[] TL: AN AUDIT OF PETROLEUM EXPLORATION IN AUSTRALIA (GP) SO: GREENPEACE AUSTRALIA (GP) DT: May 1991 Keywords: oceans offshore oil exploration greenpeace reports australia australasia gp / [part 1 of 5] EXECUTIVE SUMMARY Petroleum exploration is a very expensive undertaking and is considered a high risk activity in economic terms. Offshore exploration is more difficult and more costly than onshore exploration. However, chances of a strike are better offshore than onshore, with 89% of discovered reserves found offshore. Private Sector Expenditure The majority of funding is by the private sector. Expenditure in 1989 was over $560 million. By end the of September 1990, $467.2 million had been spent. Of this latter figure, $111.2 mil. was spent on onshore exploration while $356 mil. was spent on offshore exploration. Total expenditure on exploration by the private sector in last 25 years has been $7.579 billion. Table 1 gives an indication of the breakup of major costs. Onshore Offshore Seismic survey up to $4 mil $300,000 for a comparable survey Drilling of $2 mil to $10 mil up to $20 mil one well Drilling rig N/A $300 mil (typical cost) Government Expenditure Latest available figure for Government expenditure is for 1988 when $17.922 mil. was expended. Total expenditure since 1966 to the end of 1988 was $143.592 mil. In addition to this expenditure, 'Subsidy Payments' to the total of $80.668 mil., were made between 1966 & 1976. Breakdown of Government expenditure for 1988 State mines depts. & equivalents - 1,998,800 Federal Dept. of Administrative Services (topographical surveys) - 1,135,700 BMR - 14,787,168 Total $17,921,668 The Commonwealth Government is involved in energy R & D through the following: - funding directly through Government departments; - funding directly Commonwealth agencies, e.g. CSIRO; - funding directly of private sector research projects; - indirectly and directly funding of research projects at tertiary institutions; and - indirectly to the private sector through the 150% tax deduction of R & D projects. Examples of direct funding include: 1. Bureau of Mineral Resources, Geology & Geophysics (BMR) has an Offshore Sedimentary Basins Program which obtains and integrates new geological and geophysical data relevant to offshore exploration. (See expenditure figure on page 1.) 2. 1990/91 -Energy Research and Development Corporation.($) Petroleum exploration 673,898 Alternative fuels and oils* 1,561,259 Energy conservation (of petroleum products) 101,288 * Most of the programs are involved with coal and gas based alternatives. Drilling Success Ratios and Future Prospects In the last 25 years, approx. 950 wells have been drilled. The success ratio of oil strikes to wells drilled between 1960 and 1985 was 1 in 29, if the Gippsland discoveries are excluded, the ratio is 1 in 164 (No gas discoveries included in these figures). Even with continual improvement of seismic surveying techniques, drilling a well is still the only known means of establishing whether or not oil is present in a structure. In 1990, of the 176 exploration wells drilled (112 onshore & 64 offshore), 81 were dry. Up to the late 1980's, an estimated 5.8 billion barrels of crude oil and condensate had been discovered. Table 2 sets out the probability of future discoveries as estimated by BMR. Table 2: Undiscovered petroleum resources - onshore and offshore as at 31 December, 1988 Crude oil & condensate mbbl Natural gas TCF Probability 5 per cent 6,000 42 50 per cent 3,000 23 95 per cent 1,000 11 mbbl - million barrels; TCF - trillion cubic feet Factors Affecting Exploration Activity The level of exploration activity depends on a number of factors, they include: - oil prices; - the after-tax return to oil producers; - assessments of the relative prospectivity of different basins within Australia and elsewhere); - access to acreage; - government policies pertaining to exploration, production and land use; - the availability and cost of exploration equipment; - technological developments, particularly in the areas of seismic surveying and oil extraction; and attractiveness of other investments. Taxation Recently, a Resource Rent Tax (RRT) regime was introduced and applies to all companies operating in all new offshore exploration permits and virtually all existing permits beyond the three-nautical-mile territorial sea. RRT is a net cash flow charge and it replaces the excise and royalty charges which were levied on petroleum production rather than profit. One of the features of this tax is that exploration expenditure, along with development and operating expenditure, is immediately deductible from the receipts of the project when net cash flow is calculated. Environmental Problems Associated With Petroleum Exploration The problems associated with petroleum exploration include: - disturbance of biota from onshore and offshore seismic surveying; - disturbance of ecosystems from drilling activity and associated infrastructure; - potential of blowouts and oil spills (plus fire & explosion); - gas flaring; - waste disposal; and intrusion on Aboriginal sacred land. BRIEFING PAPER Prepared for Greenpeace Australia by Deborah Wildash CONTENTS Introduction Petroleum Exploration Expenditure Frequency of Oil Strikes Future Potential for Petroleum Discoveries Petroleum and Gas - Production and Consumption Government Involvement in Research and Development Exploration Permits and Leases Taxation Environmental Concerns Conclusion Appendices Glossary Abbreviations References 1.0 INTRODUCTION This briefing paper contains information and data relating to the petroleum exploration industry in Australia. In addition to this briefing paper there is an 'Executive Summary' which summarizes the information given herein. 