITS New Zealand Petroleum and Minerals (NZP&M), within the Ministry of REGULATORY Business, Innovation and Employment, is responsible for allocating and managing permits for oil and gas activity. It is not possible to undertake activity without a FRAMEWORK permit, nor is it allowed to breach the conditions of a permit. A look at the comprehensive regulatory landscape Petroleum exploration permits are surrounding the industry. allocated through an annual ‘Block Offer’ which involves the government Kan Tan IV specifying which areas will be released for new exploration permits. Block Offers call for bids from operators which describe the work programme they propose to undertake in an area. NZP&M assess a bidder’s financial and technical capability. A high level assessment of their ability to meet health, safety and environmental requirements is also undertaken. The assessment process ensures the ‘winning’ bids represent the Helicopter on Maui A greatest potential return to the Crown, and gives assurance that the operators existing oil and gas production activity HEALTH AND SAFETY will be able to undertake the work safely is on private land, and it is usual for Oil and gas exploration and production and responsibly. a contract between the land owner and the exploration and production involves complex engineering activities Exploration permits in New Zealand can company to set a payment to the owner in a wide range of settings. Operators be granted for up to 15 years, but are and specify any conditions regarding must ensure a safe working environment generally awarded for shorter periods the oil company’s activities, such as for their workforce and comply with onshore. If a permit holder establishes operating times, spatial limitations and strict health and safety regulations. that commercially recoverable quantities restoration. In the case of conservation A dedicated High Hazards Unit has of petroleum exist within the permit area land, an operator must negotiate a been formed within WorkSafe NZ which they may then apply for a mining permit, land access arrangement with the focuses on industries such as the oil which provides the right to produce and Department of Conservation. These and gas industry, geothermal and sell petroleum and obliges the holder arrangements can be used to mitigate mineral mining, to ensure operators to pay a royalty to the Crown based on any potential environmental impacts. are effectively managing health and those sales. A production permit may be 23 safety and minimising the risk of major for up to 40 years. ROYALTIES incidents at their sites. NZP&M monitor permit holders to ensure Any company producing and selling In 2013 new requirements to manage they are fulfilling the work programme oil and gas in New Zealand is required workplace safety in onshore and offshore agreed in the awarded permit. to pay a royalty to the government, operations were passed into law and saw LAND UNAVAILABLE FOR calculated as either five per cent of a strengthening of the management of PERMITTING net sales revenue or 20 percent of hazards and safeguards associated with accounting profit – whichever is higher. drilling, with a focus on well integrity. Significant portions of New Zealand This ensures the government receives are unavailable for permitting of any Before any operator can commence a revenue stream throughout the life of kind. By law, there are large tracts of work such as drilling a well, they must an operation. land with high conservation value and prepare a safety case which ensures some of importance to Māori over which Gas discoveries made before 1 January hazards are identified, defines how no petroleum activity may take place. 1986 must also pay the Energy and they will be controlled, and outlines Land automatically excluded from Block Resources Levy of $0.45 per GigaJoules the responsible procedures that will Offers is listed under Schedule 4 of (GJ) produced. It is paid by the field underpin the management of the the Crown Minerals Act. This includes owners of Kapuni, Maui and McKee and well throughout its lifecycle. Before National Parks and Marine Reserves. currently represents a small portion of commencing any work, the safety case Before releasing Block Offers for tender, government revenue. must be approved by WorkSafe NZ who NZP&M also consult with affected iwi, A 2012 review of petroleum royalties will also monitor its implementation, hapū and local authorities to identify determined that current levels balance including the receipt of independent important areas that are not already fair financial return for the government examinations of well sites and protected by legislation. with a positive level of investment procedures. ACCESS TO LAND attraction, and that while New Zealand royalties are lower than many other ENVIRONMENTAL An onshore exploration or mining permit jurisdictions, this reflects the distance MANAGEMENT does not give the holder automatic to global markets, limited infrastructure access to the land within the permitted The oil and gas industry operates under and low level of understanding of our oil block – this must be negotiated with strict controls to avoid and manage and gas resources. the landholder. Much of New Zealand’s potential environmental damage. THE WEALTH BENEATH OUR FEET

ACTIVITIES ON LAND AND OUT storage, labelling, disposal and TO 12 NAUTICAL MILES (NM) certification of certain sites, equipment and people. The environmental effects of onshore and nearshore oil and gas exploration BEYOND 12 NM IN NEW and production are managed by regional ZEALAND’S OFFSHORE WATERS and district councils under the Resource The Exclusive Economic Zone and Management Act (RMA). Controls are Continental Shelf (Environmental set through council plans, and through Effects) Act 2012 (EEZ Act) came into conditions in resource consents. force on 28 June 2013 and promotes the Regional councils regulate discharges sustainable management of the natural to land, air or water and regulate the resources in the EEZ and Continental taking and use of surface and ground Shelf – the area of New Zealand’s water. In relation to O&G activities, economic jurisdiction beyond 12 consents may include discharge nautical miles from the coast. permits for well testing and production Under the EEZ Act, the Environmental flaring, stormwater and waste water Protection Authority (EPA) is responsible disposal, produced water disposal, for regulating the effects of certain drilling waste disposal and enhanced restricted activities on the environment production methods that may present a and existing interests in this area. risk to ground water resources (such as The EPA assesses applications for hydraulic fracturing). marine consents from organisations District council consents focus on such as oil and gas companies against activities under the District Plan such criteria which relate to environmental as the effect of the activity on traffic effects, impacts on existing activities, 24 generation, noise and light/illumination and economic benefits, before an and environmental risks from hazardous application is granted or refused. substances or processes. They may also Some activities that operators are require consent for activities such as seeking to carry out are described pipeline construction that occur near as permitted activities in the EEZ registered archaeological features or regulations. Permitted activities do not sites of significance to Māori. need a marine consent from the EPA but the regulations set out a number District Council’s also have of conditions that operators have to responsibilities relating to managing soil meet. The EPA monitors compliance contamination that may affect human with the EEZ Act and any conditions on health. This can involve clearance marine consents and has the power to processes where discharges to land undertake enforcement action. have occurred and are being returned to farming and other sensitive uses. Applications for marine consents are considered on a case-by-case basis by a HANDLING HAZARDOUS decision-making committee of suitably SUBSTANCES qualified experts appointed by the EPA The Hazardous Substances and New Board. Applications will be publicly Organisms Act 1996 (HSNO Act), notified unless the EEZ regulations DISTRICT COUNCIL which controls the use and handling specifically state that an activity will of hazardous substances within the be non-notified. Currently the only CONSENTS FOCUS ON territorial sea, spans oil and gas activities that are non-notified are those ACTIVITIES UNDER THE production as well as some substances associated with exploratory drilling DISTRICT PLAN SUCH used in the production process, for petroleum. Notified applications AS THE EFFECT OF THE such as lubricants, acids, solvents, are publicly notified and the views of ACTIVITY ON TRAFFIC drilling chemicals, or spill dispersants. the public and people with existing Controls on the handling of hazardous interests are taken into account during GENERATION, NOISE AND substances, are imposed by the the application process. Therefore the LIGHT/ILLUMINATION AND Environmental Protection Authority process includes additional stages such ENVIRONMENTAL RISKS. (EPA), and span containment, transport, as publicly notifying the application, REGULATORY FRAMEWORK

If any mammals are detected within a prescribed mitigation zone all activity stops until they leave the area. providing the opportunity for people to Some of the responsibilities in Discharge COMMUNITY AND IWI make submissions and a public hearing Management Plans (DMPs) that are at which people can speak directly to held by Maritime NZ are expected to be ENGAGEMENT the decision-making committee. transferred in 2015 to the EPA. However, Oil and gas operations can continue the approval of the oil spill response for decades and will feature periods The standard timeframe for a decision elements of the DMP will remain with of intensive activity that may have on a notified marine consent application Maritime NZ. impacts – both positive and negative is 140 working days (six months) and – on the community. For this reason, for a non-notified application it is 60 Maritime NZ is responsible for ongoing and effective engagement with working days. The EPA recommends maintaining New Zealand’s oil spill communities is critically important. The that anyone considering applying for response capability and preparedness industry is highly technical in nature, 25 a marine consent enters into a pre- and assumes lead agency responsibility and is often poorly understood, so lodgement process with the EPA. This for any major national oil spill event. engagement allows knowledge to be is an opportunity to understand the MINIMISING DISTURBANCE TO shared. consent application processes relevant MARINE MAMMALS to the proposed activity. The pre- Individual operators choose the extent lodgement process is intended to lead The Department of Conservation to which they engage with their local to a more timely and effective process (DOC) and the Petroleum Exploration & community, but experience in Taranaki once the application is lodged. The EPA Production Association of New Zealand has found that early attention to is required to take all reasonable steps (PEPANZ) have developed guidelines relationship building prior to embarking to recover the costs incurred in carrying for minimising disturbance to marine on consent processes is essential. out its work. mammals from seismic surveying. Engagement should include iwi, The guidelines require operators to schools, the local councils and owners OIL SPILL PREVENTION, submit a Marine Mammal Impact and occupiers near likely wellsites. PREPAREDNESS AND Assessment (MMIA) to DOC and to Economic Development Agencies and RESPONSE, AND DISCHARGE have independent, qualified observers Chambers of Commerce may be able to MANAGEMENT on board, watching and listening for assist with opportunities and contacts. Operators must have plans in place mammals. If any mammals are detected The government recognises the role of covering how they will manage waste within a prescribed mitigation zone all affected iwi and hapū as kaitiaki and and operational discharges of harmful activity stops until they leave the area. NZP&M consults with them as part of substances and how they will respond These guidelines must be followed for the permitting process. to leaks or spills that may stem from seismic surveying to be a “permitted” their work activities. Operators must activity under the EEZ legislation. They Permit holders are encouraged to also develop and gain approval for have been voluntarily adopted by the engage with communities through the their contingency plans in the unlikely majority of operators for use in New life of an operation, and must report to event of a well blow out. The oil spill Zealand’s territorial waters (within the NZP&M annually on any engagement contingency plan relates to any and all 12 nautical mile limit) and over the with iwi and hapū. The reporting aims to spills and includes content on stopping extended continental shelf beyond encourage permit holders to engage in the flow of oil and how they will clean up. the EEZ. a positive and constructive manner, and allows the government to monitor the status of local relationships. THE WEALTH BENEATH OUR FEET WHO DOES WHAT IN NEW ZEALAND’S EXPLORATION AND PRODUCTION HOW GOVERNMENT AGENCIES AND COUNCILS MANAGE OIL AND GAS EXPLORATION AND PRODUCTION IN NEW ZEALAND. ONSHORE

Up to 4 years Up to 15 years Up to 40 years

ASSESSMENT EXPLORATION PRODUCTION DECOMMISSIONING

Prospecting Permits Exploration Permits Mining Permits Resource Consent

[Regional and/or District Councils]

Resource Consent Resource Consent Resource Consent Safety case / notification (seismic surveying) (incl. seismic surveying)

[Regional and/or [Regional and/or [Regional and/or 26 District Councils] District Councils] District Councils]

Resource Consent Resource Consent Land access on public Land access on public applications for nationally applications for nationally conservation land conservation land significant proposals significant proposals

Safety case Safety case / notification

Land access on public Land access on public conservation land conservation land

Hazardous substances Hazardous substances

Land access on other Crown-owned land

[Relevant Crown agency] REGULATORY FRAMEWORK

OFFSHORE

2 to 4 years* 5-10 years* Around 40 years*

ASSESSMENT EXPLORATION PRODUCTION DECOMMISSIONING

Resource Consents Prospecting Permits Exploration Permits Mining Permits (Territorial Sea)

[Regional Council]

Resource Consents Resource Consents Marine Consents Seismic Surveying (Territorial Sea) (Territorial Sea) (EEZ & Continental Shelf)

[Regional Council] [Regional Council] 27

Marine Consents Marine Consents Safety case (EEZ & Continental Shelf) (EEZ & Continental Shelf)

Discharge Management Discharge Management Plan Plan

Safety Case Safety Case

Seismic Surveying

*indicative timeframes only THE WEALTH BENEATH OUR FEET

MĀORI AND THE OIL AND GAS INDUSTRY What does oil and gas mean for Māori? Dion Tuuta offers a perspective.

28

Dion Tuuta (Ngāti Mutunga, Ngāti Tama) is chief executive of Parininihi ki Waitōtara Incorporated. He has had extensive experience in the Māori sector and held management positions at Crown Forestry Rental Trust and Te Puni Kōkiri.

Maui A angata whenua are a key Taranaki Iwi have prosecuted claims taking a small investment in New stakeholder within the oil and against the Crown to the Waitangi Zealand Energy Corp and Otaraoa hapū gas sector due to their unique Tribunal seeking ownership of the beginning a catering business to provide status as confirmed by the resource. The Crown remains resolute services to Todd Energy and provide TTreaty of Waitangi and their ancestral in its view that oil and gas is a national employment for their people. relationship with the wider environment asset to be managed on behalf of all A fourth perspective might be expressed within which oil and gas exploration New Zealand. as those who feel they lack sufficient take place. A second position regards oil and gas as information to make an informed choice an environmental issue which demands and therefore refuse to articulate a clear CONNECTION TO LAND AND that the traditional relationship with the policy position. IDENTITY environment be protected at all costs. As a general proposition most Māori This position sees the development of Taranaki Māori identity is intimately responses to oil and gas are likely oil and gas resources for economic gain tied to the land and environment. This to sit somewhere along this general to be detrimental to the environment relationship is personalised to the continuum of views. extent where Māori identify themselves and effectively non-Māori in worldview. in relation to key environmental features A third general position accepts oil and COLLECTIVE AND including the mountains and waterways. gas as presenting a potential economic INDIVIDUAL VIEWS While the confiscations of the 19th potential provided that environmental The expression of Māori collective views century impacted upon Taranaki Māori risks can be managed and protections on oil and gas is generally conveyed land ownership, the cultural relationship guaranteed. While a case can often through mandated tribal governance with the environment remains such that be made for the potential economic entities, modern iterations of which Māori continue to view themselves as opportunities for Māori in the oil and gas have evolved as a response to the Treaty kaitiaki of the environment irrespective sector this requires an understanding of settlement process. The majority of of ownership. This powerful position the risk and opportunities involved and these formal representative structures of Māori continuing to hold kaitiaki a willingness to participate, potentially 29 are less than 20 years old but have responsibility to the environment is a at the risk of exposure to criticism that inherited the responsibility of managing key factor in considering Māori attitudes it is seeking economic profit at the a wide range of tribal activities including to the oil and gas sector or any industry expense of Papatuanuku. Examples economic and social development as affecting the environment. of Taranaki Māori appetite to explore this opportunity include Ngati Ruanui well as cultural revitalisation. GENERAL PERCEPTIONS There is no single definitive Taranaki Māori view on the oil and gas industry but there are a number of general NEW ZEALAND 2013 CENSUS DATA* (EMPLOYMENT) observations and themes which might Māori comprise 12.5% of upstream oil and gas industry employment based on their responses in be made regarding Māori responses to the 2013 Census. 15% of total Census respondents identified with being Māori. oil and gas which can be categorised into four broad and overarching MĀORI TOTAL NZ % positions.1 Oil and Gas Extraction 69 780 8.8 The first sits within the context of oil and gas as a Treaty-based discussion on the Petroleum Exploration 36 261 13.8 ownership of the underlying resource. Most tribal groups maintain a view that Other Mining Support Services** 135 882 15.3 the Treaty of Waitangi guarantees Māori Total 240 1923 12.5 rights to control their taonga – including natural resources such as oil as gas. * Census industry employment data varies from total industry employment data in this report due to more defined While the Crown asserts the right to scope and different methodology – however it is used to provide useful insight on Māori employment within the O&G industry. **This may include mining minerals as well. manage these resources on behalf of all New Zealanders this is not necessarily a position shared by Iwi and various

1 These themes have been articulated in Māori and Mining (2013). Otago University: A collaborative research project between the Departments of Geology, Geography, Law, Management, Te Tumu – School of Māori, Pacific and Indigenous Studies, Division of Research and Enterprise and Centre for Sustainability. THE WEALTH BENEATH OUR FEET

The leadership of modern tribal entities Current attitudes to the oil and gas them of land ownership and therefore is predominantly drawn from the and energy sector in Taranaki can be control over the areas where exploration registered tribal membership through contrasted with those of Māori located takes place. election processes. Tribal entities have in the Central North Island who have It is important to note that while Iwi taken on responsibility for articulating developed their geothermal resources entities may express a particular policy the tribal view of environmental for energy production. While geothermal position, hapū sub-groupings and issues in response to various pieces resources are more sustainable than non-tribal Māori organisations and of legislation including the Resource oil and gas – and a direct comparison land owners may take a different view Management Act, Crown Minerals Act is therefore not strictly appropriate depending on a range of factors. One and the Petroleum Act. – the key principle is one of Māori such factor might include the quality of exercising tino rangatiratanga over their Tribal policy positions are informed by local level engagement with companies resources to improve opportunities for the quality of information its leadership which seek to operate within their their people subject to ensuring the has access to and their ability to interpret specific area of interest and whether this environment is protected. the information and form a judgment. derives local benefit. Tribal leadership’s responses to oil and An important difference in Central Also while tribal collectives may express gas will also be directly affected by North Island Māori participation in the a particular collective position individual their own personal views of the industry geothermal sector is their ownership of Māori (including members of those and their particular interpretation of the land where the resource is located. same tribal groups) are free to express the balance between economic and This is denied to the majority of Taranaki their own view which may sometimes environmental concerns and their Māori tribal groups by virtue of the be in direct contrast to the wider group. interpretation of what this means within historical land confiscations depriving a modern tikanga Māori context.

30

UNDER THE CROWN MINERALS ACT, ALL TIER ONE PERMIT HOLDERS NEED TO REPORT ANNUALLY- ON THEIR ENGAGEMENT WITH IWI AND HAPU. TIER ONE PERMITS ARE DEFINED IN THE CROWN MINERALS ACT 1991 AND INCLUDE PERMITS COVERING PETROLEUM, LARGE SCALE OPERATIONS, OFFSHORE ACTIVITY AND UNDERGROUND ACTIVITY. MĀORI AND THE OIL AND GAS INDUSTRY

Many Taranaki Māori individuals are actively involved in the oil and gas sector as employees of oil and gas BEST PRACTICE GUIDELINES FOR ENGAGEMENT WITH MĀORI companies or business owners servicing the wider industry in their own right. Te Runanga o Ngāti Ruanui Trust have developed a useful document Māori collective perceptions and containing guidance, tools and a reactions to the industry may evolve voluntary approach which could assist over time based on a number of industry to effectively engage with factors including the views of its iwi in the ongoing development of elected leadership and their growing petroleum and minerals within New understanding of the sector as Zealand. The document may also be well as the quality of relationships helpful to iwi and other Māori groups between Māori and oil and gas in their engagement with industry. sector representatives. Te Runanga o Ngāti Ruanui Trust is This may evolve as tribal groups the mandated iwi of Ngāti Ruanui, consider whether to seek economic which is predominantly located within opportunity within the sector but Central and South Taranaki and has will continue to be underpinned by acquired experience and knowledge of ongoing concern regarding industry the petroleum and mineral industry. impact upon the environment.

31 THE WEALTH BENEATH OUR FEET EVOLUTION OF AN INDUSTRY New Zealand’s oil and gas industry began almost 150 years ago.

ew Zealand has a long history of oil and gas crisis in the 1970’s, spawned ‘Think Big’ projects to create new exploration. In 1886 a well adjacent to the markets for gas and reduce dependence on oil imports. Moturoa oil seeps, near New Plymouth, spurred From 1985 to 2005, low global oil prices and abundant cheap a nascent oil industry, with sporadic production Maui gas reduced anxiety over the price and supply of oil, and Nand refining of oil under the Peak Petrol brand until the 1950s. further served to discourage exploration, resulting in a period Traces of oil were found in Gisborne in 1866, though drilling of reserve depletion. attempts suffered from equipment and financial constraints. Since 2003 rising oil prices, incentives to find and develop Oil was also reportedly discovered in the South Island near gas reserves, and proactive government energy and natural Greymouth in 1896 by railway workers, with small wells said to resource policies have reinvigorated exploration activities, have been drilled in 1902 and 1910, with little success. with material increases in drilling activity. Modern exploration was heralded by Shell in the 1950s. New technologies such as seismic profiling and deep rotary drilling FIELD DEVELOPMENT resulted in the discovery of the Kapuni gas-condensate field While exploration is generally focused on finding oil, most in onshore Taranaki in 1959. The government considered the discoveries contain a mix of oil and gas. A global market for oil Kapuni gas reserves, then assessed at 350PJ, sufficient to always exists – albeit as a price taker – so production can be invest in the North Island gas transmission network, and to optimised by geological and engineering rather than market foster natural gas reticulation within connected urban centres. 32 factors. New Zealand’s premium ‘sweet light’ crudes tend to Seismic imaging advancements for offshore exploration find a ready export market, mainly with Australian refineries. resulted in the discovery of the giant 4,000PJ Maui gas- Gas production, however, is captive to New Zealand’s condensate field in 1969. This find, combined with the first oil domestic market, whose small size can impact on our nation’s