2.0 PETROLEUM EXPLORATION EXPENDITURE Petroleum exploration is a very expensive undertaking and is considered a high risk activity in economic terms. Generally, offshore exploration is more difficult and more costly than onshore exploration. However, chances of a strike are better offshore than onshore, with 89% of discovered reserves found offshore. The amount of expenditure and the degree of financial risk- taking on petroleum exploration reflects Australia's dependency on petroleum. In 1987/88 for example, almost 40% of total capital expenditure by the petroleum industry, was directed towards exploration. The majority of funding of petroleum exploration is from the private sector which spent over $560 million in 1989. A relatively small contribution is made by Government, although expenditure in 1988 was treble that in 1987. Table 1 (p.2) gives combined private and Government expenditure on petroleum exploration since 1966. Note however, that there are no figures available for Government expenditure after 1988. Table 2 p.3 gives a breakdown of Government expenditure on petroleum exploration between 1986 & 1988. Petroleum exploration involves high costs at all stages, from seismic surveying through to the drilling of veils. It can cost as much as $4 million for a comprehensive onshore seismic survey and $300,000 for a comparable offshore survey. The cost of drilling wells can vary tremendously depending on the type of well and whether it is onshore of offshore. Onshore wells can cost between $2 mil and $10 mil, while offshore wells can cost up to $20 million. In most cases, new field wildcats cost more to drill, particularly those in deep water areas. The cost of an offshore drilling rig or production platform is typically about $300 million. Table 3 (p.4) gives a breakdown of private expenditure for 1989 and the first half of 1990. Table 4 (p.5) gives a statistical summary of petroleum exploration activity for 1989 and 1990. The size of the operation obviously affects the final cost. For example, the relatively small Harriet field offshore Western Australia), cost $270 mil to explore and develop. Whereas, exploration and development of the North West Shelf gas field has cost in excess of $12 billion. Offshore Australia covers an area of over twelve million square kilo metres. The remoteness of oil rigs adds to cost with logistics being one of the most expensive and complicated aspects of the drilling programs. The greater the distance from the base, the more difficult and complex the operations become. Again take for example, the North West Shelf project; a rig was stationed 135 km off the coast and some 3200 km from headquarters in Perth. Each crew change involved 50 men a week and took about 10 hours flying time one way, and worked out at around $800 per person per trip. TABLE 1 : COMBINED PRIVATE AND GOVERNMENT EXPENDITURE ON PETROLEUM EXPLORATION IN AUSTRALIA IN THE 25 YEARS TO 1990 ($ mil) Year Private State & Federal TOTAL Enterprise Governments 1966 48.299 4.426 52.725 1967 49.157 5.074 54.231 1968 56.662 5.540 62.202 1969 65.188 5.070 70.258 1970 59.465 4.296 63.761 1971 70.988 5.155 76.143 1972 95.736 5.312 101.048 1973 85.675 5.684 91.359 1974 83.452 4.468 87.920 1975 54.880 4.941 59.791 1976 49.031 5.132 54.163 1977 82.012 4.703 86.715 1978 111.566 4.915 116.481 1979 222.616 4.870 227.486 1980 290.164 5.172 295.336 1981 458.676 5.588 464.264 1982 947.901 8.613 956.514 1983 723.461 8.026 731.487 1984 740.424 7.195 747.619 1985 773.624 9.829 783.453 1986 499.000 4.934 503 934 1987 389.300 6.727 396.027 1988 586.800 17.922 604.722 1989 568.000 N/A 568.000 1990 (1)467.200 N/A 467.200 TOTAL 7,579.247 143.592 7,722.839 Sources: BMR Petroleum Newsletter No 102; APEA 1989 Annual Report; ABS Cat No. 8412 Notes: 1. Amount expended up to the end of the September quarter 1990. 2. Between 1966 & 1976-a total of $80.668 mil was spent as 'Subsidy payments' from Government, bringing the total expenditure to $7,803.507 million in the last 25 years to the middle of 1990.(Estimated to be about $24 billion in today's values). [] TL: AN AUDIT OF PETROLEUM EXPLORATION IN AUSTRALIA (GP) SO: GREENPEACE AUSTRALIA (GP) DT: May 1991 Keywords: oceans offshore oil exploration greenpeace reports australia australasia gp / [part 2 of 5] TABLE 2: BREAKDOWN OF GOVERNMENT EXPENDITURE ON PETROLEUM EXPLORATION BETWEEN 1986 & 1988 ($) 1986 1987 1988 State mines depts. & equivalents 2,508,852 1,874,163 1,998,800 Federal Dept. of Administrative Services (topo- graphic surveys 157,500 357,000 1,135,700 BMR 2,267,670 4,495,360 14,787,168 TOTAL 4,934,022 6,726,523 17,921,668 Sources: BMR Petroleum Newsletters, Nos 100 & 102; BAR Statisticians. Note: 1. The latest available Government expenditure figures are for 1988. 2. There is also expenditure indirectly associated with petroleum exploration but which is difficult to track down and define. TABLE 3 (omitted here) TABLE 4: (omitted here 3.0 FREQUENCY OF OIL STRIKES Most structures containing petroleum are located between 1000 m and 6000 m below the surface. Even with continual improvement of seismic surveying techniques, there is no guarantee that a promising looking structure will contain oil. Drilling a well is still the only known means of establishing whether or not oil is present in a structure. In the 25 years to 1990, some 950 wells were drilled in and off Australia. Table 5 below shows the success ratios for commercial oil discoveries to the number of exploration wells drilled between 1960 and 1985. TABLE 5. SUCCESS RATIOS FOR OIL DISCOVERIES Onshore 1960-80 1 in 43 1960-85 1 in 22 1981-85 1 in 12 Offshore Gippsland Basin 1 in 7 Bonaparte Basin 1 in 57 Carnarvon Basin 1 in 119 Total Australia 1 in 29 Australia excluding Gippsland 1 in 164 Source: energy 2000; A National Energy Policy Paper. Note: 1. Gas discoveries excluded. 2. If oil and gas discoveries combined in the Eromanga-Cooper Basins, a success ratio of around 1 in 5 has been achieved. 3. Recent years, the Bonaparte Basin has had a success ratio of around 1 in 7 and the Carnarvon Basin about 1 in 9. Better success rates reflect a better understanding of the geology in those areas. Table 4 (p.5) gives the number of dry wells compared to the total number of wells drilled in 1989 and 1990. It is interesting to note that wells can now be drilled horizontally through oil reservoirs which has made it possible to convert otherwise abandoned fields into commercial producers. This may have interesting implications where drilling is done close to environmentally sensitive areas. 4.0 FUTURE POTENTIAL FOR PETROLEUM DISCOVERIES 4.1 Definition of Offshore Categories To assist in the assessment of exploration opportunities, Australia's offshore petroleum potential is divided into three categories. They are defined as follows: Nature Areas - e.g. Gippsland Basin in Bass Strait. These areas are few in number and have been actively explored over the last 25 years. They are characterised by extensive seismic grids and a high level of drilling density. Underexplored Areas - generally located on the Continental Shelf in less than 200 metres of water. A significant amount of seismic data has been collected and a small number of wells drilled in most of these areas. Frontier Areas-- are where very few or no wells have been drilled, limited seismic data is available and water depths are generally greater than 200 metres. A large proportion of Australian offshore areas are regarded as frontier areas. 4.2 Government's Projections According to Government, Australia has vast areas of sedimentary basins which are lightly explored. At present, 90% of Australia's petroleum is produced from offshore sedimentary basins {Gippsland Basin, Carnarvon Basin and Bonaparte Basin) The BMR 'conservatively' estimates that there is a 50% chance off finding a further 3 billion barrels of crude oil and condensate in Australia. In 1989, approx. 239.3 million barrels usage is approx. 208 million barrels per year. Also, there is a small but significant chance of finding as much as 6 billion barrels, mostly in the frontier areas. However, these estimates are speculative and do not predict the total amount of oil that may ultimately be found because they are based on very sparse exploration data. Table 6 on the next page shows the current status of future reserves. Table 1 given in Appendix A (p.28) gives a more detailed estimate of crude oil and condensate production from identified and undiscovered accumulations as at May 1989. Appendix A also contains maps which illustrate the following: Fig.3 the current status of Australian offshore exploration areas; Fig.4 the main locations ton shore & offshore) in Australia's petroleum industry; TABLE 6. (omitted here) 4.3 Factors Affecting Exploration Activity The level of exploration activity appears to be dependent on a number of factors including: - oil prices; - the after-tax return to oil producers; - assessments of the relative prospectivity of different basins (within Australia and elsewhere); - access to acreage; - government policies pertaining to exploration, taxation, production and land use; - the availability and cost of exploration equipment; - technological developments, particularly in the areas of seismic surveying and oil extraction; - the attractiveness of other investments. Petroleum exploration activities have been characterised by wide fluctuations from year to year. From a high point in the early 1970's activity declined to a low in 1976-77. Exploration then recovered to record levels in 1985, before declining sharply in reaction to the collapse in world oil prices in 1986. The recovery and subsequent stabilization of oil prices during 1987 resulted in a revival in activity after that year. Exploration of petroleum both onshore and offshore, remains vulnerable to low oil prices and associated limitations in opportunities to raise capital through the share market. However, if