LEFT TO RIGHT: construction of the gas-to- gasoline plant at Motunui, early 1980s THINK BIG AND METHANEX ethanex New Zealand is the nation’s only methanol Mmanufacturer, and operates two facilities in Taranaki at Motunui and the Waitara Valley. Methanol is a clear liquid overall attractiveness as an oil and gas exploration location. hydrocarbon produced primarily from natural gas. It is rich in hydrogen, water soluble and readily bio-degradable, and During the Maui years (1979 to 2003), there was no unmet used in the manufacture of a variety of everyday products market need, with the Maui contract setting a low base price. such as paint, DVDs, polyester and nylon in carpets and Accordingly, several gas fields were produced to strip out furniture. Methanol is also being increasingly used in clean- marketable liquids such as condensate and LPG and surplus tech products, such as bio-diesel. gas was either flared or re-injected for later recovery, as Methanex plays an important role by providing oil and gas at Kapuni. producers with a local market for their indigenous gas, and as More commonly, gas discoveries can remain undeveloped such contributes to the overall investment attractiveness of the until price rises support commercial viability, such as New Zealand market. Mangahewa – discovered in 1960, redrilled in 1997, and Taranaki’s methanol plants had their beginnings in the late in production from 1998, Kupe – discovered in 1986 and 1970’s and early 1980’s when the government, under Prime producing from 2009, and Pohokura discovered in 2000, Minister Robert Muldoon, initiated the interventionist state and producing from 2006. economic strategy Think Big. In the face of a global oil crisis, 33 the substantial natural gas reserves off the Taranaki coast Production rates are often dictated by gas market were seen as a means of making New Zealand more self- requirements rather than field performance. Beyond the sufficient in transport fuels. influence of the Maui contract a gas market has emerged Think Big projects included the development of a methanol that is driven by multiple suppliers meeting the demand of plant at Waitara and a synthetic–petrol plant at Motunui. wholesale buyers. Price and delivery terms are set through During construction over 2000 workers were employed, and bilateral contracts on both term and spot rates. production peaks saw more than 400 employees on site. Two recent turning points in the domestic gas market can However, making synthetic petrol proved uneconomic when be observed. The first was the drilling of New Zealand’s first the crude oil price dropped, and Motunui was subsequently exploration well specifically targeting gas – Mangahewa-2 – in sold to Fletcher Challenge who later on-sold it to Canadian- 1997. This was followed in 2000 with the drilling of Pohokura-1, headquartered Methanex. The company constructed a major gas-condensate discovery on the adjacent structure. distillation units at the facility, shifting output from synthetic The second factor was the redetermination of the Maui petrol to methanol production. field reserves, which reduced the remaining contracted gas Redetermination of the Maui gas reserves in 2003 curtailed reserves and promoted the realisation that gas supply was gas supplies, which saw the closure of the Motunui plant in diminishing. This saw curtailment of gas supplies to Methanex 2004 and remaining operations focusing on the Waitara Valley beyond 2003, and contributed to the large decline in gas plant. In 2008, a three-year supply contract was secured which production. prompted the refurbishment and recommissioning of one of the two production units at Motunui but led to the mothballing ANNUAL GROSS GAS PRODUCTION BY FIELD (PJ) of Waitara Valley. In 2010, on the back of buoyant global methanol demand, 300 Methanex signalled a desire to refurbish Motunui-1 to minimise 250 disruption caused by code-of-compliance inspections. 200 Recent successful gas developments, coupled with a 150 Maui supportive government approach, have given Methanex new 100 confidence in their New Zealand operations. They now have 50 Others sufficient gas supply to operate the Motunui plant at full 0 1974 1984 1994 2004 2013 capacity, reopened the Waitara Valley plant in 2013, and have a positive future outlook based on methanol’s potential in a Source: www.med.govt.nz/sectors-industries/energy/energy-modelling/data/gas carbon-constrained world. THE WEALTH BENEATH OUR FEET

participating in the New Zealand industry at both up and mid- stream levels. The global oil and gas industry demands high standards in construction and operations, reflecting the need to handle flammable and corrosive materials under high temperatures and pressures. Taranaki’s present-day oil and gas industry is built on this experience and global best practice. The region’s Taranaki’s first major modern development, Kapuni systems, knowledge, capability, workforce and relationships have EMERGENCE OF LOCAL Todd). Shell brought a combination of evolved over the years, as local internal technical capability and working companies work alongside the CAPABILITY knowledge of international industry international operators, and now The discovery, development and practices and standards, which has had present a mature and highly regarded operation of the Kapuni and Maui a significant and positive impact on industry base. fields heralded the development of Taranaki. The emergence of oil and gas in a region considerable expertise in Taranaki. Oil Shell’s continued presence as an traditionally driven by dairy production major Royal Dutch Shell (Shell) has been operating company has provided a has had local implications for the likes a primary driver of this process since valuable opportunity for local service of district planning and regulatory and becoming active in New Zealand in 1955 industries to build capability. This has public interfaces, which have been as part of the Shell Todd Oil Services been supplemented by a succession progressively refined. joint venture (STOS – previously Shell BP 34 of other major global companies

MAJOR FIELD DISCOVERIES

MANGAHEWA MAUI MCKEE MAARI KAPUNI

1865 1959 1960 1969 1979 1980 1983 1984 1986 1992 1995 1998 2000 2003 2006 2007 2008 2009 2010 2011

MCKEE

MAJOR FIELD COMMISSIONING KAPUNI MAUI A EVOLUTION OF AN INDUSTRY

RECENT EXPANSION AND This activity is paying off. The recent Underpinning the continued expansion revision of gas reserves – upwards by 31 of the New Zealand oil and gas industry DEVELOPMENT percent to their highest level in thirteen has been technological advancements, The New Zealand oil and gas industry years – and capital works including either locally developed or brought in to has arguably come of age. The the new Mangahewa Expansion Train New Zealand with significant investment, government’s Petroleum Action Plan has (MET-2), highlight the Taranaki region and spanning the industry value and led to heightened departmental capacity still holds great potential. With a supply chain – from initial investigatory and capability engaged in facilitating government campaign to look beyond work, to seismic surveys and analysis, investment, legislative and regulatory Taranaki and into new basins, backed by drilling techniques, systems, processes, reviews, greater provision of technical a continued programme of promotional, transportation, storage, infrastructure and seismic data, and proactive legislative and regulatory refinements and production facilities. promotion of investment opportunities. and the annual Block Offer, New Big technology game-changers have These outcomes have attracted Zealand offers a diversity of investment arguably been the introduction of exploration attention, with increasing propositions. As a result, new players more flexible drilling trajectories such investment in the industry and new have arrived in New Zealand – spanning as horizontal drilling, the greater shift entrants entering the market. juniors to multinationals – bringing towards to deepwater drilling, and depth to the current exploration and Taranaki has continued to build its the utilisation of hydraulic fracturing investment composition. reputation as New Zealand’s prime (‘fracking’), all of which can realise energy locality and while there have The local supply chain is increasingly reserves previously considered to be been no major discoveries in recent involved in new exploration and uneconomic or inaccessible. These years, considerable investment in development work both in Taranaki and changes have helped catalyse interest drilling and appraisal continues, along around New Zealand, and has evolved in New Zealand’s emerging regions, with extensive development to leverage specialist expertise to become globally unconventional plays and frontier existing fields. competitive within and beyond the deepwater basins, and have already domestic market. had a significant role in realising gas potential in onshore Taranaki. 35

KUPE CHEAL POHOKURA TUI SIDEWINDER

1959 1960 1969 1979 1980 1983 1984 1986 1992 1995 1998 2000 2003 2006 2007 2008 2009 2010 2011

MAUI B MANGAHEWA TUI CHEAL

POHOKURA MAARI KUPE SIDEWINDER THE WEALTH BENEATH OUR FEET

INDUSTRY ADVANCEMENTS, TECHNOLOGY, PEOPLE, Industry advancements have driven a need for legislation, regulations, COMMUNITY & ENVIRONMENT systems and infrastructure to keep pace with the changing landscape. Government initiatives include new legislation relating to oil and gas activity in the EEZ, a strengthened health and safety regime and the establishment of Work Safe New Zealand, and greater levels of regional and community engagement around oil and gas. Lessons learned over Taranaki’s 150-year relationship with the industry are being shared, acknowledging differences in geology, local capabilities, communities The drillers’ cabin and the Archer drilling rig. and district planning frameworks. ARCHER RIG New Zealand, and application of its Questions, discussions and aspirations technology offshore was a world first. are being considered around what the ‘Hands on’ drilling is becoming In addition to being ‘hands-free’ in its industry could offer emerging regions – increasingly sophisticated, ‘clean’ drilling operations, the Archer Rig also both in terms of risks and rewards. and remotely operated. had a shore-based remote monitoring system which enabled technical experts PUBLIC AND he hands-free Archer rig was used in Tthe major offshore drilling campaign in the STOS office in New Plymouth and ENVIRONMENTAL undertaken by STOS to investigate the global specialists in Germany, who were AWARENESS potential of the mature Māui gas field. familiar with the equipment, to observe Māui was the second largest field of and monitor the functioning of the rig 36 The context within which the oil and its kind in the world when it was first and its drilling parameters, such as gas industry operates has experienced discovered in 1969. hookload, gas, pit levels and geological considerable change in recent years. The Archer Rig’s use on Māui A data. Where once it operated largely beneath was the first time a fully automated These advancements in offshore the radar, the industry now functions drilling operation had been used in drilling enhance safety. under heightened public attention where investment and activities concerning fossil fuels are being increasingly odd Energy’s new Bentec Model Euro questioned, as is the integration with T Rig 450t drilling rig (‘Big Ben’) is not New Zealand’s ‘clean green’ image. only quieter than traditional rigs, but it This has been driven in part by concerns has also been painted in a customised surrounding the risks and potential colour scheme to soften its visual impact environmental impacts of exploration on the local environment. The ‘visual and oil spills due to disasters such as quiet’ challenge was handed to the the Deepwater Horizon and Montara oil creative expertise of Massey University, spills and the grounding of MV Rena. It who were charged with finding a has also stemmed from global attention colour solution that would enable the on perceived risks associated with rig to blend more with its surrounding the utilisation of technologies such as landscape. hydraulic fracturing and practices such QUIET IN EVERY SENSE In addition to its noise reduction and as land farming. OF THE WORD aesthetic advancements, the rig can also ‘walk’. When drilling has completed The possibility and potential of climate As oil and gas activity intensifies, in one location, Big Ben can ‘move’ a change is being actively debated and and the broader range of impacts few hundred metres to its next locality, there is a global shift towards policies are being increasingly considered reducing the need to disassemble that seek to reduce CO2 emissions as and assessed, it is becoming more and reassemble the rig, which has a well as aspirations towards greater and more important to define positive impact on both efficiencies and investment and use of renewable energy. success in terms beyond geology and also environmental disturbance and engineering. footprint. EVOLUTION OF AN INDUSTRY

Energyworks constructing new pipeline with minimal negative environmental impact.

ENVIRONMENT RECOGNISED IN DAILY OPERATIONS he catalyst that prompted looking to identify and control their T engineering company Energyworks impact and continually improve to gain ISO14001 Environmental their performance in this area. The Management certification was the certification is independently audited. decision to lead with excellence and Attaining certification is an drive business performance as well endorsement that Energyworks has the as external factors such as exceeding operating systems, policies, procedures client and industry expectations. and documentation that support Remote operation of Production Station. Gaining environmental certification the ability to sustain responsible Pohokura in the distance. – an addition to an already extensive environmental performance. It highlights suite of accreditation tools – now to the company, its employees and BARELY VISIBLE 37 gives the company triple certification clients that the environmental impacts he offshore Pohokura platform, across their key business performance of their activities are being managed, Twhich is New Zealand’s largest gas areas in quality, health and safety and measured and improved. resource, and its onshore production environmental operations. Demonstrating good environmental station are remotely operated. They The ISO 14000 standard addresses practices is becoming an increasingly have been designed utilising the latest various aspects of environmental important component of service delivery technology to maximise efficiency, management and provides practical in the oil and gas industry, which will and health and safety and minimise tools for companies and organisations only gather momentum in the future. environmental impacts.

KEEPING THE COMMUNITY INFORMED Enterprise & Energy ven though the oil and gas industry often operates below Taranaki Community Update

Issue 6, July 2014 Enterprise the radar, it does have an impact on the communities & Energy Activity update E

In the Community A Site . • No planned activity in which exploration, mining and processing activities Tikorangi Community DECEMBER Christmas Meeting D Site Taranaki Community Update Thursday 11 December • The rig move (Big Ben) from E site to D site 6.30pm – 8.30pm 11 commenced late October with drilling on Issue 7, November 2014 are undertaken. There are a number of regulatory checks CLIFTON RUGBY CLUB, TIKORANGI D site to continue through to July 2015. onstruction activities for Well Site facilities c Please join Todd Energy for the end of • year community meeting and Christmas MHW21 – MHW24 commenced in July and refreshmentsTodd Corporation Deputy Chair Malcolm Whyteis andexpected Economic to continue Development through Ministerto mid 2015. Steven Joyce at the MET2 openingWOMAD’s Puerto Flamenco comes to Tikorangi School and balances to manage impacts on communities, but in Please RSVP to Louise Hamerton 11 March 2015. C Site lhamerton@Intoddenergy this .co.nzissue by Tues 9 DecemberCelebrating a major milestone See back page for details. • Well Site facilities construction demobilised Mangahewa from C site at the end of October and ongoing Expansion Train 2 n early May we marked a major The Todd project team did a tremendous Imilestone in theoccasional history dayof Todd work Energy,will continue job through to deliver this project safely, within recent years the oil companies themselves have become far to December. MET2: The numbers with the official opening of our newas moved frombudget C to andD on time. Credit also goes to Flamenco at gas production• facility,The main the rig Mangahewacamp w WorleyParsons, New Zealand, and Propak Tikorangi SchoolThe MET2 timeline Expansion Train 2.site It in was October a proud and the Well ServicesSystems, minicamp Calgary, whose expertise and ForStaff the fifthprofile: year running,Peter Toddmoment Energy for Todd,and with associated the facility equipment being is beingexperience, relocated and their shared vision willMartin host a WOMAD performancea critical and componentfrom ofC to our E site overall during $850 November. to deliver, was invaluable. I would more proactive in engaging, informing and listening to the workshop as part of its WOMADmillion Mangahewa Expansion Project. also like to acknowledge the Taranaki Supportingcelebrations. Thisoutdoor year it’s Flamenco, Regional Council and New Plymouth E Site adventurewith Seville group Puerto Flamenco,MET2, as we commonly refer to it, District Council who handled our New faces at Todd Development.Energy Prior to joining Todd Energy last • Well Site Facilities construction activities In this issue will more than double Todd’s raw e underwayconsent and applications in a capable and month, Markus was based in Tunisia working Huirangicomprising School members Pool from Spain and for MHW17 – MHW20 ar I’m Joanna Breare, a new face at Todd Energy, gas processing capacity from 20 to professional manner. for OMV. In the mid 2000’s he worked for Shell Australia coming to Tikorangi for the anticipated to be finished by end of November Mangahewa G Prepares but not new to Taranaki. I first worked in communities in which they work. 45 petajoules a year. To put this in Todd Oil Services based in New Plymouth. Activitycommunity update event. with commissioning to be complete in for Construction Taranaki in the late 1990s for Fletcher Challenge perspective, the total yearly natural gas Finally, I would like to thank our Markus will be become a familiar face in the The event is part of Todd Energy’s December. The construction camp Flamenco at Energy, then joined Shell Todd Oil Services in demand for residential use in all of New neighbours and the Tikorangi residents community and I hope you will meet him soon. community programme andZealand aims to is about sixdemobilisation petajoules. The is expected new to occur in Tikorangi School 2002 where I have been for the last twelve years Need more who have supported us throughout. A Winfred Boeren, the previous General Manager bring WOMAD to a wide audience.facility should be runningJanuary at2015. full capacity project of this scale has an impact on before joining Todd Energy in August this year. o site early Clifton Rugby and Development is now a consultant and will One example is Todd Energy, which produces regular information? by October this year.Well testing is mobilising t your lives, and we very much appreciate • Sports Club Sponsorship Many of you will be aware that Paul Moore, continue to be involved in some of our projects. Visit our website the tolerance and understanding you’ve To date acts from Zimbabwe, Mali, Sudan and Mongolia have November for MHW17 – MHW20 and who was Chief Executive at Todd Energy, is Another newcomer to the team is Jane Snowden, MET2 is an expression of our confidence shown us, not just for the duration of thisIntroducing participated in the annual event.toddenergy.co.nz anticipated to be clear of site by end now based in Austin, Texas, spearheading Manager of Human Resources and Community in the future of Taranaki gas and our project but throughout all of the time Jane Snowden for the latest updates of December. Todd’s international growth as the company’s Relations, and we profile Jane in this issue. “An important part of our WOMADor call sponsorship 0800 001 is 007 to help makecommitment the event to building our businessation is expected in we to have commence gone about our business in your • Site prepar Len Lye Executive Vice President Todd International. Community Update newsletters that cover developments as accessible as possible to people who live in the Taranaki region,this and community. district. While some things have changed, a lot has not. for the second tranche of wells in January 2015. As Paul remains part of the wider Todd because our operations are located in Tikorangi, Tikorangi School provides Free radio advertising Hamish McHaffie has had his role extended This is approximately a three month activity. executive team, I am delighted that I will be the perfect setting for this,” said Hamish McHaffie, Community Manager for community groups able to draw on his skills and experience in to cover media and other communications Todd Energy. Taranaki as I pick up the reins for Todd Energy functions, but he is still our community relations G Site As in this year, the 2015 event will again be open to students from both Need more New Zealand. manager, and as always values hearing from you. at their sites, activity and where they’re engaging with and • Site preparation construction activities is Tikorangi and Huirangi schools, followed by a community barbeque. I look forward to seeing you around our anticipated to commence in December 2014. information? I am excited about my new role as Chief The WOMAD community event will be held on Wednesday 11 March e to McKeePaul Moore is now planned fabulous province in the months ahead, as • Pipelines from G sit Executive Todd Energy New Zealand and Chief Executive Visit our website we start the run up to the summer holidays, 2015. More details will be provided closer to the date. for 2015/2016 summer. .nz my responsibilities around our operations Todd Energy toddenergy.co here in Taranaki. Continuing to work alongside and before we know it….WOMAD 2015. supporting the community, supplemented by 6-monthly for the latest updates March 2014 local communities and ensuring you are Best wishes First gas and ice on the chillersFree radio advertising for Projects or call 0800 001 007 informed about what we are doing is a big community groups Mangahewa Expansion Compression (MEC) part of this. We know we cannot do what we • Earthworks including fencing and perimeter do without your support and I look forward ted to commence late The local radio Community Notices is a great opportunity for community drains is expec to meeting many of you as I settle into my community meetings. groups to market their organisations or advertise upcoming events, and November 2014 and is expected to new role. it doesn’t cost a cent to place an advertisement. end around April 2015. There have been other changes to the Todd The Community Notices keep everyone up to date with what’s team over the last few months. Markus Schuh Joanna happening in our vibrant region. Sponsored by Todd Energy, the has joined joined us as General Manager Community Notices play several times daily across four Mediaworks radio stations: The Edge, The Sound, RadioLIVE All care has been taken to ensure and The Breeze. this information is correct at the time of publication Advertising is open to any non-profit community group in Taranaki. If you would like something on the Community Notices then please phone (06) 968 6200. THE WEALTH BENEATH OUR FEET

THIS ASSESSMENT FOUND THAT NEW ZEALAND-BASED COMPANIES HAVE SHARED A SMALL BUT MEANINGFUL PORTION OF THE UPSTREAM EXPENDITURE.

Helicopter landing on rig. 38 IMPORTANCE OF LOCAL CONTENT Oil and gas is a global industry with a huge impact on local companies.

distinctive feature of how the New Zealand oil and gas shared a small but meaningful portion the oil and gas industry industry works. of the upstream expenditure. Local is the significance and involvement remains greatest for Several billion dollars have been interwoven nature of its onshore developments (up and mid- invested in the upstream development Asupply chain and its impact on the stream), as opposed to offshore, and of New Zealand’s oil and gas fields, overall economic and employment particularly in ongoing production and and more still on midstream and base. When exploration and production maintenance operations. downstream infrastructure and (E&P) companies undertake activities related industries. To assist with the Local participation in oil and gas – from exploration and appraisal to economic evaluation of the industry, activities depends on the nature (level field development and production – and aspirations to maximise the of specialisation) and scale (supplier specialist skills sets are required at value it generates, an assessment has capability and timelines) of the task, and each point of the process. Rather than been undertaken to determine how the degree to which the E&P Company employing all these skill sets directly, extensively the domestic oil and gas and its head contractor are able to E&P companies tend to extensively supply chain is involved in industry facilitate local company involvement. In contract specialist supply chain activity.* This analysis included an recent years, with New Zealand’s supply companies as and when required. The indication of the type of work and chain companies gaining a positive track ability of local companies to develop reasons for capture or loss. record of successful project delivery and the specialist skills required to secure new players entering the market, the such work is an important component The assessment found that New propensity for New Zealand companies of economic analysis and understanding Zealand-based companies have to secure work has increased.

* Assessment undertaken for Venture Taranaki by Rockpoint/ Berl 2010 The following diagram showcases the supply chain activities which relate to the exploration, development, production and operational activities of E&P companies, and highlights activities where New Zealand companies tend to prevail and those where global specialists often have a competitive advantage.