the unrest in the Middle East continues, then it is possible that oil prices could be forced up, thus making exploration financially more viable. Particularly as Australia's self-sufficiency in oil is declining. Figure 6 in Appendix A is a graph which shows the relationship between oil prices and exploration expenditure. -4.3.1 Access to Onshore and Offshore Areas The petroleum industry bemoans the fact that approximately 20% (1990) of Australia's land mass is restricted to petroleum exploration. Environmental legislation has helped to restrict exploration in some of this land mass. In addition, the declaration of marine parks has also (fractionally) reduced areas to explore. There are over 300 pieces of legislation dealing with environmental protection in Australia. A few are listed in 9.3 (p.26). It is interesting to note that although there is to be no exploration for petroleum in the Great Barrier Reef Marine Park, the authority responsible for the park will manage a project that is a preliminary environmental assessment of areas in the vicinity of the Marine Park which may be proposed for release as petroleum exploration permits in three to four years time. * * DPIE. Petroleum Sector Initiatives. AGPS, Canberra, 1990 4.4 Gas Exploration Whilst exploration for petroleum is far more concentrated than for gas, it is expected that over the next few years, the level of onshore gas exploration activity will increase. However, offshore exploration for gas in the south-east of Australia is unlikely to increase to any significant extent until well into the next century when currently known reserves in the Cooper-Eromanga Basins progressively decline, and as reserves in the Gippsland Basin also decline. 5.0 PETROLEUM AND GAS - PRODUCTION AND CONSUMPTION 5.1 Petroleum Since Australia has been exploring for oil, there have been about 5.8 billion barrels of crude oil and condensate discovered (up to late 1980's). Of these discoveries, 89% have been offshore and to date, approximately 2.6 billion barrels have been produced from these offshore fields. The Australian petroleum sector currently contributes the following to the economy in 1988: - l.9% of GDP - 5.2% of export income - O.1% of all jobs - 1.4 % of total investment - 39% of total energy demand. - 99% of total energy consumed by transport (88/89) It is interesting to note that crude oil and condensate represent less than 1% of Australia 5 demonstrated economic energy resources. Petroleum accounts for a large percentage of total energy consumption in Australia. For example, in 1988, net crude oil accounted for 39% of total energy consumption. Interestingly, this share is less than it was in 1970-71, when it peaked at 51.3% of the share. It is predicted that in 1999/2000, net crude oil will account for 36.4% of total energy consumption. In 1989, fuel and non-fuel petroleum products were consumed at a rate of 655,700 barrels per day. Of this figure, approximately 565,000 barrels per day were fuel products. In 1990, Australia's level of crude oil self-sufficiency was 88%. This level is expected to reduce to about 60% in 1993/94 and by 1999/2000 it will only satisfy 39% of the total projected demand for petroleum products (includes fuels and non-fuel products). This figure of 39% is calculated using the 50% probability rate given in Table 6 (p.8). Industry figures often give a more optimistic picture, using the uppermost estimate of future discoveries. The graph in Figure 7-Appendix B (p.33 ) shows (historical & projected) production and consumption figures for petroleum. Figures 8 to 11 in Appendix B provide information in graph form about energy production and consumption, and a breakdown of petroleum product usage in Australia. [] TL: AN AUDIT OF PETROLEUM EXPLORATION IN AUSTRALIA (GP) SO: GREENPEACE AUSTRALIA (GP) DT: May 1991 Keywords: oceans offshore oil exploration greenpeace reports australia australasia gp / [part 3 of 5] 5.2 Natural Gas Of the 79 trillion cubic feet of discovered natural gas reserves, approximately 3 trillion cubic feet of gas has been produced to date. Table 7.(p.12) gives production, consumption and export figures for 1990. BMR estimated that Australia s total demonstrated economic reserves of natural gas, as at 30 June 1987, were 832 billion- cubic metres (BCM), or over 50 years supply at current production rates. Most of Australia's demonstrated economic resources of natural gas are located onshore, in the west and north of Australia, with 83% of total demonstrated economic resources located in the Carnarvon and Bonaparte Basins. Reserves in the south and the east of Australia, where the major markets are situated, are considerably less, but still substantial. * *Energy 2000: A National Energy Policy Paper. Dept. of Primary Industries and Energy, 1988, p.69. Natural gas has a 16% share of total energy consumption, ranking third among our energy sources after oil and coal. Natural gas production is a private sector activity while pipeline and distribution utility ownership have both private and State Government involvement. By 1988 there was 7674 km of major gas pipelines in Australia. The Commonwealth Government, through its statutory body, The Pipeline Authority, owns and