SUPPLY CHAIN INTERFACE AT KEY UPSTREAM STAGES

Identification Exploration Field Production Decommissioning & acquisition & appraisal development & operations

Offshore Project management Onshore seismic & EPC seismic collection Subsea and marine Operations

Seismic interpretation Investigation & Fabrication & package Decommissioning technical data / permit services submission & securing Site preparation Marine support Maintenance Mechanical, I&E, modifications and Offshore Onshore telecoms shutdowns drilling & drilling & support support Engineering services

Downhole and well services

Specialist industry technologies, products and services

Logistics and transportation 39 Consultancy, legal, HSE, finance, training

Local content strength International content often predominates Local and/or international can prevail

• Exploration and appraisal: Key equipment for short-term campaigns. requirements and timelines of tasks are acquiring, processing, Local companies supplement this offshore projects are often barriers to and interpreting seismic data and with generic tasks and provisioning local companies securing core roles. undertaking drilling operations. Each or roles that require specific local • Production, operations, project has specific requirements knowledge, such as resource maintenance and which demand specialised management, regulatory compliance decommissioning: Once operational, capabilities. With the exception or community consultation. a field requires continuous of onshore drilling rigs, there is • Field development: For the monitoring, control and maintenance. insufficient activity to support the detailed design of production While some tasks may require continuous presence of equipment wells and surface infrastructure, imported specialists, the field in the New Zealand market, so most local companies have the operator will generally leverage offshore exploration and appraisal capability to undertake smaller local companies for this phase of work is undertaken by foreign onshore developments. The production. contractors who bring in specialist scale, specialisation, certification

LOCAL PARTICIPATION IN OIL AND GAS ACTIVITIES DEPENDS ON THE NATURE (LEVEL OF SPECIALISATION) AND SCALE (SUPPLIER CAPABILITIES AND TIMELINES) OF THE TASK, AND THE DEGREE TO WHICH THE E&P COMPANY AND ITS HEAD CONTRACTOR ARE ABLE TO FACILITATE LOCAL COMPANY INVOLVEMENT. THE WEALTH BENEATH OUR FEET

Generally, the early stages of oil and gas activity will see significant portions of INFLUENTIAL DECISION- work go to offshore specialist firms, though once decisions are made to bring a field into production, New Zealand companies are more likely to participate MAKING FACTORS in facility construction and ongoing operations and maintenance. Many of the E&P companies in New Zealand are multi-nationals and as such major decisions on construction and production can sometimes be made outside New Zealand. Similarly, the prime contractor on a major project – such as the construction of a very Identification Exploration Field Production Decom & acquisition & appraisal development & operations -missioning large production plant or significant specialist piece of equipment – can be a large multi-national global company. This makes it more challenging for local companies to capture a major share Less local content More local content of activity. The local management of E&P companies contacted for this study expressed a preference to maximise SIMPLIFIED EMPLOYMENT DEMAND CHART OVER ASSET LIFECYCLE local content in their development and production operations, citing commercial interests, the convenience Greenfield capital of short supply chains and the benefits projects Decommissioning of fostering a local economy. This engineering and Operations and approach has been evident on recent 40 Employment Demand project services maintenance developments such as the Cheal Non-routine field projects Production Station and MET-2, where local companies played a significant role in onshore infrastructure. Decommission Identification & acquisition maintenance 0perations & Production, Explore & Appraise Develop Local companies cannot expect to capture all contracts for which they are capable and qualified, recognising they compete with experienced offshore Time providers and global industry specialists. Even so, anecdotal evidence suggests they are awarded over 70 percent of the Whilst employment or contractual demands for specific skills sets work for which they are qualified. differ throughout the facility’s lifecycle, the development phase – when facilities and infrastructure are being constructed to enable production Factors that can influence the level of – generally has the highest requirement for overall employment. This local company participation in O&G phase, while intensive, tends to be brief. Production, operations and projects include: maintenance as well as opportunities involving smaller, non-routine field • Project characteristics: All projects projects, can create important ongoing employment. have unique requirements, and the variability – particularly offshore – can mean local companies are less likely to be extensively involved. • Timelines: Ongoing – often LOCAL COMPANIES CANNOT EXPECT TO CAPTURE ALL multi-decade – production and CONTRACTS FOR WHICH THEY ARE CAPABLE, RECOGNISING maintenance operations strongly THEY COMPETE WITH EXPERIENCED OFFSHORE PROVIDERS favour local firms, who can meet rapid AND GLOBAL INDUSTRY SPECIALISTS. EVEN SO, ANECDOTAL response demands over long periods EVIDENCE SUGGESTS THEY ARE AWARDED OVER 70 PERCENT and build a detailed understanding OF THE WORK FOR WHICH THEY ARE QUALIFIED. of requirements. IMPORTANCE OF LOCAL CONTENT

• Cost Competitiveness: Proximity PROJECT EXPENDITURE technical and engineering expertise and short supply chains benefit local unavailable locally. companies, offsetting the scale, AND LOCAL BENEFITS Figures are illustrative only, and are specialisation and cost advantages The following analysis1 is based on not based on actual project costs. of larger international competitors. discussions with oil and gas industry Exploration drilling success rates are While locals may not compete participants and industry research. assumed to average 1:10 – for every against sometimes cheaper offshore It highlights possible costs associated commercial discovery which leads to wage rates, local companies can with undertaking differing types of a field development the cost of nine remain globally cost competitive for projects, the potential participation dry exploration and appraisal wells (in many tasks. of local companies throughout the which local companies can participate) project lifecycle, and an analysis of local • Liability and indemnities: Local need to be considered. content which could accrue. companies are often too small to It should also be noted that production provide acceptable liabilities and The research confirmed that local costs are largely operational and indemnities to a project, particularly companies enjoy a high potential are incurred over the field lifetime on behalf of subcontractors. share in the exploration and appraisal (decades), and that the portion of stage of an onshore project, and • Continuity of activity: There is a project lifecycle costs in each category, dominate in longer-term production vast range of tasks demanded by the and the amount conceivably incurred stages of both onshore and offshore industry. It is challenging for local by engaging local contractors has been projects. Offshore projects tend to be companies to sustain capability estimated. larger and more complex, requiring across all technical and specialist sectors, especially given the project- based nature of O&G activities. • Project team location: The industry NZ CONTENT IN O&G PROJECT tends to foster centralised geological 41 and project capability in larger NZ Content Non-NZ Content centres of activity. Production is typically managed by operational teams located closer to the project, Offshore Gas(onshore facilities) providing opportunity for local participation. Offshore Oil(FPSO)

• Systems and track record: Onshore Gas (deep) The potential risks, significant investments and specialist Onshore Oil (deep) technologies require exacting industry-specific health and safety Onshore Oil (shallow)

standards, quality systems and 0 500 1,000 1,500 2,000 experience. These requirements can NZ$ million prove challenging for local companies seeking entry into the industry or smaller companies with limited resources and opportunities. • Local knowledge: Local companies can help foster positive relationships Offshore Onshore Onshore Onshore Offshore with stakeholders through local Gas Oil Gas Oil Oil (onshore knowledge, familiarity with national (shallow) (deep) (deep) (FPSO) facilities) regulations, legislation, systems, protocols and agencies, and provide a valuable interface between the industry and the community. More local content Less local content

1 Undertaken for Venture Taranaki by Rockpoint Finance and BERL, 2010 THE WEALTH BENEATH OUR FEET

IMPORTANCE OF to say companies don’t compete, but Despite global communication and rather they acknowledge that through travel advances, there are clear GEOGRAPHIC PROXIMITY co-operation the collective capability synergies available for oil and gas AND INDUSTRY is greater than the individual parts. service providers that are located in RELATIONSHIPS Timelines in O&G projects are often tight, close proximity to each other and to and the scale of projects can prove a test key clients. It is no coincidence that New Zealand’s oil and gas industry for individual companies. Partnerships Taranaki, representing the entire supply chain is hubbed in the Taranaki between companies concerning commercially producing upstream region largely as an outcome of its working relationships, project market, is home to almost all of successful history and the fact that structure, collaborative marketing, the New Zealand’s service providers and all of New Zealand’s commercially sharing of market intelligence and the employees. developed and producing fields are management of peaks and troughs, can located there. This has fostered a close and collegial relationship, which is not deliver tangible benefits.

The following table summarises the positive externalities offered by locating in close proximity to potential clients and to complementary and competing services providers.

LOCATED NEAR BENEFITS INCLUDE

Potential clients • Reduced transportation and communication costs • Ability to meet face-to-face with clients and flexibility around arranging those meetings • Local knowledge 42 • Increased flexibility to be able to meet client needs • Scale economies from a greater client base Complementary • Referrals services • Collaborative marketing • Collaborative industry training programmes • Economies of scale from a greater service base Competing services • Access to a larger pool of skilled labour • Ability for potential clients (especially international) to more easily visit and compare competitive service offerings • Faster recognition of new competitive initiatives or new technologies • Potential supply chain synergies

ENSCO float off IMPORTANCE OF LOCAL CONTENT

CASE STUDY: KUPE GAS FIELD he Kupe gas field may have had a long journey to Tproduction, but given its important role in supplying New Zealand’s energy needs, the wait has certainly been worthwhile. Kupe was discovered by New Zealand Oil & Gas in 1986 but remained uneconomic to develop due to the abundant cheap gas flowing from the Maui field, New Zealand’s primary source of gas, for almost 25 years. However, with the redetermination of the Maui gas reserves and the rapid increase in domestic gas demand to power electricity generation, the development of the Kupe field was seen as both economical and important to meeting New Zealand’s growing energy needs. The joint venture partners Origin Energy (operator), Genesis Gas from the offshore Kupe field is piped to the onshore production Energy, New Zealand Oil and Gas and Mitsui Australia came station (above). together in 2004, with the final investment decision to proceed with the project taken in June 2006. people in contract roles including trucking and maintenance. Construction began in November 2006 and was complete Kupe comprises an offshore platform with three production in late 2009, with the project producing natural gas, liquefied wells, a 30km pipeline running from the platform to the petroleum gas (LPG) and light oil since December 2009. shore, an onshore production station near Hawera, and During the project’s construction almost 1,000 people were light crude storage and export facilities near Port Taranaki in employed at the production station site at South Taranaki, New Plymouth. providing a significant economic boost to the surrounding At peak production, the gas produced from the Kupe field communities. In keeping with the project’s commitment to local will meet around 15 percent of New Zealand’s annual gas content, the majority of the workforce were New Zealanders, demand and over 50 percent of New Zealand’s LPG needs. In with more than six million hours worked. In addition, around 75 addition, the condensate produced is exported to refineries percent of tenders were awarded to local companies, equating across Australasia and the South Pacific. to approximately $600 million of expenditure. With production from Kupe forecast to continue for 15 – 20 43 Today, Kupe directly employs around 35 people at the years, the joint venture team is committed to supplying New production station and tank farm, and approximately 80 Zealand with clean, reliable energy for the long term.

THE SIGNIFICANCE OF THE EPC COMPANY WHAT IS THE EPC? orleyParsons has been the nce the E&P Company has finalised W Engineering, Procuring and O its Front End Engineering Design Construction (EPC) contractor for (“FEED”) they will then usually contract numerous Taranaki oil and gas the entire project with an Engineering projects including the MET2 (second Procurement Construction (“EPC”), production train for the Mangahewa or Engineering Procurement and gas field) project for Todd Energy which Construction Management (EPCM) involved its multi-discipline team from provider. initial concept evaluations through to The EPC company will contract to handover as an operable plant. manage the entire construction process The company’s engineers produced against an agreed design, timeline and the detailed design and procured budget. They usually have discretion on materials and specialist equipment, how this is achieved, how the project is managed the shipping and transport broken down and who is contracted to logistics, tendered and awarded provide the required components. subcontracts and managed the Given the size and scale of O&G construction, third party inspections, projects, the EPC role is a significant quality and HSE for all aspects of responsibility. the project. WorleyParsons also pre- commissioned the process, mechanical, electrical and instrumentation systems prior to the introduction of hydrocarbons. THE WEALTH BENEATH OUR FEET

DEVELOPING THE CHEAL DISCOVERY

uring the mid-late 1990’s the Local companies secured the lead production. The Cheal facility expansion D Stratford-based Cheal Permit Engineering, Procurement, Construction has increased processing and gas (38156) had only been lightly explored, Management (EPCM) role as well as civil, liquids extraction capability, boosting but showed sufficient promise for its mechanical construction, electrical and the size and scale of the operation. initial investors to establish a small instrumentation, control system design The ongoing management and production facility. It was the 100 and build, automation and control work, maintenance requirements of the percent acquisition of Cheal by TAG Oil in and supplied much of the specialist expanded facilities have an impact 2009, and their subsequent investments parts and services. In total some 134,000 on local spending, staffing and supply that transformed the permit into a high hours were worked on the Cheal A site at chains, with over 90,000 hours or 47 profile, rapidly expanding commercial Ngaere, just south of Stratford, involving FTE workers directly involved with the onshore oil and gas development. over 40 local companies equating to 70 day-to-day operations of the existing By 2012 investments in seismic jobs (FTEs). A further 50,000 hours or 26 asset base, and a further 48,000 data had focused development of the FTE workers were also spent in off-site hours or 25 FTE New Plymouth-based Cheal Permit through the drilling of shop construction, prefabrication and TAG staff. eighteen (18) additional wells, including assembly to complete the project. In addition the workers directly the work-overs of existing wells. Continued success within the Cheal involved in TAG’s operations further Implementation of improved techniques permit resulted in the acquisition of an support downstream services and and technologies further enhanced additional three mining permits (54876, markets through the shipment and efficiencies and production. The Cheal 54877, and 54879) within the greater sale of oil through Port Taranaki via the development programme resulted in Cheal area. Subsequent discoveries in Omata Tank Farm, natural gas sales increased reserves and production, but 2013 have led to an additional six wells to the Vector transmission system and as a result of facility constraints only 8 of being drilled within the greater Cheal electricity to the national grid. the 18 wells are on stream. area, a further four drilled elsewhere Further development, through This prompted a $50 million in Taranaki, and the construction of drilling, well work-overs, maintenance expansion of the initial Cheal production facilities on the Cheal E and projects, are all designed to 44 production facility and its associated (54877) location. increase the reserves, production and infrastructure to enable additional In total some 166,000 hours or 86 FTE commercial life of the greater Cheal processing capacity for existing workers were involved in the expansion area. With current development plans and future work programmes. The within the greater Cheal area and a estimated at 265,000 hours or 138 FTE plant also proved a showcase of New further 74,000 hours or 39 FTE workers workers required from 2015 through Zealand’s oil and gas engineering, within the Taranaki region. to 2018 and continued investments in supply chain and construction Intensity of the construction phase Cheal, significant direct and indirect job expertise, with 70 percent of the total is slowing as infield development creation within the Taranaki region will project costs comprising local content. drilling continues to add incremental be seen for years to come.

250

200

150

100

50

- 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 FULL TIME EQUIVALENT EMPLOYEE (FTE) YEAR Base Operations Drilling Facility Const./Maint. Tag Staff FTE

Source: TAG Oil IMPORTANCE OF LOCAL CONTENT

CHEAL: BY THE NUMBERS

PRODUCTION STATION EXPANSION: million $50 value

local 70% content 134,000 hours for on-site construction

companies 40 involved

full time 86 workers

74,000 45 additional hours (26 FTE workers) for offsite construction, assembly & support

SUBSEQUENT SUCCESS & EXPANSION IN THE GREATER CHEAL AREA GENERATED:

hours – field 166,000 & site work

hours – off 74,000 site support

DAY-TO-DAY MANAGEMENT & OPERATIONS STAFF:

contracted 47 workers TAG 25 Oil THE WEALTH BENEATH OUR FEET

MANGAHEWA EXPANSION TRAIN 2 PROJECT

he Mangahewa Expansion Train 2 – known locally as facilities (MET1) located next to the McKee Production Station TMET2 – opened in 2014. The production facility is owned (now called the McKee and Mangahewa Production Facility). and operated by Todd Energy, and planning for the facility In 2002 Todd purchased the assets and four years later took commenced in 2011. over full operatorship of McKee and Mangahewa, and in recent One of the three main components of the Mangahewa years has invested more than $800 million to develop the field, Expansion Project, MET2 joins the drilling and hook-up of 27 expanding the plant and infrastructure. wells in the Mangahewa permit area, and the construction of a While some of the major componentry in MET2 was built 9km corridor of pipelines connecting the wells to the production overseas, the balance of work, including the lead contractor station and on to the Māui Gas Pipeline. and supporting providers of products and services, was Mangahewa was recognised as a prospect in the early days sourced locally. This included design work, site preparation of exploration in New Zealand. First drilled in 1961, it showed and civil engineering, transportation and logistics, mechanical signs of gas but was considered not to be commercially viable engineering, instrument and electrical work. at the time. Tested again in 1979, it demonstrated positive The construction of MET2 has enabled higher volumes of gas results, but was again abandoned in favour of the more to be produced from the Mangahewa field, with this gas being commercially attractive oil targets higher in the well, which fed to Methanex NZ for production into methanol, which is both later became known as the McKee Oil Field. exported and utilised in the manufacture of many household The third exploration phase occurred in 1997 with the drilling products. Gas from the field is also used for electricity generation of Mangahewa 2. The results were sufficiently encouraging during peak demand periods, and for processing into LPG for to support a mining permit and the development of a gas use throughout New Zealand. development project, with dedicated high pressure treatment

OCT NOV DEC 2012 2012 2012

46

Final investment decision made First earthworks Foundation piling

MAY JUN JUL 2013 2013 2013

First load leaving Propak, Calgary Hot oil heater installation Main pipe rack

OCT NOV 2013 2013

Site construction nearing completion Pre-commissioning activities underway IMPORTANCE OF LOCAL CONTENT

MET2: BY THE NUMBERS

lost time tonnes of 0 from injury 1,100 equipment installed

screwed 600 piles installed 2,400 ship loose items fitted cubic metres of concrete 1,000 foundation poured of cable pulled spools & 51,000m & terminated 425 4,000 weld inches completed

modules & vessels man-hours of 41moved 18,000 km 218,000 on-site work

JAN FEB MAR 2013 2013 2013

47

Fabrication underway at Propak, Calgary Concrete pour of main foundation slab Foundations installed and MCC walls erected

AUG AUG SEP 2013 2013 2013

Stabiliser column installation Unloading Propak equipment at Port Taranaki Building the plant – ractionation area

DEC 13 – FEB 14

Commissioning Final facility THE WEALTH BENEATH OUR FEET

48

ACTIVITY Activity varies from year to year based on the permits awarded and the cyclical nature of the industry.

Rig at sunset he Ministry of Business, Innovation and Employment (MBIE) collates and publishes annual data on activity and Texpenditure under permits, including the number of permits granted, surrendered, revoked, relinquished or expired, wells drilled, metres made, and EXPLORATION AND PRODUCTION PERMITS, 2000 TO 2013 expenditure. 35 120 These numbers vary from year-to-year 30 100 based on the permits awarded and 25 the cyclical nature of the industry. This 80 section provides a summary of this 20 60 data to indicate industry activity and 15 40 investment in recent years. Permits Granted 10 otal Permits at Granted Status

20 T CURRENT PERMITS 5 0 0 00 01 02 03 04 05 06 07 08 09 10 11 12 13 The 2013 Block Offer awarded five onshore exploration permits across PEPs Granted (LHS) PMPs Granted (LHS) PEPs & PPPs at Granted Status (RHS) PMPs and PMLs at Granted Status (RHS) Taranaki and the East Coast and five offshore permits across the Reinga- Source: MartinJenkins, data sourced from MBIE.

Northland, Taranaki and Great South- PEPs = Petroleum Exploration Permits; PPPs = Petroleum Prospecting Permits; PMPs = Petroleum Mining Permits Canterbury Basins, bringing the total to (production permits); PMLs = Petroleum Mining Licences (production permits). 52 exploration and prospecting permits 49 and 24 production permits issued. Over the year, 11 exploration and prospecting TOTAL WELLS DRILLED, 2000 TO 2013 permits were granted, while no 60 120,000 production permits were granted. 50 100,000

WELLS DRILLED 40 80,000 In 2013, 32 wells were drilled, down 30 60,000

slightly on 2012 and well below the peak ells Drilled W Metres Made of 52 in 2011. Eighteen of these were 20 40,000 exploratory wells, five were appraisal 10 20,000 wells and nine were development wells.

While the number of wells drilled has 0 0 00 01 02 03 04 05 06 07 08 09 10 11 12 13 fallen over the last two years, total Total Wells Drilled Total Metres Made metres drilled has increased in all but one year since 2008. Source: MartinJenkins, data sourced from MBIE.

Rig at Kapuni THE WEALTH BENEATH OUR FEET

MAJOR OIL PRODUCTION FIELDS, 2013 LARGEST OIL FIELDS BY PRODUCTION (MILLION BARRELS/MMBLS)

Pohokura Maari Kupe Maui Tui Mangahewa 4.23 1.92 1.68 1.44 1.41 0.48

New Zealand’s six largest oil fields accounted for 86 percent of oil produced in 2013. Pohokura accounted for almost a third of total production, Maari for almost 15 percent of production, Kupe 13 percent while the Maui and Tui fields each contribute 11 percent of production. A further two million barrels of LPG were produced in 2013 with Kupe accounting for just over half of production. Maui, Kapuni and Pohokura were the other main producers of LPG.

Source: MartinJenkins, data sourced from MBIE

50 OIL PRODUCTION CRUDE, CONDENSATE, NAPHTHA, NGL AND LPG PRODUCTION, 197425 TO 2013 (MMBLS) In 2013, 15 million barrels of oil and LPG were produced. This consisted of 20

13 million barrels of oil and 2 million 15 barrels of LPG. Emergence of the Tui

and Pohokura fields from around 2006 Million Barrels 10 saw New Zealand’s oil production 5 increase significantly. As these fields have depleted, total production 0 74 78 82 86 90 94 98 02 06 10 13 has correspondingly reduced. Oil Crude, Condensate, Naphtha and NGL LPG production has been declining since Source: MartinJenkins, data sourced from MBIE 2008, falling to 13 million barrels of crude and condensate and 2 million barrels of LPG in 2013. GAS PRODUCTION, 1974 TO 2013 (BCF)

GAS PRODUCTION 300

In 2013, 186 Bcf of gas was produced, 250 of which 160 Bcf was fed into the 200 gas supply network. Gas production dropped from a peak in 2002 but 150 production has recovered since 2006. 100

50

0 74 78 82 86 90 94 98 02 06 10 13 Net Production Reinjected, flared, LPG or own use

Source: MartinJenkins, data sourced from MBIE ACTIVITY

MAJOR GAS PRODUCTION FIELDS 2013 LARGEST GAS FIELDS BY PRODUCTION (BCF)

Pohokura Maui Kupe Kapuni Mangahewa Turangi 70.25 36.59 23.93 17.43 14.26 6.27

The six largest gas fields accounted for 92 percent of gas produced in 2013. Pohokura is the largest producer of gas with close to 40 percent of gross production while Maui remains the second largest producer accounting for 20 percent of gross production.

Source: MartinJenkins, data sourced from MBIE

51 COMBINED PRODUCTION OIL AND GAS PRODUCTION, 1974 TO 2013, (PJS) In 2013, the combined production of oil 400 and gas was equivalent to 292 PJs. This 350 is down from the most recent peak of 300 322 PJs in 2010. 250

200

150 THE COMBINED PRODUCTION OF OIL AND GAS WAS 100 EQUIVALENT TO 292 PJ IN 50 0 2013. GAS PRODUCTION 74 78 82 86 90 94 98 02 06 10 13 HAS INCREASED STEADILY Gas (Gross Production) Crude, Condensate, Naphtha and NGL LPG SINCE 2005, WHEREAS OIL Source: Ministry of Business, Innovation and Employment PRODUCTION HAS BEEN REDUCING SINCE PEAKING IN 2008.