operates the transmission pipeline from Moomba, in the Cooper Basin, to Sydney and provincial centres. Figure 12 in Appendix B (p3.) shows the major natural gas pipelines in Australia. For the most part, natural gas fields are located remote from centres of population. Consequently separate regional markets centred in the capitals and larger provincial cities are generally supplied by a single pipeline from each producing area. TABLE 7: (omitted here) 6.0 GOVERNMENT INVOLVEMENT IN RESEARCH AND DEVELOPMENT 6.1 Bureau of Mineral Resources, Geology and Geophysics As one of its activities, the Bureau of Mineral Resources (BMR) is involved in seismic surveying. It has a program called the Onshore Sedimentary Basins Program, which the Government views as an important part of its strategy to encourage petroleum exploration objectives. Basically, new geological and geophysical data relevant to offshore exploration, is acquired and integrated with existing exploration industry data to provide new sedimentary basin analyses. Much of the work is done by a dedicated geoscience research vessel called 'Rig Seismic. This vessel does seismic acquisition and deep-sea sampling as well as other activities not related to petroleum exploration. During 1990, upgraded processing equipment was installed on 'Rig Seismic'. The latest expenditure figures available for the BMR are for 1988 and in that year $14.8 million was expended on petroleum exploration activities. See Table 3 (p.4) for these figures. Other organizations involved in seismic surveying include companies holding exploration or production titles and companies undertaking seismic surveys over areas not under title. 6.2 Other Research and Development Expenditure The Commonwealth Government is involved in energy R & D through the following: - funding directly Commonwealth agencies, e.g. CSIRO; - funding directly of private sector research projects; - indirectly and directly funding of research projects at tertiary institutions; and - indirectly to the private sector through the 150% tax deduction of R & D projects. Below and over the page is a summary of direct funding of projects for 1989/90 and 1990/91. 1989/90 National Energy Research, Development and Demonstration Council. ($) Petroleum exploration 908,906 Alternative fuels and oils* 5,774,231 Energy conservation (of petroleum products) 221,797 1990/91 - Energy Research and Development Corporation. ($) Petroleum exploration 673,898 Alternative fuels and oils* 1,561,259 Energy conservation (of petroleum products) 101,288 * Most of the programs are involved with coal and gas based alternatives. N.B. Details of individual projects available if needed. 7.0 EXPLORATION PERMITS AND LEASES 7.1 The Government's Offshore Strategy The Australian Government s policy is to promote an efficient and competitive petroleum exploration and production industry. The Government's strategy to promote offshore petroleum exploration contains the following elements: A comprehensive program for releasing offshore exploration areas to companies (this has been implemented). The availability of geological and geophysical data is being improved through, for example, the program of regional geoscientific work undertaken by the Bureau of Mineral Resources (BMR). Making companies aware of Australia's attractive offshore petroleum title and taxation arrangements. According to Government, its policies are aimed at providing an environment that is conducive to profitable investment in petroleum exploration and development activity. 7.2 Offshore Exploration Area Release Program The Commonwealth Government, in co-operation with States and Territory, has adopted the following principles to implement the Offshore Exploration Area Release Program: There will be a regular pattern of area releases, with two releases each year. Areas will be nominated up to eighteen months in advance of release to enable companies to plan ahead and to encourage pre- release seismic surveying and data reprocessing. Each year, a broad selection of mature, unexplored and frontier areas will be made available for exploration to meet the diversity of corporate exploration strategies. Areas to be released will include those in which companies have expressed an interest. The selection of areas to be released will be co-ordinated with the data becoming available from the Bureau of Mineral Resources' Offshore Sedimentary Basins Program. The current release program takes us up to the end of this year. According to the Government's plan, areas to be released in the first half of 1992, were to be identified and published at the end of 1990. Apparently, a few months before the gazetting of the invitation to bid for exploration areas, more precise information about the location of areas, the date of release and other information will be published. TABLE 8. (omitted here) The areas in Table 8 may be supplemented by areas relinquished, surrendered or cancelled from existing exploration permits. In addition to the eighteen month Exploration Area release Program, a long term Regional Release Program has also been identified. According to Government.."The regional program places releases of exploration areas from the under explored and frontier regions in a formal but flexible timeframe. The aim is to encourage research into, and studies of, these regions by companies. The program is also intended to stimulate interest in conducting seismic surveys over these regions." * * Ref. Offshore Strategy: Promoting petroleum exploration offshore Australia. Dept. of Primary Industries and Energy, 1990, p.2. Factors such as changes in the world oil industry and new geological data, will have the potential to alter the timetable. Because of this, Government says it will review the program regularly and publish updates annually. Table 9 (p.18) outlines the Regional Release Program. Figure 3 (p.3) is a map showing the sedimentary basins off Australia's coastline. 