RESERVES Reserves are adjusted annually in line of this increase. Remaining recoverable with production, and when additional gas reserves (P50) increased 31% from Reserves are the estimated total geological information becomes 2021 PJ to 2642 PJ. amounts of oil and gas that are able to available. Reserves data usually New Zealand’s reserves (P50) as at be recovered from a known petroleum shows remaining reserves sufficient 1 January 2014 were: reservoir. Ultimate recoverable reserves to cover between 11 and 13 years of are the total reserves before any oil or annual demand. • Gas – 2,355 Bcf (2,642 PJs) gas is produced. Remaining reserves • Oil – 138 million barrels of oil (826 PJs) are ultimate recoverable reserves, less Ultimate recoverable gas reserves (P50) increased 11% from 2013, with Pohokura, production to date. The latest P50 reserves are sufficient to Maui and Mangahewa providing most meet annual demand for 14.5 years. THE WEALTH BENEATH OUR FEET

52 ECONOMIC CONTRIBUTION 53 –EXPENDITURE, JOBS & GDP Just what does the oil and gas industry contribute to the employment and GDP of Taranaki and New Zealand? This chapter reveals all.

his section explores the industry has been on expanding and contribution of the industry enhancing the performance of existing by way of expenditure, jobs producing fields. and GDP to the Taranaki and The analysis was independently TNew Zealand economies. undertaken for Venture Taranaki by The assessment looks at expenditure MartinJenkins utilising expenditure underpinning E&P activity for the 2013 data sourced by the government, and year. This was a relatively quiet period employment data acquired through for the industry in New Zealand. While survey, publicly available information the total metres drilled is increasing, the and direct company contact. Further number of wells drilled and production details on their methodology is outlined are down. The recent focus for the in Appendix 2. THE WEALTH BENEATH OUR FEET

OIL AND GAS EXPENDITURE EXPENDITURE ON PETROLEUM PERMITS, 2000 TO 2013 ($, MILLION) EXPENDITURE 1,800 1,600

Exploration and production company 1,400 expenditure data is collected by MBIE 1,200 and is the most robust publicly available 1,000 information on expenditure in the 800 industry, and was used to calculate 600 output and GDP in this analysis. 400

Oil and gas industry expenditure occurs 200

across the seismic, exploration and 0 production phases. 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Production Exploration and prospecting Of the $1.577 billion spent by E&P Source: MartinJenkins, Data sourced from MBIE; Note: Data on Seismic expenditure has only been identified companies in 2013 on exploration and separately in 2013. production, the vast majority of this expenditure, $1.509 billion or 95 percent was spent in the Taranaki region. TABLE 1: E&P EXPENDITURE 2013 The largest proportion of expenditure was on production (80 percent) and all 2013 ($000) EXPLORATION PRODUCTION TOTAL of this occurred in the Taranaki region. Similarly, almost 80 percent of the $313 Taranaki 244,000 1,264,600 1,508,600 million spent on exploration occurred in the Taranaki Basin. New Zealand 312,700 1,264,600 1,577,320

54 Source: NZ Petroleum & Minerals ECONOMIC CONTRIBUTION – EXPENDITURE, JOBS & GDP

EMPLOYMENT DIRECTLY IN and within the Taranaki region were THE INDUSTRY identified.1 These are shown in Table 3. The analysis estimated that there were To calculate employment, companies 4,653 FTE jobs in the O&G industry, of that were either directly active in the which 3,936 (85 percent) were in the O&G industry or were heavily involved in Taranaki region.2 the industry as first round contractors or suppliers to the E&P companies were The greatest share of employment is in identified. A total of 246 companies the engineering category followed by were recognised, mainly through the specialist and technical services. The Energystream and PEPANZ databases. third largest group is made up of drilling companies and well services3. As all Through a combination of surveys, production and a large proportion of telephone interviews, publicly available exploration is occurring in the Taranaki information and best estimates, region the vast majority of employment employment for the majority of O&G in those three categories is based there. associated companies both nationally

TABLE 2: O&G INDUSTRY EMPLOYMENT IN TARANAKI AND NEW ZEALAND, 2014 OF THE $1.577 BILLION TYPE OF COMPANY NO OF TARANAKI NEW COMPANIES EMPLOYMENT ZEALAND SPENT BY E&P EMPLOYMENT COMPANIES IN 2013 ON EXPLORATION AND E&P companies 12 140 236 PRODUCTION, THE 55 Logistics 18 264 446 VAST MAJORITY OF THIS EXPENDITURE, $1.509 Engineering/maintenance/ 59 1,427 1,736 BILLION WAS SPENT IN engineering consultancy/ THE TARANAKI REGION. I&E/civil engineering

Specialist & technical 69 1,201 1,238 services

General suppliers of 22 60 79 products/services

Professional and consultancy 55 159 208

Drilling company/well 11 685 710 services

Total 246 3,936 4,653

Source: MartinJenkins

1 Where companies were identified but associated employment could not be identified, a proxy of three was applied for Taranaki companies and one FTE for companies outside of Taranaki.

2 This differs from calculations derived from the Statistics New Zealand Business Frame. In 2013, the two O&G categories of Oil and Gas Extraction and Petroleum Exploration employed 976 people, of which 748 were from the Taranaki region. Employment in businesses categorised in other industries that provide direct services to the O&G industry are not captured within the O&G definitions.

3 These categories are specific to the O&G industry. Companies were further categorised across 20 industries defined in the input/output (IO) tables. The largest industries were: exploration and other mining support services (1,260), scientific, architectural & engineering services (1,104), fabricated metal product manufacturing (508), road transport (397) and machinery manufacturing (344). THE WEALTH BENEATH OUR FEET

ECONOMIC IMPACT OF THE O&G INDUSTRY The direct estimates were then used to determine indirect and induced (‘flow on’) impacts for Taranaki and New Zealand4. These flow on impacts are important to include in the analysis as the oil and gas industry not only generates economic benefits for those directly employed or contracted to undertake work, but their expenditure in turn, also flows to the broader economy in areas such as retailing, housing, food, transport and restaurant trade.

56

1 2 3 4 5

O&G companies O&G industry Local companies Employees spend Leads to more are attracted spend money buy goods and money (induced) activity and to Taranaki/ in Taranaki/ services (indirect) employment by NZ by potential NZ undertaking local businesses O&G economic exploration, prospects construction and production, creating employment (direct) ECONOMIC CONTRIBUTION – EXPENDITURE, JOBS & GDP

TARANAKI The O&G industry contributes $1 billion in GDP to the Taranaki economy and results in the employment of 5,940 FTEs. According to NZP&M, E&P companies spent a total of $1.509 billion on exploration and production in 2013 in Taranaki. The analysis suggests this contributed $662 million to regional GDP. Including indirect and induced impacts, the total contribution of the O&G industry to the Taranaki region was $2.301 billion in output generating $1.006 billion in regional GDP. The O&G industry employed a total of 3,936 FTEs directly5 . Adding indirect and induced impacts increased employment as a result of the O&G TABLE 3: OIL AND NATURAL GAS SECTOR, ECONOMIC IMPACT ON industry to 5,941. TARANAKI REGION, 2013

NEW ZEALAND TARANAKI DIRECT DIRECT + DIRECT + INDIRECT INDIRECT + The O&G industry contributes 57 $1.74 billion in GDP to the New INDUCED Zealand economy and results in the Output ($m) 1,509 2,164 2,301 employment of 8,480 FTEs. At a national level, the E&P companies GDP ($m) 662 933 1,006 spent a total of $1.577 billion on E&P in 2013. Direct and first round employment Employment (FTEs)* 3,936 4,718 5,941 associated with O&G activity totalled 4,653 FTE jobs. The economic impact of the O&G industry on the New Zealand TABLE 4: OIL AND NATURAL GAS SECTOR, ECONOMIC IMPACT ON economy is shown in Table 4. NEW ZEALAND, 2013 Direct expenditure of $1.577 billion TARANAKI DIRECT DIRECT + DIRECT + in the O&G industry in New Zealand INDIRECT INDIRECT + generated $685 million in GDP. Including INDUCED indirect and induced impacts, the total contribution of the O&G industry Output ($m) 1,577 3,195 3,929 to New Zealand was $3.929 billion in output generating $1.742 billion in GDP. GDP ($m) 685 1,378 1,742 The O&G industry employed a total of Employment (FTEs)* 4,653 5,940 8,481 4,653 FTEs directly (including first round employment). Adding indirect and induced impacts increased employment Source: MartinJenkins. *Note: For employment direct includes first round employment as well. as a result of the O&G industry to 4 Indirect and induced multipliers were revised down to reflect that first round employment effects were captured 8,481 FTEs. with the direct employment.

5 including first round employment. THE WEALTH BENEATH OUR FEET

ADDED-VALUE considered additional activity as a result increases employment to 1,130 FTEs, of the O&G industry. output to $1.588 billion and GDP to MANUFACTURING $569 million. – THE CONTRIBUTION The following table summarises the OF FEEDSTOCK employment and GDP contribution of NEW ZEALAND such added-value production6. Feedstock companies contribute a All natural gas produced is consumed TARANAKI further $1.04 billion to New Zealand’s domestically either as a source of GDP and employ 3,240 FTEs. energy in itself, or as a feedstock in Feedstock companies contribute a the manufacture of other products. further $569 million to the Taranaki In New Zealand, a total of 415 FTEs were Feedstock companies include Methanex region’s GDP and employ 1,130 FTEs. employed in feedstock companies. (methanol), Ballance Agri-nutrients The economic impact of feedstock In the Taranaki region, a total of (fertiliser), AICA New Zealand (glue) and companies on New Zealand is shown in 407 FTEs were directly employed in Contact Energy’s combined and peaker Table 6. feedstock companies. The economic plants (electricity). These feedstock impact of feedstock companies in the This led to an output of $1.015 billion, companies (or their production facilities) Taranaki region is presented in Table 5. which contributed $320 million to are all located in the Taranaki region. national GDP. Including indirect and This employment generated an It is very unlikely this activity would induced impacts increases employment estimated output of $1.014 billion, which occur in New Zealand without the to 3,237, output to $2.665 billion and contributed $319 million to regional GDP. O&G industry and therefore can be GDP to $1.043 billion. Including indirect and induced impacts

TABLE 5: O&G FEEDSTOCK, ECONOMIC IMPACT ON TARANAKI, 2013 COMBINING O&G AND 58 TARANAKI DIRECT DIRECT + DIRECT + FEEDSTOCK ACTIVITY INDIRECT INDIRECT + SUGGESTS AN ADDITIONAL INDUCED $2.79 BILLION TO NEW ZEALAND’S GDP Output ($m) 1,014 1,488 1,588 AND EMPLOYMENT OF GDP ($m) 319 515 569 11,720 FTES. Employment (FTEs) 407 943 1,130

TABLE 6: O&G FEEDSTOCK, ECONOMIC IMPACT ON NEW ZEALAND, 2013

NEW ZEALAND DIRECT DIRECT + DIRECT + INDIRECT INDIRECT + INDUCED

Output ($m) 1,015 2,203 2,665

GDP ($m) 320 810 1,043

Employment (FTEs) 415 2,189 3,237

Source: MartinJenkins

6 The methodology for calculating the economic impact of feedstock is different from the upstream calculation in that it is derived solely from direct employment. That is, employment estimates are used to calculate output, which is then used to determine GDP. However, direct output for Methanex has been identified separately through an earlier EIA (BERL, 2013). The report suggested direct output of $634 million in 2013, but in 2011 dollars. This number was inflated by 2.4 percent to align with the current analysis, which is in 2012 dollars. This revised number represented a more accurate measure of direct output from Methanex and was then applied to the regional and national multiplier tables to determine indirect and induced impacts. As indirect and induced impacts were recalculated outcomes were slightly different from the BERL report. ECONOMIC CONTRIBUTION – EXPENDITURE, JOBS & GDP

TOTAL ECONOMIC IMPACT In New Zealand, a total of 5,068 FTEs indirect and induced impacts increases are employed in O&G and feedstock employment to 11,718, output to Combining the O&G industry economic companies. Applying IO analysis $6.594 billion and GDP to $2.785 billion. 59 impact and the feedstock economic suggests this generated output of The economic impact in the national impact we can get an estimate of the $2.593 billion, which contributed economy is presented in Table 8. total economic impact of the sector $1.005 billion to national GDP. Including on the Taranaki and New Zealand economies. TARANAKI TABLE 7: O&G FEEDSTOCK, ECONOMIC IMPACT ON TARANAKI, 2013 Combining O&G and feedstock TARANAKI DIRECT DIRECT + DIRECT + activity suggests an additional INDIRECT INDIRECT + $1.57 billion to the Taranaki region’s INDUCED GDP and employment of 7,070 FTEs. In the Taranaki region, a total of Output ($m) 2,522 3,652 3,889 4,343 FTEs are employed in O&G and feedstock companies. The economic GDP ($m) 982 1,448 1,574 impact in the Taranaki region is presented in Table 7. Applying input- Employment (FTEs) 4,343 5,661 7,072 output (IO) analysis suggests these 4,343 FTEs generated output of $2.522 billion, which contributed TABLE 8: O&G FEEDSTOCK, ECONOMIC IMPACT ON NEW ZEALAND, 2013 $982 million to regional GDP. Including indirect and induced impacts increases NEW ZEALAND DIRECT DIRECT + DIRECT + employment to 7,072, output to INDIRECT INDIRECT + INDUCED $3.889 billion and GDP to $1.574 billion. NEW ZEALAND Output ($m) 2,593 5,398 6,594 Combining O&G and feedstock GDP ($m) 1,005 2,188 2,785 activity suggests an additional $2.79 billion to New Zealand’s GDP Employment (FTEs) 5,068 8,128 11,718 and employment of 11,720 FTEs.

Source: MartinJenkins THE WEALTH BENEATH OUR FEET

WHAT’S CHANGED the numbers in the two economic O&G industry and an increase in the impact assessments are not directly number of businesses for which actual SINCE 2010? comparable. employment was identified. Has employment within the industry For example, direct output in the In determining the economic impact increased and is it contributing more 2013 EIA is taken directly from of feedstock, the definition has been to local and national economies? information supplied to MBIE by the E&P expanded to include electricity A comparison of 2013 results with companies, whereas it was derived from production and adhesives manufacture. the 2010 economic impact analysis employment in the 2010 study. Output Further, direct output for methanol documented in Wealth Beneath Our is then used to estimate GDP rather than production is taken from a recent report Feet (first edition) indicates the employment. commissioned by Methanex identifying following outcome: the economic impact of Methanex on The quality of the employment data There have been a number of changes the Taranaki and New Zealand economy. collected in the 2013 analysis has in the methodology between this There has been a significant increase in improved due to a better understanding report and the 2010 report that means methanol output since the 2010 EIA. of companies directly engaged with the

THE QUALITY OF THE EMPLOYMENT DATA COLLECTED IN THE 2013 ANALYSIS HAS IMPROVED DUE TO A BETTER UNDERSTANDING OF COMPANIES DIRECTLY ENGAGED WITH THE O&G INDUSTRY AND AN INCREASE IN THE NUMBER OF BUSINESSES FOR WHICH ACTUAL EMPLOYMENT WAS 60 IDENTIFIED. ECONOMIC CONTRIBUTION – EXPENDITURE, JOBS & GDP

This has resulted in differences between WITH FEEDSTOCK THERE HAS BEEN A SIGNIFICANT the 2013 and the 2010 EIAs as shown in Table 9. INCREASE IN PRODUCTION OUT OF METHANEX, WITH CLOSE TO A TRIPLING OF ACTIVITY. The main difference between the two studies is that direct employment is higher and direct output is lower under the 2013 study. The latter study is seen as more accurate as the output is actual reported E&P expenditure, and the TABLE 9: COMPARISON OF 2013 AND 2010 ECONOMIC IMPACT employment estimate captured actual information from a greater number of DIRECT TOTAL companies. The variance in ratios and indirect 2010 2013 2010 2013 and induced multipliers is due to the different allocations of output and TOTAL ECONOMIC IMPACT employment across industries and Taranaki Output ($m) 2,893 2,522 3,416 3,889 their individual ratios and multipliers. For example, in the 2013 EIA, output GDP ($m) 1,790 982 2,022 1,574 and GDP calculations are based on Employment (FTEs) 3,556 4,343 5,089 7,072 expenditure in two O&G industries – oil and gas extraction and exploration and New Zealand Output ($m) 3,104 2,593 4,343 6,594 other mining support services, whereas employment multipliers are based on GDP ($m) 1,903 1,005 2,480 2,785 an aggregation of multiplier ratios for Employment (FTEs) 3,730 5,068 7,774 11,718 20 different industries. 61 With feedstock there has been a OIL AND GAS SECTOR significant increase in production out of Methanex, with close to a tripling of Taranaki Output ($m) 2,541 1,509 2,894 2,301 activity. Further, electricity generation is GDP ($m) 1,684 662 1,843 1,006 a new and relatively large addition to the economic impact of feedstock. Employment (FTEs) 3,206 3,936 4,221 5,941

New Zealand Output ($m) 2,703 1,577 3,544 3,929 GDP ($m) 1,782 685 2,182 1,742 Employment (FTEs) 3,375 4,653 6,062 8,481

FEEDSTOCK

Taranaki Output ($m) 352 1,014 522 1,588 GDP ($m) 106 319 179 569 Employment (FTEs) 350 407 868 1,130

New Zealand Output ($m) 401 1,015 799 2,665 GDP ($m) 121 320 298 1,043 Employment (FTEs) 355 415 1,712 3,237

Source: MartinJenkins THE WEALTH BENEATH OUR FEET

The presence of the oil and gas industry inspires young curious minds: On a geoscience field trip to Taranaki, led by GNS Science, students studied the landscape and rock outcrops, working out the geological processes they revealed. OTHER BENEFITS Beyond dollars and jobs, what else does the oil and gas industry mean for New Zealand? 62

Oil and gas is about more than ur oil and gas industry SECURITY OF royalties, exports and jobs: it is generates wealth for central to almost all of our nation’s Taranaki and New Zealand ENERGY SUPPLY economic activity. and provides fuel for Given the importance of energy in Oindustry and households. The skills, the daily activities of New Zealand’s The oil and gas industry provides expertise and technologies required by residents and businesses, ensuring intangible benefits associated with: the complex industry also flow over into reliable and secure energy supply is the presence of a highly technical, other sectors in a number of ways, with paramount. It is critical that we retain capital-intensive industry, including businesses developed to service oil and the ability to generate our own energy, the introduction of global business gas providing important engineering and create systems that buffer against systems, a heightened workforce and specialist services for many other potential fluctuations, such as natural commitment to health and safety, sectors, such as geothermal energy. disasters or international events, international connections and that could impact on energy sources. regional contributions which The large investments in the science Ensuring resilience and reliability in our enhance infrastructure, vibrancy and associated with oil and gas creates networks as well as global partnerships the social fabric of our communities. knowledge about New Zealand’s that can be activated in the face underground resources, such as the These are very important facilitators of change or energy threats is also location of water aquifers and landslide of economic growth and in some important. and earthquake risks. cases may have a greater impact Oil and gas can help meet these than some of the more quantitative The high salaries paid by the sector energy needs and alongside other outcomes. help to build and retain talent, and natural resources such as hydro, solar attract world class expertise. Local and wind, form part of our nation’s businesses associated with the sector energy portfolio. Ensuring this portfolio have been able to leverage their includes a diverse range of energy industry experience to create export sources is critical to meet the need opportunities which generate further for uninterrupted supply against the revenue and showcase New Zealand’s variability and irregularities that can expertise and innovation. WHAT HAPPENS WHEN WE LOSE ACCESS TO GAS?

MAUI GAS PIPELINE OUTAGE • Cancellation of some elective surgery at Counties Manukau District Health Board’s Manukau SuperClinic for one day, n October 2011, land movement at Pukearuhe caused a leak the loss of hot water and heating in the outlying facilities in the Maui Gas Pipeline leading to a shutdown that lasted I of some hospital campuses, and the disruption of hospital for more than five days. At the height of the outage, all non- linen services. residential users in the top half of the North Island were directed • Gas-fired electricity generation north of Taranaki was to stop using natural gas. This affected electricity generators, reduced to zero, causing a temporary shortfall. hospitals, milk processing plants, bakeries, restaurants, and • Temporary concerns of food shortages as some commercial other businesses reliant on process heat or steam from natural bakeries were unable to operate. gas-fired boilers. The Ministry of Business, Innovation and Employment Whilst the outage did not cause harm to any people, it did estimated that the gross economic cost of this disruption was cause significant disruption to many businesses and social $200 million, which was largely borne by the dairy industry and services. Impacts of the outage included: large industrials.1 • Five Fonterra processing plants and Tatua’s plant ceased milk drying operations.

63 occur with renewable sources, for example prolonged windless periods or SECURITY OF SUPPLY droughts. THE IMPORTANCE OF GAS TO NET OIL IMPORT DEPENDENCY IS 70 PERCENT (2012) OUR ENERGY SUPPLY While the vast majority of oil is exported, gas plays a key role in meeting ENERGY SELF-SUFFICIENCY IS 83 PERCENT (2013) New Zealand’s energy needs. All natural gas produced in New Zealand is used domestically, representing 22 percent of our annual energy supply. There are around 258,000 natural gas NEW ZEALAND’S PRIMARY ENERGY SUPPLY (%) consumers in New Zealand, 95 percent of which are households, though these represent only three percent of total 8 7 OIL consumption. Natural gas offers instant 10 GAS and continuous hot water supply, 20 heating and cooking. Natural gas is 33 GEOTHERMAL used by around 10,000 businesses HYDRO 22 – including restaurants and hotels, OTHER RENEWABLES greenhouses and dry cleaners – and COAL community amenities like hospitals, WASTE HEAT (less than 1%) public swimming pools and schools.

1 Ministry of Business, Innovation and Employment, October 2012. THE WEALTH BENEATH OUR FEET

Oil and gas is key to realising goals of lifting the ratio of New Zealand’s exports to GDP by 40 percent by 2025.