7.3 Title acquisition Responsibility for offshore petroleum activity falls into two areas. The area on the land ward side of the three-nautical-mile territorial sea is the responsibility of the adjacent States, while the area beyond it is under the jurisdiction of the Commonwealth. However, in accordance with the Petroleum (Submerged Lands ) Act 1967, a Joint Authority of the Commonwealth and States, was established to maintain common principles, rules and practice with regard to offshore petroleum pal icy. This also provides for a revenue sharing arrangement between the States and Commonwealth. Onshore petroleum activities are the responsibility of the State and Territory governments. There are three types of titles which can be awarded to companies and each gives exclusive rights over the title areas. They include exploration permits, retention leases and production licences and apply to both onshore and offshore situations. 7.3.1 Exploration Permits An exploration permit provides exclusive rights to titleholders to undertake seismic surveys and drilling in the permit area. Exploration permits are awarded to companies or consortia on a competitive basis using either a work program bidding system or a cash bidding system. A work program permit is awarded to the company or consortium proposing the best exploration program for the permit area. The initial term of the permit is six years. The permit may be renewed with an agreed work program for an unlimited number of five-year periods, but 50% of the permit area is relinquished at each interval. A cash bidding permit is awarded to the company or consortium offering to pay the greatest amount for the permit. The term of the permit is either six years or, if identified when the permit was released for bidding, six years with one five-year renewal over half the permit area. No work program commitments are required in cash bid permits. The system of cash bidding was introduced in 1985, and may be applied in highly prospective areas where competition for an exploration permit is expected to be high. The Government considers this the most efficient and equitable means of awarding permits in highly prospective areas. The Government nominates which bidding system is to be used for each area open for bidding. Generally, the majority of permits in areas of Commonwealth jurisdiction, i.e. offshore, are awarded on the basis of a work program bidding system. In the past, work program bids often substantially overstated exploration programs, and programs turned out to be uneconomic because of changes in economic conditions or a downgrading in prospectivity. The work program bidding system was therefore modified in 1985 to allow explorers to nominate only guaranteed drilling programs, and separate supplementary work programs later tied to the outcome of the initial exploration. Figure 13 in Appendix C (p.36) lists offshore petroleum exploration permits due for renewal or expiry by the end of 1992. 7.3.2 Retention Leases Where a discovery is not immediately commercial, but is expected to become so within fifteen years, a retention lease may be granted to the titleholders over that discovery. A retention lease is granted for five years, with renewal periods of five years. At each renewal of the lease, the titleholders must demonstrate that the discovery is likely to become commercial within the next fifteen years. [] TL: AN AUDIT OF PETROLEUM EXPLORATION IN AUSTRALIA (GP) SO: GREENPEACE AUSTRALIA (GP) DT: May 1991 Keywords: oceans offshore oil exploration greenpeace reports australia australasia gp / [part 3 of 5] TABLE 9. REGIONAL RELEASE PROGRAM Timeframe Region 1 - 2 yrs. Rowley Sub-basin Canning Basin Sandy Cape Sub-basin Bins Island Sub-basin Southern Carnarvon Basin Polda-Basin Great Australian Bight Basin Otway Basin 2 - 6 yrs Townsville Trough Maryborough Basin Rankin Platform Brewer Basin Eastern Arafura Sea North Browse Basin Perth Basin East/south Tasmania 6 - 10 yrs Outer Browse/Scott Exmouth Plateau Queensland Trough Capricorn Basin South of Perth Basin Lord Howe Rise 10 - 25 yrs South Tasman Rise East Tasman Rise Norfolk Ridge Renn Plateau Queensland Plateau Kerguelen Plateau Wallaby Plateau Naturaliste Plateau Source: DPIE, Offshore Strategy: Promoting Petroleum Exploration Offshore Australia. AGPS, Canberra, 1990. 7.3.3 Production Licences Where an exploration permit holder makes a commercial discovery, there is an automatic right to a production licence over that discovery. A production licence is granted for 21 years and may be renewed for further periods of 21 years. Where production requires a pipeline to transport petroleum to shore, a pipeline licence will be granted. 