64

FOSTERING EXPORTS Through its Business Growth Agenda the government has set an ambitious New Zealand is a small open economy target to raise the ratio of New Zealand’s dependent on commodity exports. exports to GDP by 40 percent by 2025.2 Exporting allows businesses to access New Zealand has already extended its far larger markets than the domestic export base beyond traditional primary economy, providing economies of scale sectors to include horticulture, wine, and allowing specialisation in areas of forestry, fisheries and aquaculture. This competitive advantage. is complemented by a strong niche By value, half of our exports are milk manufacturing sector in resource- powder, butter, cheese, meat, logs based and high-tech areas, and service and fruit. Fifteen percent of exports exports including tourism, education are from dairy alone. These sectors and commercial services. have served New Zealand well for Achieving the Business Growth Agenda THE WORLD BANK RANKED decades, and will continue to do so, but targets will involve expanding of NEW ZEALAND THE expose the national economy to risks traditional export sectors, and growing EIGHTH MOST ENDOWED in terms of international commodity others. The nation’s natural resource NATION WITH NATURAL price movements, shifts in market portfolio already makes a significant preferences or market access, or contribution to New Zealand’s exports, RESOURCES, AND FIRST climatic change. but there remains opportunity to IN THE WORLD FOR generate further export value. RENEWABLES.3

2 http://www.mbie.govt.nz/what-we-do/business-growth-agenda/export-markets

3 http://www.mbie.govt.nz/pdf-library/what-we-do/business-growth-agenda/bga-reports/BGA-Natural-Resources-report-December-2012.pdf OTHER BENEFITS

OIL EXPORTS VALUE OF CRUDE OIL EXPORTS, 1989 TO 2014 ($, THOUSANDS) The value of oil exports in the year to 3,000

June 2014 was $1.61 billion. 2,500

Almost all of the oil produced in 2,000 New Zealand is exported. The relative mix of petrol and diesel we consume 1,500 in New Zealand, and the configuration 1,000 of the Marsden Point Refinery, mean that it is better to import crude oil for 500 refining into petrol and diesel, and sell 0 1 1991 201 our higher quality oil for a premium to 1989 1990 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2012 2013 2014 overseas markets. Source: Statistics New Zealand; Note: Year ending June The value of oil exports has grown significantly since 2007, predominantly due to development of a number of new CRUDE OIL, CONDENSATE AND NAPHTHA EXPORTS, 1985 TO 2013 (MILLION BARRELS) fields in Taranaki, including Pohokura,

Tui, Maari and Kupe. 25 In the year to June 2013, oil exports generated export income of $2.0 billion, 20 accounting for 3.7 percent of all of New Zealand’s exports. In the year to June 15 2014, the value of exports dropped to

$1.61 billion. At its 2008 peak, oil exports 10 accounted for 6.7 percent of all exports. 65 In the 2013 calendar year, 11.36 million 5 barrels of crude oil were exported. Oil exports by volume peaked in 2008 at 0 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 19.9 million barrels. Oil is New Zealand’s fourth-largest Source: MBIE export after dairy, meat and logs/ timber. In the year to June 2014, oil VALUE OF EXPORTS, KEY SECTORS 1989 TO 2014 ($, BILLION) exports represented 3.7 percent of national export revenue. 16

Increasing oil production represents a 14 significant opportunity to further grow 12 exports. Were a ‘second Taranaki’ found 10 and developed, economic modelling shows that New Zealand’s export 8 revenue could increase by $1.5 billion 6 for each year of production. 4

The 2008 increase to $3 billion in oil and 2 gas export revenue was primarily due to 0 two oil and gas fields coming on-stream, 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 Oil Meat Dairy logs/sawn timber which indicates the profound impact that a major discovery or increased Source: Statistics New Zealand. Note: Year ended June. Methanol export values became confidential after 2005. production from existing fields could have on New Zealand’s export earning capability. This is in contrast to the productivity and activity efforts required THE DISCOVERY OF A NEW FIELD COULD HAVE A to increase the potential earnings from other industries. SIGNIFICANT IMPACT ON NEW ZEALAND’S EXPORT EARNING CAPABILITY. THE WEALTH BENEATH OUR FEET

COMMODITIES Methanol produced from gas potentially adds a further $1 billion to New Zealand exports, while urea production reduces imports by 40 percent. Oil exports tell part of the story about the importance of the petroleum sector in New Zealand’s export performance, Ballance Agri-Nutrients’ manufacturing plant, South Taranaki. with natural gas completing the picture. Natural gas is used as a fuel in a number ENERGY TRANSITION AND annually, compared to a 1.2 percent of other production and export sectors: CLIMATE CHANGE increase for all energy types. According to the IEA, natural gas is a • Natural gas accounts for almost half There is growing consensus and crucial element in maintaining a secure the energy used for food processing aspiration that we are transitioning away energy supply during the transition to and a third of the energy used in from fossil fuels. The question is how renewables and addressing climate wood processing, which collectively long this will take. The International change. Natural gas is relatively represent most of New Zealand’s Energy Agency states: exports. abundant and has much lower Fossil fuels currently meet 80 percent emissions compared to other • New Zealand produces and exports of global energy demand. Even non-renewable sources of energy. a large quantity of methanol from if current policy commitments to In the longer term, renewable energy the Methanex plant in Taranaki, all of tackle climate change and other technologies are the answer to a secure which uses locally produced natural energy-related challenges were put and sustainable energy mix, together gas. Methanol exports reached in place, global energy demand in 66 with efficiency gains and other low $260,000 in 2005. Confidentiality 2035 is projected to rise by 40 percent carbon options. Growth in renewables means exports are unknown, though – with fossil fuels still contributing for electricity production is outstripping based on current production of 75 percent.5 2.3 million tonnes at an average price that of fossil fuels and is expected of US$506 tonne, methanol exports The energy density and transportability to surpass that from natural gas and are estimated close to NZ$1 billion.4 of oil makes it an extremely effective double that from nuclear power by 2016 transport fuel, and difficult to displace. (IEA, 2013). • Oil and gas can support import Hybrid and electric vehicles and Governments the world over are substitution. Urea – a nitrogen- biofuels as a transport fuel, are growing actively supporting renewable energy rich compound used in fertilizer – rapidly, but face significant challenges technologies through investment in produced by Ballance Agri-Nutrients in matching the cost and convenience science and innovation and providing provides 40 percent of total domestic of oil. urea demand, with the remaining direct subsidies for use of renewables. 60 percent imported. In 2011, the International Energy Energy companies are making Agency (IEA) released a special report significant investments in renewables, There are many smaller export entitled Are We Entering a Golden Age recognising their ongoing relevance operations reliant on natural gas that do of Natural Gas?6 The report indicates requires them to be at the forefront of not appear in the national statistics, but that natural gas will likely play an technology development. are collectively and locally significant. increasingly important role in future Renewable technology development For example, 20 percent of the sugar energy, citing uncertainty around energy and manufacturing challenges will draw refined at Chelsea’s Auckland facility is supply and climate change as key on expertise and knowledge from fossil exported. The plant operates a natural drivers. The IEA predicts that natural fuel technologies. A strategic review gas fired boiler. gas will overtake coal by 2030 and would recognise we are in an energy account for a quarter of global energy transition, and that all energy sources supply by 2035. Demand for natural gas will contribute to meeting demand is predicted to increase by 2.0 percent and advancing renewable energy technologies during this period.

4 Based on the Methanex Asian Posted Contract Price over the year to June 2014 and an average conversion of US$ to NZ$ of 0.83.

5 Resources to Reserves 2013, International Energy Agency, October 2013.

6 World Energy Outlook Special Report 2011, Are we entering a golden age of natural gas? International Energy Agency, June 2011. OTHER BENEFITS

ROYALTIES AND PEPANZ estimates the government The government also collects PAYE collects around $300 million in and income tax from those employed COMPANY TAX company tax from E&P companies by oil and gas companies, and Goods Any company producing and selling each year. This is likely to be a and Services Tax (GST) from sales. The oil and natural gas in New Zealand low estimate. exact amount for these forms of taxes is is required to pay a royalty to the harder to determine. government. This ensures the government receives a revenue stream ROYALTIES AND LEVIES FROM OIL AND NATURAL GAS PRODUCTION, throughout the life of an operation, and 2008 TO 2014 ($MILLION) benefits in the upside of highly profitable operations. These monies contribute to 600 the delivery of the full range of Crown services that benefit New Zealand. 500

In the 2013/14 financial year the 400 government received $371 million in royalties and energy resource levies 300 from exploration and production companies. 200 Over the last four years around 100 $1.5 billion has been collected by the

Crown in petroleum royalties and levies. 0 To put this into perspective, this is 2008 2009 2010 2011 2012 2013 2014 Energy Resources Levy Royalties Total equivalent to the annual budget for the New Zealand Police. Source: New Zealand Petroleum & Minerals, year ending June 67

INTERNATIONALISATION, people – often a significant challenge chain companies to bid for contracts for smaller regions. to explore, build, maintain and VIBRANCY AND GROWTH decommission projects overseas, and for At the same time, locals in the industry The oil and gas industry has had inward skills attraction. often work globally, and in doing so a noticeable impact on regional become exposed to international ideas The emergence of Taranaki’s brand as an economies, largely due to the and cultures, bringing these experiences oil and gas destination has been organic, cosmopolitan nature of its employees. back to the region. Taranaki benefits growing over many years alongside In Taranaki the industry makes a key from this international connectivity the industry, and has been propagated contribution to the region’s overall which offsets geographic insularity through international connections within viability and vibrancy by attracting – perceived or otherwise – and and beyond the sector. The region’s skilled individuals and their families encourages diversity. capability and expertise in the sector, to the region, with benefits in terms of supported by brand awareness as a employment and the quality and value REPUTATION AND good place to do business, has helped of that employment. BRANDING to open doors for other industries. The presence of global companies further A large proportion of the oil and gas The concentration of activity within reaffirms regional capability to attract workforce are highly-experienced a region and the country has led to and support major international players, overseas experts who bring with them the emergence of a reputation for oil supply chains, personnel, projects and an international dimension, cultural and gas-related activity. On a regional investments. diversity and new ideas. A number of basis, the presence of the industry has industry employees apply these skills provided a point of national difference, Taranaki and New Zealand are often and experiences across other sectors competitive advantage and brand cited by the industry as offering a living and throughout the community. They identity for Taranaki. environment which compares favourably become active participants within against other bases of oil and gas activity the region and often, because of their This brand has been leveraged to such as the Middle East, Perth, Aberdeen expertise, take social and community support regional and national efforts and even Houston. This is particularly governance roles. Their presence, in competing globally for investment true when it comes to the quality of life as a result of oil and gas, has helped in exploration and production of oil for families relocating with partners in Taranaki attract a high calibre of skilled and gas, as well as for local supply the industry. THE WEALTH BENEATH OUR FEET

INFRASTRUCTURE DEVELOPMENT Oil and gas industry investment has fostered the into regional roading to support energy projects, and construction and utilisation of infrastructure which has port developments to underpin specialist requirements. proven beneficial to the nation and regions. In terms of The presence of the industry has increased utilisation of industry specific infrastructure, examples include the general infrastructure such as airports for national and creation of pipelines and processing plants, investments international flights.

LEFT: An LPG tanker at Port Taranaki’s specialist facility. RIGHT: Port Taranaki, central to New Plymouth’s waterfront.

CONNECTING PRODUCTION TO MARKETS: PORT TARANAKI ort Taranaki has evolved specialist • Connectivity with industry product by specialised onshore companies P oil and gas industry services and is storage areas. A range of storage providing the full range of offshore the hub for servicing and supporting New facilities such as tanks owned support services.

68 Zealand’s offshore oil and gas fields. The by commercial entities, store oil • Offshore support. A quickly port provides a range of specific services: and condensate for a number of mobilised, rapid intervention, station • Dedicated petrochemical tanker producers, which are connected to keeping vessels capable of providing terminal for the petrochemical Port Taranaki. ROV, side scan and multi beam industry. The port handles a wide • Hub for seismic vessels and other services. range of petrochemical products specialist craft which require Port • Oil spill response capability. Fit for and bulk liquids including crude facilities as a base for their offshore purpose, quickly deployed harbour oil oils, liquefied petroleum gas and operational work and the services boom and spill recovery equipment. methanol. These products are piped of a support industry located only in • Dedicated Offshore Support Base is from on and offshore sites throughout Taranaki. part of the Port’s strategic plan. the region before being pumped • Offshore supply base. Supply boats • Wharf side land and covered to dedicated load-out facilities and other support vessels regularly storage and tanks. This offering has and exported to international and servicing offshore fields are provided been expanded with the acquisition of national locations. The Port has with wharf side laydown, potable 18 hectares from the former Contact expertise and facilities including water, bunker and bulk loading power station site, much of which sophisticated monitoring, safety and facilities. Dedicated craneage is has good access for quick vessel firefighting services to support also available up to 100t at 45m. turnaround. these needs. These facilities are supplemented

INFRASTRUCTURE DEVELOPMENT: KUPE he Kupe development in South Taranaki required significant Tinfrastructural investment to bring the offshore gas field into production. From the wellhead, sitting in 35m of water 30km off the coast, an onshore pipeline was established, along with power, communication and control lines to the unmanned well. A substantial production station was built onshore, along with a further pipeline to the Kapuni production station further inland. OTHER BENEFITS

EXPORT DEVELOPMENT The skills, technology, standards and capabilities developed through involvement in the oil and gas industry have enabled New Zealand companies to expand and pursue offshore opportunities.

BUILDING GLOBAL MOMENTUM: JLE privately owned New Zealand in Singapore with scoping and work Acompany, the industrial electrical package development, followed by the and instrumentation expertise of JLE supply of electricians, instrumentation has been involved in some of the nation’s technicians and automation engineers major oil and gas projects. to complete the work while the FPSO This has included the provision Umuroa was anchored 52km off the coast FROM THINK BIG TO of specialist project management, of Taranaki over the Tui Oil Field. More EVEN BIGGER: FITZROY material supply, installation, testing and recent work has included the provision of ENGINEERING commissioning of instrumentation and instrumentation and electrical expertise itzroy Engineering is a provider of electrical works for the Kupe Production for the offshore Maari oil field, Pohokura Fheavy engineering, construction and Station in South Taranaki and their Production station and Todd Energy LPG maintenance services particularly to the offshore wellhead platform as well as Plant. O&G industry. Once a small engineering work programmes associated with the The wings of JLE have continued firm, the company developed offshore floating vessel/production to spread around the globe with their significantly during the 1970s and 80s station (FPSO) for the Tui oil field. company expertise involved in projects working alongside international firms JLE’s involvement in this latter project in Australia, Papua New Guinea, during the development of Maui and commenced in the Kepel Shipyards Canada, United States and Brunei. Think Big petrochemical plants. Today Fitzroy employs several hundred personnel and boasts a track record of substantial projects which include construction of the Shell 69 Catalytic Reactor (the largest and most detailed pressure vessel ever fabricated in New Zealand); the provision of fabrication and project teams for the Pohokura re-injection plant, and the ‘restart’ of the Methanex Waitara Valley as well as turnarounds at their Motunui plant methanol operations.

The specialist capabilities of industrial electrical and instrumentation company JLE are being Being awarded the EPC of the Yolla utilised in Papua New Guinea to assist with major oil and gas projects. Mega Module has been a particular highlight for Fitzroy Engineering. This included the construction of a 35m long A GROWING INTERNATIONAL CLIENT BASE: DFE accommodation unit to be attached to the offshore Yolla gas platform stablished in the mid 1980’s by associated equipment such as screens in Australia’s Bass Strait enabling New Plymouth businessman Alan and shakers. The company has also E the facility to be converted from an McGregor, Drilling Fluid Equipment (DFE) designed and developed innovations unmanned to a manned operation. is an original equipment manufacturer such as a drilling mud temperature The completed module incorporated of specialised and innovative O&G control system which is proving popular bunkrooms, a state of the art kitchen, equipment, especially in the area of in the middle east where they are drilling mess hall, laundry, gymnasium, offices, drilling fluid handling equipment. holes up to 5km deep. When drilling associated power and water facilities Drilling fluid, often called drilling at this depth the earth’s temperature and even a fire-fighting installation. muds, are used extensively in drilling is higher so additives in the drilling The module, which was constructed operations to bring the drill cuttings to mud need to be kept at a certain at Fitzroy Engineering’s workshop the surface during operations. There temperature otherwise they lose their in New Plymouth, was loaded onto are requirements for equipment to effectiveness. While its head office purpose-built heavy lift road trailers, store drilling fluid and to help with their remains in New Plymouth, DFE has set and transported via the city’s heavy treatment and disposal. It is in these up offices in Melbourne and the Middle haul route to Port Taranaki, where it was areas that DFE specialises, especially Eastern country of Oman to service its loaded onto a special heavy lift vessel through the provision of mud tanks and international client base. for transportation across the Tasman. THE WEALTH BENEATH OUR FEET

BUSINESS, CAPABILITY AND SYSTEM ENHANCEMENT The specialist requirements of oil and gas have triggered systems and ensure accreditation meets global standards. many opportunities for local businesses and overall This has not only enabled qualified local companies to improvements in their business performance. The high service the oil and gas industry, but has enhanced overall specifications required by the sector have resulted in competitiveness, given many local supply companies the requirements for suppliers to upskill, enhance their ability to service a diversity of sectors.

GROWING BEYOND OIL AND GAS: WELLS INSTRUMENT AND ELECTRICAL ormed in 1984 with a focus on gas industry over the last thirty years, FTaranaki’s emerging petrochemical has positioned Wells as one of the key and oil and gas industries, Wells gained companies in Taranaki’s supply chain. a number of initial contracts carrying out While the oil and gas industry has instrument and electrical work on the been the backbone of the company’s gas pipeline block valve and compressor growth, it is the exposure to the industry’s stations and the commissioning stringent health, safety, quality and activities around the Motunui ‘Gas to business management systems that Gasoline’ plant. have had a bigger impact – opening More recent projects have included doors to broader energy and industry the provision of technical staff to South projects and becoming an integral BEYOND Y2K: ECL Taranaki’s Kupe Production Station, I&E part of Wells’ philosophy, competitive construction activities at the Contact advantage and point of difference. rom humble beginnings solving Y2K Energy Stratford Peaker Power Station The company has benefited not Fissues in a Taranaki garage, ECL has and an ongoing involvement with only from the oil and gas work itself, grown to become one of New Zealand’s WorleyParsons and the STOS Integrated but the opportunities to build long- foremost instrument and control 70 Services Contract. term, mutually beneficial relationships specialists in the oil and gas industry. This experience, and the positive with new clients across other industry The Millennium Bug gave founders track record built throughout the oil and sectors. Guy Heaysman and Greg Chapman an opportunity to introduce their expertise and build solid relationships across Taranaki’s oil and gas and other industries. From there, the number of O&G industry customers grew to the point the pair required additional staff, outgrowing the garage. ECL specialises in process control and automation. Each plant has a distributed control system with the software that runs the plant written and commissioned by ECL to enable it to run automatically and safely across the lifespan of the project – from delivery to installation to ongoing maintenance. Recent successes include involvement in the development of the Todd Energy MET2 and Mangahewa Field developments. Their work has extended from the EXPOSURE TO THE HEALTH, SAFETY, QUALITY AND Kupe Production Station to working BUSINESS SYSTEMS THAT HAVE COME WITH THE OIL on the Cheal Production Station, from AND GAS INDUSTRY HAVE MADE A BIG IMPACT ON green field site to operation. Today Guy WELLS’ PHILOSOPHY AND COMPETITIVE ADVANTAGE. and Greg are joined by a team of over 25 engineering staff, and have established an Australian office exporting its O&G expertise across the Tasman. OTHER BENEFITS

TECHNOLOGY AND INNOVATION Transferability of skills and capabilities into other energy The presence of O&G projects and their international projects, such as geothermal, marine and wind, is also connections have catalysed the introduction of new occurring. A number of Taranaki businesses have become technologies, requiring innovative solutions and involved, adapting their knowledge to advance energy encouraging technology stretch. projects nationally and internationally.

CAPABILITIES FROM OIL APPLYING INNOVATION WHERE LOGISTICS MEET AND GAS DRIVE GLOBAL UNDERGROUND: KAPUNI INNOVATION: SYMONS WAVE ENERGY: EHL ew high-resolution seismic imaging TRANSPORT aranaki-based EHL Group (EHL) Nentailing Dual-well walkaway ymons Group is a Taranaki family Tis demonstrating how the smarts Vertical Seismic Profiling (VSP) was Sbusiness operation which began they utilise in the O&G industry can utilised by the operators of the Kapuni with the establishment of Symons 71 be diversified to foster global ground- field in Taranaki to gain a better Transport in 1984. Since then business breaking developments in wave understanding of the gas reserves of this has grown substantially and provides technology. mature field (discovered in 1959, Kapuni extensive services to the energy sector. Known for their ability to design and is New Zealand’s longest serving field). One of Symons Transport innovations is manufacture high quality motion and This is the first time the cutting edge a new type of road tanker specifically control solutions for the oil and gas technology has been applied in New developed to carry the Cheal crude industry in New Zealand, EHL is now at Zealand, and is only the second time it from the production station to the tank the forefront of innovative automation has been utilised in the world. farm, by Port Taranaki, ready for export. and motion and control developments Led by Shell’s local team, several Cheal oil is a typical Taranaki waxy for wave energy conversion, currently dozen overseas experts stayed in crude that hardens to the consistency being tested in the US – one of the Taranaki for several weeks. The project of shoe polish unless it is kept warmer world’s biggest and most important enhanced both national capability by than 40 degrees Celsius. While TAG energy markets. providing team members with exposure Oil keeps the Cheal crude hot enough The wave energy converter extracts to some of the most innovative and in its onsite storage tanks, Symons as much energy as possible from waves leading-edge technology currently Transport’s new “double walled” tankers and their variety of motions. This includes available in this field), and showcased significantly reduce the temperature ‘heaving’ (up and down wave motion), New Zealand to the international experts drop off compared to previously used surges (back and forth) and those that as being a progressive and welcoming transportation methods, ensuring the ‘pitch’ (roll back and forth). Moored to location to test innovation and where crude remains in a more liquid state the sea floor in an upright position, the international technology providers can during transportation which greatly wave energy device converts the energy do business. assists mobilisation and unloading of from these movements into electricity the product at its destination. via a system of on-board hydraulics. THE WEALTH BENEATH OUR FEET

DIVERSIFICATION AND TRANSFERABILITY The presence of the oil and gas industry helps provide other industries and for other purposes. The technology economic diversity which can ease the impact of market requirements have added to New Zealand’s engineering and supply peaks and troughs exacerbated by dependency capability and are transferable to other industries such as on only a few industries. those which involve the containment and transportation of high pressure products. Oil and gas also provides the potential for its industry techniques and capabilities to be applied and adopted in

PROVIDING ENVIRONMENTAL GUIDANCE THROUGH SCIENCE: METOCEAN SOLUTIONS etOcean Solutions are an innovative team of scientists 72 Moffering high quality environmental data, weather forecasting and numerical modelling services to the offshore O&G and maritime industry. The Managing Director, Dr Peter McComb, is an O&G industry veteran with over 25 years’ experience. The science team analyse the historical ocean weather FROM OIL AND GAS TO THE DEFENCE and wave conditions for any location on Earth, and produce SECTOR: EHL very specific guidance for all aspects of offshore operations, HL has worked closely with the NZ Defence Force on such as expected extreme weather conditions, downtime and Eimproving technology on Navy ship HMNZS Canterbury. waiting-on-weather scenarios, oil spill trajectory and dispersal Through designing, building and installing the Navy’s of drill cuttings. The company’s high-resolution forecasting two automated gangway systems EHL has been pivotal capability provides invaluable information to inform response in advancing the Navy’s capabilities, and reducing their strategies and operational requirements in emergency requirement for multiple staff being involved in a process, to situations and was put to good use by Maritime New Zealand a mere few. Health and Safety was a big factor in advancing in the Rena grounding incident. these systems; the less human input the less risk to their The innovative environment of MetOcean Solutions attracts personnel. talented scientists from round the world to their offices in The diversity of EHL’s skill-set and proven ability to work in New Plymouth and Raglan. The team of 24 leverages the high-risk sectors, such as the oil and gas industry, have been latest developments in science and technology to provide a pivotal in the company’s success. world-class R&D facility that is focused on solving real-world EHL has since gone on to design further products for the problems for ocean-based industries. Navy, including a stabilisation device for their Landing Craft, In 2013, MetOcean Solutions extended its services and Mechanised (LCM). Again, personnel safety was a number one global reach through a partnership with the New Zealand priority in improving the launch process. Meteorological Service, who are now a 49% shareholder in the company. The combined expertise in meteorology and oceanography is now exporting a new generation of powerful weather intelligence to the world. OTHER BENEFITS

HEALTH AND SAFETY Because of the risks associated with the oil and gas This has permeated their extensive supply chain network industry, great emphasis is placed on the development and and in the case of Taranaki, has become an integral adherence to rigid environmental and health and safety component of the region’s DNA. The health and safety standards. Due to this, the industry has substantially experience of companies involved in the oil and gas raised awareness of environmental and safety issues. industry is not only considered advantageous to their operations but increases their competitive advantage in other sectors given its increasing significance.