7.4 Foreign Ownership In January 1988 the Government reviewed the situation of foreign investment rules and concluded that in view of the secondary taxation arrangements applying to petroleum production, the maintenance of foreign investment restrictions previously in place, were no longer necessary to ensure appropriate public benefit from petroleum development projects. Minimum Australian ownership requirements where thus removed, except in particular cases where national interest considerations dictate otherwise. 8.0 TAXATION 8.1 Taxation and Exploration The taxation regime of the petroleum industry is very complex and the information here mainly deals with the new Resource Rent Tax regime. Companies operating in all new exploration permits and virtually all existing permits beyond the three-nautical-mile territorial sea, are subject to the Resource Rent Tax (RRT) for offshore operations, royalty and excise payments for onshore (with a Resource Rent Royalty (RRR) for onshore being considered to replace them), plus normal company taxation. 8.1.1 Resource Rent Tax The Resource Rent Tax (RRT) is a net cash flow charge and it replaces the excise and royalty charges which were levied on petroleum production rather than profit. According to Government "The RRT is designed to provide a return to the community for the exploitation of its non-renewable petroleum resources. It provides a minimum rate of return to project developers before the community takes a share of the value of petroleum produced." The RRT has the following key features: All exploration, development and operating expenditures associated with a project are immediately deductible from the receipts of the project to calculate net cash flow. Previously, deductibility of exploration costs was restricted to an individual project basis, not on a company-wide basis which it is now. Receipts from the sale of all petroleum, including crude oil, condensate, LPG, natural gas and ethane, are included in the calculation of net cash flow. Expenditures in excess of receipts may be carried forward and compounded at a threshold rate of return until they are written off against future receipts. Where no RRT liability exists, the threshold rate of return is 15 percentage points above the Australian long-term bond rate (currently about 28%). The tax levied at a rate of 40% on the net cash flows after the threshold rate of return has been earned. RRT payments are deductible for company tax purposes. The Federal Government expects the RRT regime to reduce its revenue by $305 million in 1990/91 and $450 million in 1991/92. However, from 1992/93 onwards the Government expects the revenues to increase. The North West Shelf natural gas project areas (WA-1-P & WA-28-P) are not subject to RRT. The Federal Government views this as a special situation, and have retained the excise and royalty arrangements. 8.1.2 Industry Viewpoint It would appear that the petroleum industry is not happy with the RRT and that the high level of taxation acts as a disincentive as afar as the private sector is concerned. In their 1989 Annual Report, the APEA said that the only equitable option would be the traditional royalty system based on wellhead value and the taxation of remaining profits under the corporate income tax system. Apparently the RRT doesn't apply to other natural resource users. 8.1.3 Resource Rent Royalty. The Government is trying to encourage State Governments to adopt a system called Resource Rent Royalty (RRR), based on the principles underlying RRT, to replace existing royalty and excise charges-for onshore petroleum activities.-Royalty arrangements vary from State to State and to date, Barrow Island is the only project subject to RRR. 8.2 A Note on Platform Removal Expenditure associated with the removal of petroleum production installations are to be tax deductible. Previously, this activity was viewed as capital expenditure. In order for companies to gain Government's approval to develop offshore petroleum resources, they must agree to' remove all structures and restore the seabed environment. (Technically speaking, removing the structure doesn't mean it will be taken ashore, in some cases it-may be just submerged.) It has been estimated that the removal of platforms in Bass Strait will cost between $500 million and $700 million in today's dollars over a number of years in the next century. 9.O ENVIRONMENTAL CONCERNS 9.1 The Problems The problems associated with petroleum exploration include: - disturbance of biota from onshore and offshore seismic surveying; potential of blowouts and oil spills (plus fire & explosion); gas flaring; disturbance of ecosystems from drilling activity and associated infrastructure; - waste disposal; and - intrusion of Aboriginal sacred land sites. 