SAFETY A PRIORITY: SHELL NEW ZEALAND OUR FOCUS ON THE SAFETY OF OUR BUSINESS AND PEOPLE IS OUR PRIORITY. WE HAVE THE MOST ADVANCED SAFETY SYSTEMS AND WE CONSTANTLY TRAIN AND EXERCISE TO MAKE SURE EVERYTHING IS WORKING AS IT SHOULD. AS A COMPANY WE SEEK TO IMPROVE ALL THE TIME. 73

UNDERWATER HELICOPTER TRAINING BUILDING HOT FIRE RESPONSE: elicopter Underwater Escape Training showcasing people ULTIMATE SAFETY Hin the pool getting ‘out of the helicopter’ as part of the pecialist ‘hot fire’ training facilities are available at specialist simulation training facilities provided by Ultimate SUltimate Safety Training and Consulting in Taranaki for Safety Training and Consulting based in New Plymouth. The the O&G industry. This knowledge is being leveraged by other facility prepares people for extreme conditions and potential industries. real life situations. THE WEALTH BENEATH OUR FEET

SCIENCE, KNOWLEDGE, TRAINING AND CAREERS The presence and potential of the industry has driven organisations. Specialised industry-specific training knowledge and skill development across a range of facilities and initiatives have been established which have disciplines within New Zealand’s research, education and been leveraged by other sectors. business communities. Furthering understanding and Crown Research Institutes, such as NIWA and GNS Science skill development in relation to leveraging New Zealand’s provide scientific activities which build understanding of natural resource, science, engineering, energy potential New Zealand’s petroleum resources, their potential and are encouraged. relationship with the environment. Research by GNS played Industry scholarships, papers and electives, trades and a major role in New Zealand’s successful bid to the United training have been introduced at tertiary level, including Nations to extend the offshore territory beyond its EEZ. universities and polytechnics and through industry training

74 DEVELOPING A NICHE: IPL BUILDING UNDERSTANDING OF stablished in 1999, Independent Petroleum Laboratory NATURAL RESOURCES AND HISTORY: GNS ELimited (IPL) is New Zealand’s specialist petrochemical testing laboratory. The company has labs in New Plymouth eismic data collected for the purpose of understanding our and Northland and their chemists and laboratory technicians Soil and gas reserves is also being used by GNS scientists for are used by the upstream oil and gas industry to perform crude enhancing knowledge in other ways which will be beneficial for assay analysis. A crude assay is the “evaluation” of a crude oil. New Zealand and its future. For example: This specialised analysis enables the oil and gas companies to Work on the offshore fault systems of the East Coast Basin, determine the suitability of the crude for its end use and to help using oil and gas industry seismic data is contributing to predict the commercial value of the crude. They can also use assessments of earthquake risk from faults in the accretionary the data obtained from a crude assay to identify changes over wedge, such as the Lachlan and Kidnappers Fault. There has time in the hydrocarbon quality. Finally, oil traders will use the been similar work done in the offshore Wanganui Basin, also data to find an appropriate market for a crude. using oil and gas seismic data. IPL is the only company in New Zealand to offer this type Paleogeography/paleobiology work which utilises outcrop of analysis and one of the few to hold this type of technology mapping as well as oil and gas drillhole data, has helped to in the southern hemisphere. Without the expertise and inform the debate on whether Zealandia was ever completely investment of the company in bringing this valuable testing submerged beneath the sea. These results are also contributing capability to New Zealand, such specialist analysis would to models for assessing the distribution and evolution of have to be undertaken overseas. terrestrial species in ancient NZ. Related work being undertaken on the paleoclimate since the Cretaceous Era is also informing GNS scientists on past extremes in global temperatures and circulation systems that serve as insights on future planetary response to climate change. OTHER BENEFITS

TEACHING INDUSTRY SKILLS ecognising the importance of being offered at level three, spanning 32 Roffering comprehensive industry- and 17 weeks of training respectively. based training for the oil and gas sector, Both programmes have extensive on- Taranaki’s central tertiary provider job learning components, underpinned the Western Institute of Technology by strong industry collaboration and (WITT) has introduced two oil and gas support. operations training programmes. With courses covering everything WITT also offers courses in The pre-employment training from an industry overview to drilling engineering, electrical, welding, civil provides new entrants to the industry equipment, chemistry and gas testing to engineering and other skills necessary with the skills to hit the ground running, permit, and safe working methodology, to grow both the industry and its with the Certificate in Process Operations the next generation of industry workers supply chain. (Oil & Gas) and Certificate in Industry look set to hit the ground running. Trades (Hydrocarbon Drilling) both

MAKING THE CLASSROOM COME TO LIFE: VAUSE TRAINING he Vause O&G training centre, based in Bell Block, New TPlymouth, is unique in the southern hemisphere. Not only does the facility provide modern classroom facilities but theory is balanced with a practical learning environment. Participants have the opportunity to see, touch and utilise the actual equipment utilised in the O&G industry. The centre boasts its own ‘Christmas tree’ atop a 300 metre training well, plus it has a practical workshop set up for groups of students to work on stripping and redressing the range of downhole tools they will be running in wells. The simulation attributes of the 75 centre mean that trainees can learn safely and still experience ‘genuine’ equipment so when they go out to the workplace they are in a more work-ready state.

A Methanex scholarship programme, in partnership with the Petroleum Skills Association of New Zealand, provides two $5000 scholarships to undergraduate tertiary students, who are also offered summer work at the Motunui plant. THE WEALTH BENEATH OUR FEET

INVESTMENT IN THE COMMUNITY In addition to their commercial investments, the oil and gas industry makes substantial contributions to many community initiatives, events, social and education programmes. In the case of Taranaki, these investments have contributed significantly to the vibrancy of the region, across both economic and social spheres. Here are some examples:

LINKING ENGINEERING AND ART he strong links between regional of kinetic art works and films of New Tinnovation, engineering skills and Zealand-born artist Len Lye (1901- the global energy sector have been 1980), a pioneer in both film and moving recognised in a major partnership sculpture. between Todd Energy and the Len Lye Todd Energy is the sole founding Centre, a spectacular new addition to partner of the Len Lye Centre and naming New Zealand’s creative sector. partner for the centre’s foyer and learning Integrated into the long-standing centre. Their support enabled the project Govett-Brewster Art Gallery, the art to begin after decades of planning, and museum will establish a centre for the will add cultural, innovative and lifestyle exhibition, research and development vibrancy to New Plymouth.

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BRINGING THE WORLD TRAINED TO MONITOR RESTORING SANDY BAY TO WOMAD THE MARINE community partnership between ENVIRONMENT f the five major festivals the Aneighbours, the Taranaki Regional OTaranaki Arts Festival Trust delivers ecognising the role of Māori as Council, Department of Conservation, in Taranaki, WOMAD – the World of R Kaitiaki – guardians – of the land local schools and community groups, Music, Arts and Dance – is the biggest, and marine environment drove Maryjane and STOS has transformed the point at and since 2003 has attracted over Ngaone Waru, of Ngāti Rahiri, to become which the Maui gas pipeline reaches $4 million in sponsorship from the one of the first two Māori Marine Mammal shore, just north of Opunake. Since the oil and gas industry. While WOMAD Observers in New Zealand. Maryjane 1980s the Ngāti Tara Sandy Bay Society annually injects more than $10.5 million was encouraged and supported by Shell has been actively restoring the area with in economic benefit into Taranaki, to gain the qualification, and is now extensive planting in the dunes. The its contribution to regional vibrancy looking forward to getting out on seismic sustained efforts have resulted in a more and changing people’s perspective of boats around New Zealand to monitor stable coastal environment which offers Taranaki are seen as more important marine life. The link between Shell and a protected habitat for species such as outcomes. “This commitment from the the Ngāti Rahiri Hapū is longstanding – the gold stripe gecko and a range of sea sector to making this region vibrant, the Pohokura natural gas field sits within birds, as well as a focal point for the economically healthy and a fun place to their rohe. local community in retaining a unique work and live has meant their support landmark. of the arts is enviable throughout New Zealand,” says TAFT chief executive Suzanne Porter. OTHER BENEFITS

SUPPORTING THE WHOLE RELOCATING RARE BIRDS TAKE A KID COMMUNITY TO ROTOKARE MOUNTAINBIKING long-term relationship between Iwi otokare Scenic Reserve is a raining company Wood Group PSN Agroup Ngaruahine Maatua Whangai R230-hectare forested catchment Thas helped Taranaki Mountainbike and the Kupe Joint Venture Partners 12km inland from the South Taranaki Club’s annual Take a Kid Mountain- has helped to deliver a comprehensive town of Eltham. Protected by more than biking event get more kids riding bikes programme to improve the community. 8km of predator-proof fence, the reserve and building skills to enjoy themselves Over the last 30-plus years, Maatua has become a haven for regenerating safely, with sponsorship of the event Whangai – a voluntary organisation – native species. In May 2014, following encouraging and rewarding participants has run youth initiatives, and with the more than a century of extinction in through a range of prizes. support of the Kupe Project has been Taranaki, Tieke (Saddleback) were “Being socially responsible is integral able to extend activities to train volunteer returned to Rotokare, and Popokatea to what we do,” says Kerry Martyn, Wood youth counsellors, offer financial literacy (Whitehead) were reintroduced. Early Group PSN General Manager. “We aim programmes and assist the elderly. The monitoring reports that both species to make a positive difference to the philosophy of Maatua Whangai is one of are settling into their new environment communities where we operate and seek inclusion with assistance being available with numbers growing. The project ways to assist them, and building kid’s to any person, regardless of their was supported by international E&P skills and safety in a fun way is at the ethnicity or Iwi affiliation, which means company OMV, who have had a long heart of what we’re about.” their services are reaching right across relationship with the Rotokare Scenic their South Taranaki community. Reserve Trust.

SUPPORTING THE BUSINESS COMMUNITY Having the oil and gas industry as part of Taranaki’s regional economy has made a difference to businesses of all shapes and sizes.

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ACCOMMODATING BENEFITS COME IN BLACK GOLD OF A INDUSTRY GROWTH MANY SIZES DIFFERENT TYPE tratford’s Amity Court Motel opened he energy industry and its impacts on or the Empire Tea Room’s Colin and Sin 2009 and since then has ridden Tpopulation and the accommodation FPam Webby business is driven by a wave of increased oil and gas and sector have created a growing market a different type of black gold. Their energy sector project and production for La Nuova Apparelmaster. café’s location, metres from a number work in central Taranaki. “We deal directly with the industry, of Taranaki’s oil and gas company “We’re seeing a lot of subcontractors engineering and support companies, offices, has seen their coffee sales defy to the sector staying here – from mud right through to the cafes and motels economic fluctuations since they bought loggers, drillers though to management,” that look after them,” says director Brad the business in 2007. says manager Jason Kowalewski. “It’s Craig. “Our services range from overalls “We see a lot of people from across helped us launch our business strongly, and safety gear for industrial sites to the industry every day, and a lot of and the momentum from the sector suits worn in the corporate offices to meetings are held here,” Colin says. “But has helped us grow and progress our the linen used in the accommodation the business also benefits in other ways, own projects which will benefit the providers.” like the events that the industry supports community in the long term. This would Recognising customers’ commitment – for instance WOMAD is our busiest not be possible if we did not have their to managing environmental impacts weekend. It’s different to the other parts industry here.” La Nuova has built the most of the country we’ve worked in.” environmentally awarded laundry in New Zealand. THE WEALTH BENEATH OUR FEET

hough New Zealand’s commercial oil and gas AROUND production has centred on the Taranaki region, there Tis a growing level of activity around NEW ZEALAND the nation. What’s happening exploration-wise around New Zealand. TARANAKI – PUNCHING ABOVE ITS ECONOMIC WEIGHT Statistically Taranaki has a small population and number of businesses – around 2.5 percent of the nationwide total – but neither measure accurately reflects the strategic importance of the region to the nation’s current and future economic development. To date, all of New Zealand’s commercial oil and gas discoveries and production have been in the Taranaki region. Oil from the region is the nation’s fourth highest export earner and natural gas from Taranaki’s fields heats households, powers businesses, 78 energises manufacturing and electricity plants. It even fires up the barbeque. Taranaki’s oil and gas industry is crucial in ensuring the energy supply that supports our economic growth as well as our social activities and wellbeing. Royalties are paid to the Crown which are then redistributed through the full range of government services for the benefit of all New Zealanders. In the 2013/2014 year royalty payments amounted to $371 million. The region has an extensive system of infrastructure and capability that supports the industry, including oil and gas production and storage facilities, facilities at Port Taranaki and pipelines that transport gas throughout the North Island. Manufacturing plants such as Methanex and Ballance Agri-Nutrients are large companies that exist in New Zealand because of the availability of local gas, which is used to create added-value products such as fertiliser and urea which in turn adds to the productivity of New Zealand’s farming industry, and methanol, which is a significant export earner. Also domiciled in the Taranaki region are most of the exploration and production companies and the supply chains and capability that support the industry. Taranaki accounts for over 4,300 of the 5,068 FTEs directly employed in the industry. These are high calibre skilled individuals that add to New Zealand’s professional, engineering and scientific talent and their projects both attract new technologies to the nation and foster local innovation. TARANAKI’S OIL AND GAS INDUSTRY SUCCESSES AND Their presence, combined with the EXPERTISE HAVE MADE A SIGNIFICANT CONTRIBUTION proven and developed reserves of TO THE NEW ZEALAND ECONOMY, AND WILL PLAY A PIVOTAL Taranaki’s fields and the associated ROLE IN ATTRACTING FURTHER INVESTMENT. infrastructure, create a more attractive investment proposition for international explorers to come to New Zealand. capture a greater share of the economic the focus of oil and gas activity there While the Government promotes the activity the industry generates. As the has been increasing investigation and nation’s prospectivity potential and industry grows into frontier regions, exploration of the potential reserves in industry-friendly policies, Taranaki more local businesses will build the frontier locations such as the east coast reaffirms to the potential investor the capability and capacity to secure project of the North Island, the Great South track record of New Zealand’s reserves, work locally and offshore. New Zealand Basin off the South Island and offshore and provides developed infrastructure, will achieve its growth aspirations, Northland. Commercial discoveries specialist skills and capability and creating jobs, skills, wealth and export in other parts of New Zealand could 79 established systems, lowering the development. significantly contribute to the regional risk for the investor and enhancing economies in those areas, potentially Taranaki’s current contribution: the attractiveness of New Zealand’s proving a game changer on a range proposition. The reputation and track • Royalties: $300-$400 million annually of levels spanning export earning, record of Taranaki is critical to assist – into government accounts employment and lifestyle growth and in this process as it is not always the energy supply. country that is the focus but the prime • Export earnings: oil and methanol th hub within a nation. 4 highest Supported by a proactive government campaign centred on the nation’s • Talent centre: unique expertise, Few other industries have the same petroleum potential, greater information technologically advanced, globally potential to radically transform is now available to investors about the connected. New Zealand’s economic and social diversity of opportunities available wellbeing, should anticipated • Energy security: major contributor to throughout New Zealand, promoted reserves be successfully developed. domestic and industrial energy supply through the annual Block Offer. This To achieve transformation, New Future economic transformation multi-basin approach is paying off Zealand must successfully attract enabler: with greater levels of investor and exploration investment from a exploration interest spread across both globally competitive arena, and • Key asset in bid to unlock New traditional and frontier areas, on and Taranaki’s track record can help Zealand’s petroleum potential offshore and within and beyond the make this happen. • Proven oil and gas region Taranaki region. Consequently, Taranaki plays a key • Brand Taranaki (O&G) = Brand NZ Many exploration and production role in the past, present and future of (O&G) companies are currently in very early the oil and gas activity and industry stage investigations of these emerging in New Zealand. As more exploration • De-risks inward investment regions, mostly comprising initial activity occurs outside the region, the • Adds weight to New Zealand’s data gathering, consenting activities lessons learnt, industry expertise and offering. or enquiries, undertaking company infrastructure that exists in Taranaki establishment, seismic surveys and will be further leveraged to attract and ECONOMIC SIGNIFICANCE analysis, community and stakeholder support oil and gas activity throughout OF THE EMERGING REGIONS engagement and in some localities, the country, enabling New Zealand to Whereas Taranaki has traditionally been drilling activities. THE WEALTH BENEATH OUR FEET WHERE IS THE ACTION?

NORTHLAND & REINGA BASIN EAST COAST & PEGASUS BASINS The Reinga Basin extends to the north This area spans over 180,000 km2 of the Taranaki Basin for approximately and incorporates the Raukumara, Norfolk 750km to the Norfolk Ridge, at the limit East Coast, and Pegasus basins, of New Zealand’s economic territory – a Basin and has seen more than 40 onshore total area of about 170,000 km2. wells drilled since 1955, with recent There has been limited exploration Northeast Havreendeavours near Dannevirke in April 2013 and north of Gisborne in July activity with just four wells drilled in Reinga Slope Trough the area, none of which have led to 2014. Large areas of the East Coast Basin Basin commercial development. In 2009 the are subject to petroleum exploration government commissioned a seismic permits where geological data survey of the area and published indicates a presence of significant the findings. Interest in theNew Basin Caledonia is Northland quantities of oil. increasing with further prospectingBasin In contrast to Taranaki, the East Coast

committed. Raukumarabasin Basin largely consists of ‘tight natural Deepwater gas’ or ‘shale oil’ which tends to involve Taranaki more intensive drilling activity or non-conventional techniques to viably extract the resource. TARANAKI ON & OFFSHORE Bellona Taranaki The deepwater Pegasus Basin to the The traditional area of focus for much East Basin Basin WKW* south of the East Coast basin, near oil and gas exploration and New Coast Wellington, is a new area of interest, Zealand’s only producing basin to Basin with two exploration permits awarded date, Taranaki is the hub of the nation’s in the 2012 Block Offer. At this stage Challenger industry expertise and infrastructure. little is known about the potential of The region is still considered Plateauunder- this area. explored by global standards withBasins Pegasus Basin potential for further discoveries, West 80 particularly across the deepwater Coast Chatham Slope Basin frontier. Basins

WEST COAST SOUTH ISLAND Fiordland Small scale targeted onshore Basins Canterbury exploration has occurred, with early Basin reports of possible success. Further Bountyinvestigation and exploration of the Trougharea is anticipated. Western Southland Basins Great South Basin

Pukaki Basin

CANTERBURY & have yet been determined commercially Outer Campbell GREAT SOUTH BASINS viable. Despite this, the geology and Basin The little-explored Canterbury and Great information gained through the seismic South Basins sit over a large area ofCampbell surveys and exploration wells to date 2 have created strong interest in the nearly 400,000 km to the southeastBasin of the South Island. area, with a number of new exploration permits being awarded in recent Block Fourteen offshore exploration wells have Offers. This area is a particular focus for been drilled to date, and while all have offshore and deep-water exploration. identified a petroleum resource, none AROUND NEW ZEALAND

TARANAKI HAS HAD TO EVOLVE FROM A PREDOMINANTLY DAIRY There has also been heightened public REGION TO ALSO BEING AN awareness of the oil and gas upstream ENERGY PROVINCE. THIS industries, particularly within these JOURNEY IS ONGOING. regional communities. Local and central leadership have adopted a proactive approach to fostering understanding of the oil and gas industry, including regional implications, challenges, requirements and potential benefits within these frontier localities. This has included investigations to better understand the geology and science of the resource, hosting public forums about the industry, undertaking reviews of regional plans and regulations, consideration of future implications for infrastructure, “To some extent both the oil exploration companies and local authorities in community social and economic the 1970’s grappled in deciding their respective stances towards each other possibilities and visits to Taranaki as onshore development began to mushroom. It is no secret there were some to view industry activity first-hand, problems, divergent views and results that probably pleased the media more meet with regulators, businesses and than any other party… stakeholders. Billions of dollars have been invested in pursuit of these valuable commodities, which has resulted in hundreds of new jobs, changed the landscape of parts TARANAKI’S EXPERIENCE of the region and given a high profile to Taranaki. The socio-economic effects have been more positive than negative. Emerging oil and gas regions are 81 leveraging Taranaki’s experience in The need for and impact of energy developments seems likely to increase, with terms of systems, capabilities and further challenges, risks and benefits ahead. We should be able to face these specialist skills as well as potential with confidence and optimism, based on our experiences in Taranaki.” regional development implications. Extract of paper presented by former Stratford Mayor David Walter at the 1994 New Zealand There is opportunity and benefit Petroleum Conference (abridged) attached to collegiality between regions, sharing lessons and achieving system efficiencies. This is not to say that the ‘Taranaki Managing expectations is The presence of the oil and gas industry way’ should or could be replicated by important does not lead to overnight riches, successes or immediate changes those areas as regional differences exist • Oil and gas exploration and to a regional economy. It has taken including geological variations as well as development takes time divergent economic, social and cultural Taranaki over 30 years to evolve a circumstances and aspirations. • The impacts of the industry are track record, expertise and significant gradual and do not occur overnight economic gains from the industry’s What can be taken from Taranaki’s presence. There will be successes • Reactions to possible regional experience is the region’s recollection and there will be dry holes. Of those outcomes in the face of exploration of the emergence of the oil and gas which are successful, it is a long activities can reflect the extremes industry and the development of process for the company to assess – either ‘really good’ or ‘really bad’ knowledge, systems, infrastructure and develop the identified resource. consequences and capabilities through a steep Seldom are all the answers known from learning curve, to evolve from what • There can be visions that a region will the outset, such as implications for was predominantly a dairy region to turn into a ‘Saudi Arabia’ when the communities, anticipated job numbers also being an energy province. And this reality is usually more a case of ‘a hole or infrastructural requirements. journey is ongoing. here’ and ‘a hole there’ Furthermore, decisions are often Some specific lessons acquired about • Providing perspective and facts is global, and investors will often the oil and gas industry include: important weigh up development of their New • It is important that the community Zealand discovery against other global plans ahead, is informed and aware opportunities: a find may not be in THE WEALTH BENEATH OUR FEET

sufficient levels or cost-effective to facility construction and ongoing site • The attraction of new families to live commercially develop, timing or other maintenance. in the area conditions may not be right, or it may Supply chain work tends to be project • Fresh ideas and global expertise on not be a priority relative to other global oriented, and not full-time or ongoing. boards of schools, voluntary groups opportunities. Therefore oil and gas work should be and other leadership involvement The importance of the supply chain supplementary to other work the supply • Improvements in the general housing chain company undertakes across • Industry preparation will assist local stock a diverse mix of clients and sectors. content opportunities Those new to the industry or seeking • Involvement of the industry in areas • What is acceptable in other sectors work for the first time may find securing like arts, events, sport and education, won’t cut the mustard in oil and gas work in the industry challenging due to and social welfare initiatives the high standards, health and safety • There are high standards, especially • Contributions to a diversified and requirements and prior experiences around health and safety work well-rounded community required. Building collaborative practices arrangements with experienced supply • Underpinning the demand for • Partnerships with experienced supply chain companies – such as those air transport and public services chain companies are recommended established in Taranaki or offshore – including building special elements of capability in health, police, fire, Although focus is often on the E&P may offer the best entry strategy for training/polytechnic and other social companies, it is the supply chain which local businesses. services. is key to local content and contractual Regional development – the opportunities. While there are likely to biggest benefits may prove the Benefits to a region will extend beyond be few employment opportunities in least quantifiable jobs to a wide range of economic the initial exploration phase, due to the and social impacts, many of which short term and specialist nature of tasks Though the focus of local long-term are not quantifiable but should not involved, where development proceeds benefits seemingly lies with jobs, be underestimated. For example, 82 there could be greater potential for there are often many less tangible or communities can benefit from an local companies to become involved in quantifiable outcomes, including: emphasis on the value of skill sets

ALTHOUGH FOCUS IS OFTEN ON THE E&P COMPANIES, IT IS THE SUPPLY CHAIN WHICH IS KEY TO LOCAL CONTENT AND CONTRACTUAL OPPORTUNITIES. BUT WHAT IS ACCEPTABLE IN OTHER SECTORS MAY NOT CUT THE MUSTARD IN OIL AND GAS. THERE ARE VERY HIGH STANDARDS ESPECIALLY AROUND HEALTH AND SAFETY PRACTICES. AROUND NEW ZEALAND

PROJECT WORK OPPORTUNITIES such as science and engineering, • The responsibilities and capability international connections that foster enhancements as well as implications hutdowns and other non-routine lateral thinking, the introduction of new for regional planning, policies and Sprojects create short but intense ideas that can challenge the insularity infrastructure can be significant for phases of workforce demand within the of a region and its people, and a greater smaller local authorities O&G industry supply chain. consideration of health and safety For example, the Rimu shutdown A key step in addressing risks and across businesses, workforce, families undertaken in February 2013, involved responsibilities is ensuring that and the community. These factors have around 90 contractors on site. The regional leaders and regulatory become part of the Taranaki ‘DNA’ and shutdown ran for approximately three agencies have the credibility and have demonstrably contributed to the weeks with crew running back to capability to understand the industry region’s economic and social fabric. back 12 hour shifts. The work entailed and its systems, and interface with comprehensive vessel, exchanger and Risks and responsibilities for international staff. Collaboration column inspections, along with some emerging regions across central and local government additional project tasks to overlay and is also important. The arrival of the oil and gas industry, weld repairs on the various pieces of albeit over what is often a prolonged The industry is not homogenous equipment on site. time frame – the process from • While exploration and production exploration to production can take many companies may share commonalities, years – also brings with it a number of they are also a diversified unit in other requirements and risks that need • Invest in direct engagement and terms of their values, community to considered at a regional level. first-hand regional community approach, methods of work and involvement • There is the potential for industry investment in new technologies, intensification around communities capabilities and international • The use of consultants can be useful and sensitive areas, with noise, safety, management expertise but can have limitations – there is no roading, infrastructure and lifestyle substitute for living in, getting to know There is a stereotypical view of the implications and directly involving the community 83 industry that it solely comprises major in which you will be operating • Due to the project nature, workload international companies. The reality peaks and troughs may result in however is that the sector is made up Good community engagement is crucial. workforce and economic implications of a wide range of business sizes and New entrants are encouraged to visit ownership models: some are New Taranaki and explore the strategies • Although the industry is highly Zealand owned and may be listed on and engagement models adopted by health and safety conscious and the stock exchange, many are small successful companies in that region, the likelihood of something going and face the challenges of any small which can include establishing a wrong is extremely small, there business. While direct staffing levels local office, regular community and is the possibility of a high-risk may be minimal, E&P companies usually stakeholder engagement, investing in event which, if it does occur, could make extensive use of contractors. a sustained communication strategy have catastrophic consequences and new technologies and initiatives from environmental and human Caution should be exercised when which foster local benefits and minimise perspectives applying generalisations about global oil environmental disruptions. and gas activities and practices to New • Challenges and interface with other Zealand. What occurs in other parts Regional hub and spoke industry industries and resources (real or of the world may be specific to that relationships and new capabilities perceived), such as the dairy industry country, geology, culture, circumstance There is a growing range of oil and gas • The need to keep pace with the or regulatory regime – and may differ to business opportunities throughout changing nature of the industry, and the approach adopted by New Zealand New Zealand, spanning data collection, regional implications or companies operating here. To a lesser onshore surveying and seismic work, extent this also applies between regions, • Building a comprehensive drilling, community consultation and where a number of factors may differ. understanding of the industry, how consenting and more. As a result new it operates and its global interface To exploration and production businesses are being established in is necessary to understand its companies frontier regions, and a series of ‘hub and differences from other industries spoke’ relationships are being forged • Resist the urge to establish a while also avoiding the ‘halo’ effect of between these regions and Taranaki to corporate office in Wellington – creating a different focus/treatment further leverage the experiences there. setting up in-territory may provide when it should be considered on the Specialist staff are being engaged and greater traction same basis as other industries. new capability developed. THE WEALTH BENEATH OUR FEET

So it is with Ron Berry, who has over 35 years of experience in the corrosion management industries in New Zealand, Australia and the South Pacific. He first worked for Shell Todd Oil Services on corrosion protection and control work for the offshore Maui field and, later, for a private corrosion control company. He also gained training and accreditation in Houston, Texas, which is widely regarded as the centre of US energy expertise, and is a certified protective coatings and linings inspector. But then the lure of being his own boss became strong and he set up NZ Inspection Rentals and NZ Corrosion Services about six years ago. “I started out working for STOS and then started out on my own as a one man band – now I have three full-time certified inspectors, including myself, and three part-time people BUILDING A BUSINESS ON working for me while my wife Sue acts as HSE&Q manager. EXPERTISE: RON BERRY Their specialist knowledge, corrosion and inspection services play a critical part in the highly safety conscious oil s often is the case in Taranaki, one person’s experience and gas industry. The presence of corrosion can mean serious Aand innovation leads them to set up their own firm offering underlying issues for industry infrastructure and significance niche services to the national and multinational corporations risk if undetected or unremedied including failure to obtain operating the region’s oil and gas fields and petrochemical the necessary certification to continue to operate. Needless to plants. say, their company services are in demand.

THE BIGGEST BENEFITS OF THE OIL AND 84 GAS INDUSTRY TO A COMMUNITY MAY PROVE THE LEAST QUANTIFIABLE, SUCH AS THE ATTRACTION OF NEW FAMILIES, IMPROVEMENTS IN HOUSING STOCK, INTRODUCTION OF GLOBAL SYSTEMS, NEW IDEAS, LEADERSHIP INVOLVEMENT AND UNDERPINNING DEMAND IN PUBLIC SERVICES.

Taranaki Regional Council undertaking an inspection of an oil and gas well site.

ENSURING THAT REGIONAL LEADERS AND REGULATORY AGENCIES HAVE THE CREDIBILITY AND CAPABILITY TO UNDERSTAND THE OIL AND GAS INDUSTRY AND ITS SYSTEMS, IS IMPORTANT IN RELATION TO MANAGING RISKS AND RESPONSIBILITIES. CENTRAL AND LOCAL GOVERNMENT COLLABORATION IS ALSO IMPORTANT. AROUND NEW ZEALAND

DRONES The use of drones for activities such as investigating or monitoring oil and gas sites or high hazard areas, is enhancing efficiency and safety for industry personnel.

ABOVE: Drone/UAV being utilised by New Zealand company, Landpro to assist with their New Zealand resource management and surveying activities. LEFT: Moving into the South Island – the team at Landpro.

BUILDING THE FOUNDATIONS FOR EMERGING BASINS s the search for oil and gas moves beyond its traditional “It’s also been valuable to build our relationships, respect ATaranaki base, a raft of new skills and services are being and trust with local authorities. We’ve invested heavily in called on to pave the way for future developments. building connections and capability – it’s now really started 85 One example of this is Landpro – previously BTW South to pay off.” – a South Island-based provider of a range of resource A particular skill developed for the oil and gas sector that management, surveying, hydrological and consultation Landpro is transferring to its new industries is the robust services for the primary and industrial sectors. Established health, safety and quality culture, with Kate noting that “our in 2007 and with offices in Central Otago and Southland, culture of safety has served us well and has definitely raised Landpro draws heavily on its experience in the oil and gas the bar down here.” industry in both Taranaki and Australia. With challenges finding the qualified staff they need so far “While there’s less going on with O&G down south at the from a major centre, Landpro looked to technology to bridge moment, there is certainly anticipation in the air and lots of the gap. In early 2014 they invested in the most technologically discussion about what the Great South Basin could mean,” advanced UAV/Drone in New Zealand. says Landpro Director Kathryn Hooper. “Its been a game changer” according to Kate. “The cost “We’ve put our full suite of oil and gas skills to the test for and turnaround benefits of the UAV have been excellent for Greymouth Petroleum on Stewart Island, and are transferring both us and our clients, however we’ve been really impressed this to the mining and dairying sectors in the South. This at how much safer the drone makes our work – especially on background has really benefitted our clients and their projects.” high hazard sites like mines”. Managing Director Kate Scott, who moved from Taranaki to Central Otago in 2006, has seen the value in getting there early. “We’d love to see the oil and gas industry grow in the “The potential of the Great South Basin is a hot conversation South Island, and there is no doubt in our mind that topic, and it made sense to transfer some of the Taranaki skills companies down here will rise to the challenges that down here and be on the front foot’. servicing that sector will bring.”

AS A RESULT OF INCREASING O&G INDUSTRY OPPORTUNITIES, RELATIONSHIPS HAVE BEEN FORGED WITH THE FRONTIER REGIONS, NEW BUSINESSES ESTABLISHED, SPECIALIST STAFF ENGAGED AND NEW CAPABILITY EVOLVED. THE WEALTH BENEATH OUR FEET

THE FUTURE OF OIL AND GAS Opportunities to grow, diversify and leverage the industry.

espite the current depressed Ninety-six percent of the nation’s time. This indicates a series of ‘gaps’ in 2 global prices, there remain a 4.3 million km Exclusive Economic Zone Taranaki’s discovery profile, suggesting number of factors that would (EEZ) is underwater, and incorporates undiscovered potential from new suggest a positive outlook for several sedimentary basins which horizons, new play types and step-out Dthe oil and gas industry in New Zealand: contain terrestrial sediments suggesting accumulations. that much of the EEZ is submerged • Continued investment in existing fields continent. Moreover, all onshore and Any discoveries will generate significant • Upward revision of gas reserves: near-shore sedimentary basins have economic benefit to the country, 31 percent greater than previously been explored and have been shown to including: thought and forward supply of exhibit the components necessary to • Investment and employment in 14.5 years establish a petroleum system, though construction to date have combined to deliver • Continued interest and exploration in • Employment and GDP in production commercial discoveries only in the 86 our frontier basins Taranaki Basin. As deep sea exploration • Exports, either direct through oil • A rising trend in drilling activity continues and production technology is exports, or as feedstock into further • Entry by multi-nationals extended, increasing portions of the EEZ value added production are becoming accessible to oil and gas • Energy supply • Expansions of production facilities companies. The infrastructure and capability • A supportive policy environment that Even in the most intensely explored that continues to build from project encourages exploration parts of the Taranaki Basin there to project can be applied in other remains anticipation of further Technological developments are industries, leveraged to other regions discoveries. Numerous untested bringing frontier production towards and also exported as services to the prospects and leads, step-outs from acceptable risk-return ratios. These global O&G industry. include deep-water exploration and existing discoveries, and other new drilling, enhanced oil and gas recovery, plays still exist. Further, the number of FUTURE SCENARIOS new development configurations wells – and well density – in analogous including floating LNG plants, and producing basins in Australia and – WHAT IF WE FOUND unconventional oil and gas reserves elsewhere are materially higher than SOMETHING BIG? even onshore Taranaki. such as coal seam gas and shale oil. Although there is no ability to predict Exploration is continuing in Taranaki Statistical analysis of extensively future events, it is prudent for New and in most on-shore and near-shore explored (mature) petroleum basins Zealand to plan for and encourage sedimentary basins throughout New shows a pattern in the size and type growth given the opportunities for our Zealand, suggesting it could be a matter of discovery through time. Termed the country are potentially significant. ‘Creaming Curve’ this observes that of time before a commercial discovery Recently published reports1 include large discoveries often occur early on is made outside of Taranaki. Despite ‘what if’ scenarios of major oil or gas in exploration history (the low hanging this, New Zealand remains very sparsely finds in New Zealand and their potential fruit), while subsequent discoveries explored and offers considerable economic and employment implications, exhibit a consistent pattern of smaller prospectively. and are summarised below. and similar size and type through

1 East Coast Oil and Gas Development Study (2013), Ministry of Innovation and Employment. Economic Contribution and Potential of New Zealand’s Oil and Gas Industry (2012) Ministry of Business Innovation and Employment, Economic Development Group, Occasional Paper 12/07. Woodward Partners (2014), Commercialisation Issues, Opportunities and Challenges in the Event of Substantive Gas-rich Exploration Success in New Zealand. SCENARIO 1: MAJOR SOUTH ISLAND OFFSHORE These scenarios assume that exploration takes three years, DISCOVERY with the discovery occurring in year 3, appraisal takes two years, at the end of which the Final Investment Decision is The South Island scenarios included three discovery made, and oil and gas is processed via Floating Production, possibilities: Storage and Offloading (FPSO’s) or Floating Liquid Natural Gas A. A ‘near’ offshore oil field of 120 million barrels 2.5 times the (FLNG’s) vessels which are purchased not leased, rather than size of the offshore Taranaki Tui field) being processed onshore. It is also assumed that production lasts 15 years for the oil fields and 35 years for the gas field, B. A ‘far’ offshore oil field of 125 million barrels (ie similar size with no major reworks, followed by a decommissioning phase to the above scenario but discovered further from shore) of 2 years. C. A large ‘far’ offshore gas field – 12 trillion cubic feet – which The following is a summary of their possible economic is over 3 times the size of Maui, so very large. impacts.

SCENARIO 1A: NEAR OFF DIRECT REGIONAL EMPLOYMENT AND GDP IMPACTS OF A HYPOTHETICAL SHORE OIL FIELD DEVELOPMENT

In this scenario the total estimated Discovery Development Production Decommissioning Appraisal

expenditure was $3.2 billion, of which FTEs GDP, $m New Zealand companies capturing an 300 NEAR OFFSHORE – OIL 90 80 estimated $1.6 billion. Different phases 250 of the project would require different 70 skillsets, some being quite technical 200 60 50 or specialist which may be outside the 150 realm of local providers. 40 100 30

The economic gains highlight potential 20 employment and GDP outcomes at 50 10 87 different phases of the project with the 0 0

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 highest period of activity occurring in 2013 the development phase – some 270 Discovery DevelopmentRegional GDP (Nominal) ProductionRegional Employment Decommissioning FTE’s per year for two years. Appraisal FTEs GDP, $m SCENARIO 1B: FAR SHORE 450 FAR OFFSHORE – OIL 140 400 OIL FIND 120 350 100 Similar to the previous example, this 300 scenario would see oil discovered 250 80 further offshore, resulting in higher total 200 60 150 expenditure at $6.5 Billion, and greater 40 regional benefit of $2.8 billion, with the 100 20 balance anticipated to go to specialist 50 off shore suppliers. 0 0 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2013 SCENARIO 1C: MAJOR OFF Regional GDP (Nominal) Regional Employment SHORE GAS Discovery Appraisal Production Decommissioning & Development FTEs GDP, $m This optimistic scenario represents 1,200 FAR OFFSHORE – GAS 400 a very large gas find, resulting in 350 expenditure of $19.3 billion. This is 1,000 300 anticipated to result in an export scale 800 250 natural gas discovery whereby a floating LNG vessel is considered realistic. Under 600 200 150 this model, gas is exported directly from 400 the vessel and does not come to shore. 100 200 $8.1 Billion could be spent over the 50 project time line within New Zealand. 0 0

2019 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039 2041 2043 2045 2047 2049 2051 2053 2055 2057 2059 2061 2017

Regional GDP (Nominal) Regional Employment

Source: BERL THE WEALTH BENEATH OUR FEET

Why produce and export from an processing. While the North Island SCENARIO 3: COMMERCIAL offshore vessel? Why not bring the has an established gas market DISCOVERY ON THE EAST resource to shore? infrastructure, the South Island COAST represents a ‘blank sheet of paper’ In all the above scenarios while the A plausible possibility could see known where the introduction of gas and economic impacts appear significant, East Coast oil seeps and company energy supplies to residential and all of the production is exported directly interest result in exploration activity commercial customers could offer new from off shore vessels (FPSO and FLNG) with no subsequent development and potentially more environmentally as opposed to being brought onshore. through to commercially viable friendly energy options. It could also This reflects the likely preferred production ranging from small to very result in green-field manufacturing commercial development option of the large scale production. Depending developments such as the project owners. on the outcomes and scale of those establishment of a petrochemical plant, outcomes, such results could entail: Although the highest period of activity and as such a find could become an would occur in the development phase, economic game changer for the South • Employment of 177 to 1,805 direct it is in the production phase where Island and the nation as a whole. jobs over the long term domestic companies could make the SCENARIO 2: MAJOR • New or expanded infrastructure most gains. These activities may include TARANAKI OFFSHORE including wells, pipelines, production support services and provisions to the DISCOVERY stations, and roading subsea completions/FPSO, repairs and maintenance and operational support A major off-shore gas discovery in • Export developments, including port and staffing. Engaged local businesses Taranaki would provide economic terminals and system upgrades, are anticipated to be predominantly benefits for the Taranaki region and storage tanks, loading facilities, existing and experienced members the country, though given the existing dredging of Taranaki’s supply chain, but as infrastructure and North Island gas • Energy developments on the East the domestic industry matures local markets, gains are anticipated to be Coast 88 companies could take a larger share, less profound. Local supply chains with benefits spread across regions as are anticipated to be used in the • Linkages to Marsden point refinery capability develops. Beyond the supply construction and development of the • Power plant construction (large scale chain, localised benefits from the fields. Depending on its configuration scenario) economic activity will be experienced and whether it is brought to shore – across hospitality, accommodation, there may be extensions to existing • The arrival and utilisation of global retail and other sectors. operations, such as new petrochemical energy and engineering expertise and plants or other developments. Rather specialist equipment An alternative scenario could be a than commencing from a blank sheet as gas field discovery coupled with a • Leveraging Taranaki expertise and in the South Island, the new gas supply compelling investment case to bring building local business capability, could inject additional resource into the the resource to shore, leading to skills and employment. established market, with subsequent gas development and downstream implications for the North Island energy markets.

WHAT IS DEEP-SEA DRILLING?

Deep-sea (also referred to as of 1.5 km or more. As skills and gradients and heightened costs. deep-water) drilling is offshore technology have evolved enabling Globally, the International drilling for oil and gas that occurs drilling to occur at greater Association of Oil and Gas at significant depth. There is depths, then definitions have also Producers reports more than no standard definition for what changed. 14,000 deep-sea wells have been delineates ‘deep water’ from drilled over the past 20 years. To Compared to conventional traditional offshore drilling, date, over 200 offshore wells have offshore drilling, deep-water however it can entail depths of been drilled in New Zealand, 10 drilling presents additional 300-1000 metres with ultra-deep of which have been in deep water, considerations such as greater drilling occurring at water depths without any significant incidents. water pressure, temperature THE FUTURE OF OIL AND GAS WHAT IF WE FOUND SOMETHING BIG?

BAY OF ISLANDS

AUCKLAND

TARANAKI – OFF SHORE MAJOR EAST COAST ONSHORE OIL GAS FIND DEVELOPMENT: Jobs: Unquantified. Leverage existing NORTH Jobs: 177 – 1,805 (pending size, scale) skills, infrastructure and markets ISLAND Implications: Infrastructure, port Implications: Construction, expansions, new industry, capability production from pipeline, potentially development, skills, direct & indirect brought to shore, feeds into existing/ jobs, international investment and expanded/additional facilities. expertise. Oil exports, east coast gas developments. WELLINGTON

SOUTH ISLAND CHRISTCHURCH

DUNEDIN 89

STEWART ISLAND

SOUTH ISLAND – MAJOR OFF SHORE GAS SOUTH ISLAND – MAJOR OFF SHORE OIL AND GAS DISCOVERY: BROUGHT TO SHORE DISCOVERIES: Jobs: Unquantified Jobs: 116-256 (average annual) Implications: Pipeline construction, onshore processing, Implications: Offshore production, export from FLNG or petrochemical plant or similar for added value production, FPSO to market, capability development, skills direct & potential new gas development for energy supply in indirect jobs, international expertise and investment. South Island. New Industry, new energy dimension, jobs, capabilities, infrastructure.

HOW DEVELOPMENT MIGHT PLAY OUT IN PRACTICE2

Further exploration and Development Exploration Initial discoveries discovery (various scenarios possible)

No commercial discovery/ No commercial discovery These could vary from small quickly abandoned – i.e. exploration but no scale production to large exploration development scale high production

Development takes place If successful, exploration under appropriate planning and discovery will continue and consenting

2 Based on diagram in East Coast Oil and Gas Development Study (2013), Ministry of Innovation and Employment. THE WEALTH BENEATH OUR FEET

UNCONVENTIONAL OIL AND REALITY CHECK: exploration have been disappointing. GAS POSSIBILITIES Just as a track record of success CONFRONTING THE can foster increased investment, the New Zealand has potentially significant DOWNSIDE opposite is also true, with potential levels of in-ground coal resource, much Oil and gas remains a risk business. negative impacts on investor confidence of which could be conducive to coal Just as the economic benefits should and decisions. seam gas (CSG) production. Some be recognised, so must its fragility. preliminary work has been undertaken The age of our O&G facilities also but progress remains limited, suggesting Whereas a number of government and need to be acknowledged, with some there is some future potential, with independent scenarios have focused on potentially reaching a natural point of regions such as Taranaki, Huntly, West the upside of a major discovery in New commercial retirement in the coming Coast and Ohai remaining areas of Zealand, there is also a need to confront decades. interest. downside scenarios. Decommissioning is bittersweet – East Coast oil shale targets, as What if, despite best efforts, companies while it reflects an end of economic previously discussed, are already under found nothing significant new? Short- life, it could also create substantial investigation by exploration companies. medium term, New Zealand would not opportunities for local businesses as it run out of oil and gas, as over a decade’s entails many skills sets and can extend Gas hydrates – a mixture of methane worth of gas supply still remains. over several years. However, the timing and water frozen into an ice which lie However, running fields down coupled of decommissioning can be uncertain as under the sea bed – have also been with the unwillingness for continued decisions can be impacted by a range of identified offshore and are the subject investment even in existing fields, offers factors, including: of investigations by GNS and others. If an uncertain future, an altered industry this resource could be commercialised • Technical innovations that enhance structure and serious repercussions for it may provide energy for our country for oil and gas recovery and extend the employment, the retention of specialist several decades, though extraction and life of fields expertise and our national economic commercialisation of such a resource 90 and energy strategy. • Fiscal and regulatory regimes remains in its infancy not only nationally, influencing the investment but globally. While natural gas hydrates Scenarios must also look beyond environment are currently prohibitively expensive prospectivity – as development of the to develop, this could present future resource is more than simply a function • Long-term trends in oil and gas prices generations with a significant resource, of what is in the ground but also impacting economic viability as and when the technology to extract broader influential factors. Global oil • Asset reuse options which extend the advances. This has the potential to be price declines are impacting on current life of infrastructure or reduce the an energy game-changer. investment decisions, and could see cost of decommissioning delays or shelving of key projects, with • Social, political and other factors implications for the future. Short term repercussions will include THE GROUND IS SHIFTING cost reductions impacting supply chain – A FUTURE OF CHANGE utilisation and workforce. These have Irrespective of whether there is a ‘big long term consequences including the find’, what is known for certain is that loss of skills from the industry (which the future of the oil and gas industry may not be readily available when will not be ‘more of the same’. confidence and investment rebounds) Technology is changing. There is and consequences for future availability an increasing shift to new horizons of energy supply, given the length of CONVENTIONAL such as deep-water exploration and time to bring investments to fruition. OIL & GAS unconventionals and this requires Governments and their policies can different skills sets and has broader UNCONVENTIONAL change, including their stance towards implications for systems, regulations OIL & GAS petroleum exploration, as can New and risk/reward profiles. Furthermore, e.g. tight gas, coal bed Zealand’s attractiveness relative to this has led to greater availability of methane, shale gas, gas other global opportunities. While there gas, aided by hydraulic fracturing and hydrates, shale oil have been increased promotional facilities such as FLNGs, which has efforts to explore and develop our oil changed the global energy, economic and gas resource, outcomes of recent and political equation. THE FUTURE OF OIL AND GAS

Start of Production

WORKFORCE DEMAND PRODUCTION

End of Recovery Production

Exploration Post-Closure Acquisition Development Production Decommissioning & appraisal monitoring

THE STAKES ARE GETTING context of broader economic, social, THE FUTURE CONTEXT HIGHER – RISK V REWARD cultural and environmental spheres. • More challenging for exploration As prospects move further offshore, Social media and communications – technically and economically remoteness, water and target depth, will continue to highlight industry and the possibility that the easy reservoir characteristics, environmental developments, public opinions and discoveries have been made 91 and cost implications will impact on the reactions. • A range of social and return on investment, and development Political policy, economic and social environmental factors impacting activity. changes must also be considered, on the industry The nature of jobs within the industry across district, regional, national and is also changing. Technological global levels. – Increasing environmental consciousness developments, changing patterns of DOES THE OIL AND GAS – Aspirations towards more use of work and new ways of undertaking INDUSTRY MATTER? old tasks are all anticipated to have a renewable sources of energy growing impact on the shape of the Climate change, renewables and is it – High expectations surrounding industry and its workforce. worth the focus? health and safety The sector is diversifying, in terms Continuing public interest in oil and gas – Shifting policy or regulatory of both the historic geographic activities, changing social values with frameworks and support a shift away from fossil fuels towards concentration on Taranaki and new • Technological advancements more renewable energy aspirations exploration firms entering the market. shifting investment decisions coupled with a focus on climate change This has implications for capability through: building as well as regional economic, will continue to challenge oil and gas – Ways to extract difficult finds social, and environmental factors. investment, activity and policy. e.g. deep water exploration, The intensification of oil and gas However, the move away from fossil Maximisation of existing assets fuels will take some time and oil and gas activity in some areas of Taranaki has – Enhancing safety in the looks set to remain a central component implications for communities and workplace residential lifestyles if the increased of the broader energy mix for the – Innovative environmental activity occurs in close proximity to immediate future. advances housing, schools and public zones. Furthermore, fossil fuels may form an • More challenging and uncertain important component of the global Demands of the industry may have economic future with greater strategy leading to reductions in the implications for other resources e.g. consideration on cost- carbon footprint if it is utilised to water, and/or other industries e.g. dairy, efficiencies, risk management and replace existing fuels such as coal. food production. The oil and gas industry development partnerships. does not operate in a silo, but within the THE WEALTH BENEATH OUR FEET

WHERE TO FROM HERE? What needs to happen to get the greatest benefit from our natural resources?

n its release in 2010, the exploration activity moving beyond Our analysis has reinforced the first edition of The Wealth Taranaki into other parts of the country. economic importance of the industry, Beneath our Feet sought to but is also cognisant of the wider During this time the supply chain has assess – for the first time challenges and the need to remain also evolved, and its members are O– the economic value of the oil and progressive, adaptable and nimble in increasingly servicing not only 92 gas industry and its supply chain for changeable times. New Zealand’s oil and gas industry the Taranaki region and the nation as but playing increasingly important and To maximise the value of our petroleum a whole. diverse roles on the world stage: the estate, Venture Taranaki closes its Historically, the value of the returns oil and gas industry is an innovative, analysis with some suggested next steps from royalties was seen as the key technically advanced, value-add for the industry and its stakeholders, benefit of having a strong oil and gas industry. in order to maximise the value of the industry in New Zealand. The first wealth beneath our feet. It must be acknowledged that this edition gave a more comprehensive – and any – economic assessment analysis that quantified employment represents a snapshot in time. This is a THE NEXT STEPS and presented wider benefits not only dynamic industry which is experiencing as a direct result of those employed in A BLUEPRINT FOR INDUSTRY continuous and recently, significant the exploration and production phases, GROWTH pricing shifts. Employment levels move but right across the supply chain. significantly with project demands, Over the last five years New Zealand This 2015 edition builds on our and investment decisions reflect has been successful in attracting inward understanding of the economic factors around prospectivity as well as investment in oil and gas exploration importance of oil and gas, and wider factors such as globally defined and production. A blueprint for industry highlights the industry’s contribution to commodity prices. growth will help ensure the returns the national economy: over 11,700 jobs on this investment are maximised for The industry is operating in a world and $2.78 billion in GDP, as well as a the nation. that has changed markedly since 2010: critical component of our energy supply. social values are shifting away from Such a blueprint will seek to maximise Since 2010 the number of jobs within fossil fuels towards renewable energy, the economic production of our the industry has increased considerably. and there is increasing public awareness resources, sustain and promote the While, to some extent, this reflects a of the environmental and safety risks supply chain, and build a stronger and greater understanding of the industry’s associated with the industry which is more collaborative partnership between makeup, it also echoes that New being exacerbated by moves into deep government and the industry – both will Zealand’s oil and gas industry has water drilling, hydraulic fracturing and be joint owners of the process. evolved considerably since 2010, with other emerging technologies. The blueprint will look beyond the more players entering the market and current attraction successes to identify, analyse and plan for scenarios that could impact on future decades of oil capability development, skill attraction, necessary, the Block Offer process and gas investment and production in exporting, energy markets, supply chain enables the government to send a New Zealand. Examples exist around the growth and retention, environment strong signal about industry leadership. world – the UK recently developed their and technological advancement are In addition to the work programme, own Business and Government Strategy all factors where government has the Block Offer bid evaluation process for Oil and Gas. considerable involvement that could be considers an operator’s technical, better aligned to help gain maximum health and safety, environmental and New Zealand’s natural gas reserves- value from the nation’s mineral financial capability and may seek to-production ratio is currently resources and their development. verification from overseas regulators. sitting at 14.5 years, with natural STRONGER TIES WITH There is an opportunity to expand gas availability upwards of 210 PJ/ criteria to also consider the potential year. Demand is largely static – REGIONS AND REGIONAL operator’s company values, approach around 90 PJ is used for chemicals DEVELOPMENT to community engagement, utilisation manufacture annually and 40 PJ This report recognises that the of local content, technologies utilised to for electricity generation – with the aspirations and concerns of regional minimise environmental impacts, and latter projected to decline as gas- New Zealand can differ from the contribution to regional development. fired generation capacity is reduced priorities of central leadership, and there is new investment into but there exists an opportunity for There have been many examples renewable sources. stronger alignment between national, of successful industry-community Thus, a 200 PJ/y gas market is regional and local government, and a engagement experiences between insufficient to support ongoing commitment towards how the industry the industry and communities in exploration or development can contribute to nation-building. Taranaki. Such learning experiences without either a major discovery Developing stronger relationships could form valuable guidelines or additional downstream and a collective vision could enable for new and existing oil and gas investments – raising questions opportunities, sensitivities and concerns operators, particularly where they around the implications of a big find to be aired and strategies evolved. are moving into territories with no 93 or what might incentivise further This is important where community prior experience of oil and gas or development of the gas market to expectations may not be adequately mining in general. help underpin existing exploration met using resource management tools. and development activity. BUILDING PUBLIC New Zealand regions with oil and CONFIDENCE Future demand-supply scenarios gas resources have the potential to including identification of As the economic case for harnessing make an important contribution to downstream near-term our mineral wealth has become more the nation’s economic development. development and investment compelling, so has public interest and Establishing an oil and gas industry options should form part of a scrutiny of the oil and gas industry, in a region can place significant strategic plan for the industry. its risks and its benefits. Education, demands on capability, systems and awareness and promotion about the infrastructure. It is important that WHOLE OF GOVERNMENT value of the industry, how it operates, the necessary regional investment APPROACH how it contributes to economic and to realise such potential is not social outcomes, and its stringent Realising the full potential of oil and the sole responsibility of regional health, safety and environmental regime gas requires a whole of government New Zealand, just as it is for any has helped to build public confidence. approach that goes beyond resulting benefits, to be used for departmental priorities and builds a nation building. Relationships and trust also matter, and comprehensive shared understanding of there is still opportunity to build this the oil and gas industry and its barriers CREATING A WINNING aspect of the communications matrix, to growth. INDUSTRY particularly as new communities are engaged and as deep-water exploration While significant progress has been That New Zealand’s oil and gas industry becomes prevalent. made, for example the strengthening operates in a global context must be relationship between New Zealand considered in the development of a Beyond communications strategy, Petroleum and Minerals, wider Ministry smart and robust approach to the assurance is needed that response of Business, Innovation and Employment industry’s development. strategies and capabilities are sufficient and regulatory agencies, this needs to to offset New Zealand’s distance to While offering an attractive global be extended across other areas critical global resources should things go wrong. exploration investment prospect is to the industry’s growth. Infrastructure, THE WEALTH BENEATH OUR FEET

As exploration moves into deeper innovations they attract and/or develop of renewables. There is opportunity water, the stakes become higher. within our country are not widely known to transfer expertise and capabilities So too does the need for proper or appreciated. Given our nation’s developed in oil and gas to help fast- investment into fit-for-purpose aspiration to an innovative culture, track such developments. response capability, not only for these successes should be identified, The oil and gas Industry should environmental response, but also for celebrated and more actively fostered. not be viewed as simply a passive public confidence. A comprehensive, Technology gains made by New Zealand component of our energy mix, nor a specialist oil spill readiness and rapid supply chain companies should be bridge to renewables, but as an active response facility – underpinned by showcased and celebrated, helping to enabler and participant in our energy human capital, systems, equipment position New Zealand as an attractive, programme. It could play an integral and infrastructure – could also capable and solutions-focused part in helping the nation reach its include research and development investment destination. future energy aspirations. Progress and training across a multi-agency has already begun, and this should be platform, contributing to greater Beyond oil and gas applications there promoted, encouraged and celebrated. understanding of our ocean are also opportunities to transfer skills and innovations to add value resource. Oil and gas technologies have and competitiveness to other industry played a role in advancing our THE IMPORTANCE OF THE sectors. This could contribute to energy industry, and there is scope broader economic gains and underpin SUPPLY CHAIN for them to help develop our diversification strategies within our A comprehensive definition of the burgeoning geothermal, wind, wave, supply chain companies as a buffer industry must be inclusive of its hydro, bio-fuel and other renewable against the peaks and troughs which supply chain. Whilst exploration and energy sectors as well. typify commodity markets. Industry production companies frequently health and safety systems are often attract attention, the vital role and BENEFITS TO PRESENT AND leading-edge, and knowledge and important contribution to employment FUTURE GENERATIONS processes could add significant value to that the supply chain makes should be other sectors, lifting our competitiveness New Zealand’s oil and gas resource is recognised. and safety record across the board, and precious and has been built up over 94 While a local content policy is far from ultimately saving lives. millions of years. The proceeds from the panacea regions seek, a greater their returns are currently injected into understanding of the supply chain and New Zealand may be a small the Crown accounts and redistributed the opportunities to leverage local technology player in relation to the through a range of government service capability and capacity is still required. global oil and gas arena, but it can funding. be nimble and progressive in its The economic benefits of regional Better alignment of the costs and own leading-edge way and leverage development and local jobs cannot be benefits of the industry’s contribution, these advancements. overlooked, albeit tempered with the and targeted reinvestment into realities of managing expectations at infrastructure, innovation and regional FAST TRACKING FUTURE both regional and industry levels. value creation, will help to ensure that ENERGY LEVERAGING INNOVATION the wealth beneath our feet can deliver New Zealanders aspire to a progressive its potential value to all New Zealanders The oil and gas industry is incredibly energy future which is environmentally – present and future. smart and technically advanced, yet the conscious and offers greater levels

THE NEW ZEALAND REGIONS WITH OIL AND GAS RESOURCES WILL MAKE AN IMPORTANCE CONTRIBUTION TO THE NATION’S ECONOMIC TRANSFORMATION. IT IS IMPORTANT FOR THE NATION TO INVEST IN THESE REGIONS. APPENDICES

APPENDIX 1: DEFINITIONS AND ACRONYMS

ACRONYM DESCRIPTION ACRONYM DESCRIPTION

Bbl Barrel IEA International Energy Agency Bcf Billion Cubic Feet IO Input-Output E&P Exploration and Production MBIE Ministry of Business, Innovation & EEZ Exclusive Economic Zone Employment EIA Economic Impact Analysis Mmbbls Million barrels EPA Environmental Protection Authority NZP&M New Zealand Petroleum and Minerals EPC Engineering Procurement Contractor O&G Oil and Gas EPCM Engineering Procurement and Construction PEP Petroleum Exploration Permits Management ERL Energy Resources Levy PEPANZ Petroleum Exploration & Production Association New Zealand FTEs Full Time Equivalents. An FTE is one employee working full-time. PJ Petajoule (one quadrillion joules) GDP Gross Domestic Product. GDP is income PML Petroleum Mining Licences earned from production. PMP Petroleum Mining Permits GJ Gigajoule (one billion joules) PPP Petroleum Prospecting Permits HSNO Hazardous Substances and New Organisms 95

APPENDIX 2: ECONOMIC IMPACT ANALYSIS METHODOLOGY

METHODOLOGY example although the economic impact assessment is being presented as 2013, it comprises information for the years MartinJenkins was commissioned to update the economic ending 2013 (expenditure and GDP) and September 2014 impact analysis and provide further information on the (employment). industry, and this has been supplemented with an extensive collection of case studies and industry insight. The economic impact assessment follows the accepted practice of identifying the direct activity associated with the The analysis identifies economic activity generated by the oil industry and then applying regional and national multipliers and gas industry and uses regional input-output (IO) models to determine the indirect and induced effects of that initial and multiplier analysis to calculate both GDP and indirect and activity in terms of output, employment and GDP. induced impacts from that initial activity. Direct activity can be in terms of output and employment. In This update builds on the methodology developed in the the previous 2010 report, employment in the E&P and first first edition, particularly drawing on improved availability of round businesses was identified to determine employment, industry expenditure – now publicly available through the expenditure and GDP. In the current analysis, two sources of Ministry of Business, Innovation & Employment (MBIE) – and information have been used to calculate upstream activity – understanding of the businesses that make up the industry – expenditure and employment. where the previous analysis identified 139 companies directly associated, the current analysis has found 246 companies. Expenditure and/or employment is then assigned to the As a result, this analysis offers a more accurate estimate of appropriate industry category and ratios and multipliers direct expenditure and employment, and allows GDP to be are applied. The totals for each industry are aggregated to calculated from direct expenditure rather than employment. provide the direct, indirect and induced economic impacts in terms of expenditure (output), value added (GDP) and The analysis uses the latest information available and as such employment (FTEs). the time scales vary in different parts of the document – for THE WEALTH BENEATH OUR FEET

Direct expenditure is used to calculate GDP. Direct and Gross Output is the value of production, which is built up first round employment has been calculated by identifying through the national accounts as a measure of gross sales the range of companies that provide services to the E&P or turnover. It is basically the initial expenditure incurred by companies and determining their employment directly related the activity. to O&G activity. Value Added is the increase in output generated along the There is a nine month difference between output and production process, which when aggregated totals GDP. Value GDP activity, and employment activity. Output and GDP Added is the sum of compensation of employees (salaries and are calculated for the 2013 year. Employment is based on wages), income from self-employment, depreciation, profits current activity and was collected between August and and indirect taxes less subsidies. September 2014. Employment is generally expressed as full time equivalents UNDERLYING LOGIC (FTEs) to allow for comparison. FTEs is the number of full-time employees and working proprietors and provide a measure The underlying logic of economic impact analysis is that of total labour demand associated with gross output for one enterprises that create flows of expenditure (direct impacts) year. For example, four full-time jobs running for three months that are magnified or “multiplied as they flow-on to the wider would be shown as one FTE. economy. This happens in two ways: LIMITATIONS OF MULTIPLIER ANALYSIS • indirect impacts – the enterprise purchases materials and services from supplier firms, which in turn make further Additionality purchases from their suppliers and so forth. It is assumed that the activity or event being analysed does • induced impacts – employees in the enterprises and in not displace existing activity. firms supplying services are paid a wage and the enterprises Impact generate profits, which is then spent on consumption. It is assumed that an activity will not have an impact in relative Total impact is then the sum of the direct, indirect and prices. The larger the activity, or the more concentrated it is induced impacts. 96 in a single industry or region, the more likely it is that relative MULTIPLIERS prices would change. Regional multipliers are used to capture the indirect and Aggregation induced impacts at a regional or national level. They are also Each industry has its own unique inputs and outputs and thus used to calculate GDP. Multipliers are derived from the IO multipliers. The more aggregated the level of analysis, the tables published by Statistics New Zealand and the Taranaki less accurate these inputs and outputs become. It is therefore region IO tables supplied by Butcher Partners limited. important to apportion the initial expenditure to the industry The size of the multiplier depends upon the degree of where it occurs. economic self-sufficiency. The more self-sufficient a region Regions and Boundaries or nation is, the higher the multiplier is likely to be. Initial expenditure is assigned to the industry where it occurs. The smaller or less defined a region and its boundaries, the Each industry has a different multiplier based on the average less accurate the multiplier analysis will be. Similarly, the pattern of purchases of goods and services, capital formation, easier it is to move across boundaries, the less accurate the profits, wages and salaries. analysis will be. MEASURES OF ECONOMIC ACTIVITY All prices in current (2014) New Zealand dollars. Economic impact assessments provide three measures of economic activity – Gross Output, Value Added and Employment. ACKNOWLEDGEMENTS Innovation, Business Mentors New Zealand, TSB Community Trust and numerous other private sector organisations. Venture Taranaki greatly acknowledges the following contributors to this report: Project Director: Dr Anne Probert, Venture Taranaki Email: [email protected] • Ministry of Business, Innovation and Employment. Script review: Antony Rhodes • New Zealand Petroleum and Minerals. Photographs: Rob Tucker, Taranaki Newspapers Ltd, • The large number of industry participants who willingly GNS Science, Glenn Jeffrey, TAFT, Pip Guthrie, Mark Dwyer, contributed to the development of this report through the Charlotte Curd/Fairfax NZ, Taranaki Regional Council, generous provision of both time and information. WorleyParsons, TAG Oil, Shell NZ, STOS, Todd Energy, OMV NZ, Origin Energy, Alpha Communications, EnergyWorks, • MartinJenkins, who undertook the economic analysis. Julian Thomson and Venture Taranaki. MartinJenkins is a New Zealand consultancy providing Design: C7 Design strategic advice and operational support in the following areas: Strategy, Transformation & Performance; Policy & DISCLAIMER: Economics; Evaluation & Research. The oil and gas industry All work is done and services rendered at the request of, and for the economic assessment was prepared for Venture Taranaki purposes of the client only. Neither Venture Taranaki, its employees or stakeholders nor any of the contributing organisations or individuals Trust by Jason Leung-Wai and Simon Lawrence from accepts any responsibility on any grounds whatsoever, including MartinJenkins (Martin, Jenkins & Associates Limited). negligence, to any other person. While every effort has been made to ensure that the information, opinions and forecasts provided are accurate and reliable, Venture Taranaki or any contributing organisations Venture Taranaki Trust is the Regional Development Agency or individuals shall not be liable for any adverse consequences of for the Taranaki region. An initiative founded by the New decisions made in reliance of any report provided by these organisations. Nor shall Venture Taranaki be held to have given or implied any warranty Plymouth District Council, Venture Taranaki is also supported as to whether any report provided will assist in the performance of the by South Taranaki District Council, Stratford District Council, client’s business. Taranaki Electricity Trust, New Zealand Trade and Enterprise, Ministry of Business, Innovation and Employment, Callaghan This followup edition to The Wealth Beneath Our Feet (2010) takes a close look at the economic, employment, social and business impacts of having the oil and gas industry present in New Zealand. With an initial focus on the Taranaki region, the expanded report then looks at what’s happening throughout the country, and what this means for the national economy. It also drills down into the industry’s supply chain, providing a comprehensive analysis of where the jobs, value and opportunities lie.

Taranaki’s Regional Development Agency

9 Robe Street | PO Box 670 New Plymouth 4340 | New Zealand T: +64 6 759 5150 E: [email protected] www.taranaki.info www.energystream.co.nz

ISBN 978-0-473-31702-7 Published by Venture Taranaki, March 2015.