9.1.1 Problems Associated With Onshore Seismic Surveying Onshore seismic surveying is inherently disruptive to the environment. The process requires the area being surveyed to be criss-crossed in a grid pattern by seismic lines (survey lines). This results in: the removal of vegetation (and often topsoil) to form access tracks along the seismic lines, as well as access roads to and from the survey area; the compaction of soil along the tracks when they are used by survey vehicles; the disturbance and destruction of habitats along the paths of the survey lines; site disturbance when drilling for dynamite surveys; and the introduction of noxious weeds &/or plant and animal pathogens from survey vehicles and equipment which have not been thoroughly cleaned before entering the area to be surveyed. 9.1.2 Offshore Seismic Activity I have not researched this-activity on the assumption that Greenpeace has ample data and information about it, in view of the recent discussions and activity off the coastline near Warrnambool. However, in Appendix D (p.35), there is a photocopy of part of a report presented in an APEA journal (1989)giving details about seismic surveys and their effects on marine biota. 9.1.3 Blowouts and Oil Spills When drilling a well, the drill can break through into a pocket of oil and/or gas.which is under pressure. If this, happens, the pressure can force the oil and/or gas to surge up the steel casing containing the drill. If this upward surge of oil and/or gas is not stopped the result is called a blowout. As a consequence of a blowout an uncontrolled oil spill or release of gas into the atmosphere can occur. To prevent a blowout and subsequent leakage of oil or gas, the drilling mud used to lubricate the drill and help carry the drill cuttings to the surface, can help to counteract the upsurge of oil and gas, with its downward pressure. However, the main safeguard is the blowout preventer stack located at the well-head. (Note. blowout preventer stacks can fail.) Clause 285 of the Schedule of Requirements of the Petroleum (Submerged Lands) Acts, outlines the procedures where there has been an escape or ignition of petroleum and gas. The amount of uncontrolled oil and gas leakage during offshore exploration is very small when compared to oil spills from tankers and other sources. Of the estimated 3,200,000 tonnes (1985 est.) of oil spilled each year around the world, 1.6% is said to be from offshore exploration and production, with the bulk of it through production. (No actual breakdown has been given of the 1.6% figure, but the exploration component is said to be small.) Figures 14 & 15 in Appendix D (p.37), give some oil spill statistics for Australia. Fire and explosion are also potential hazards where oil & or gas leakages occur. Strict adherence to all safety measures is essential to avoid such incidences. 9.1 4 Gas Flaring Information received from the Petroleum Group of the Dept. of Manufacturing and Industry Development (Vic.) concerning the flaring of gas and the disposal of waste oil and/or condensate, was interesting, however, not specific in terms of quantity. The following clauses from the Schedule of Requirements pertain to this matter: Clauses 202, 220, 285, ~27, 512, 615 and 616. The following paragraphs are taken from a letter received from the Department concerning gas flaring. "During the Drill Stem test there will be very little flaring of hydrocarbons. If the above steps lead to a hydrocarbon discovery of either gas or oil and/or a mixture of both, then the evaluation of reservoir potential will be conducted through.a production test using a separator and burner. The maximum-flaring of hydrocarbon allowed is normally equivalent to one day's estimated potential production. This period of flaring is necessary to enable the well to stabilize and the production potential to be established. Gas, oil and condensate are all flared during the production test which is witnessed by a departmental inspector. 9.1.5 Associated Drilling Rig and Wellsite Problems Offshore. Disturbance to the sea floor by anchor points and associated chains and cables, occurs when positioning drilling rigs. This can be significant in areas of coral reefs, etc. Onshore. Disturbance of the immediate surroundings as clearing is usually necessary to accommodate the rig. Access roads, worker accommodation (depending on location and proximity to a township), equipment storage facilities, flare pits and garbage dumps and so on, all disturb the local environment to varying degrees. Other effects include noise, vibration, dust, and road casualties and physical barriers to movement of animals. Obstruction and/or intrusion can be a problem at specific locations, e.g. breeding grounds (on and off shore) and wildlife refuges. Both onshore and offshore rigs and associated facilities have waste disposal problems garbage, sewage, kitchen wastes and the waste products from the drilling operation. Onshore, various means are employed to dispose of waste including incineration in burn pits, burial and cartage to other locations. Offshore, the APEA recommends that solid domestic waste and industrial wastes be taken onshore for suitable disposal. Drill cuttings and appropriately treated biodegradable wastes are released into the sea. There are statutory requirements which must be met for discharges into the ocean. 9.1.6 Drilling Rig Discharges Drill cuttings in offshore operations are discharges into the sea after separation from the drilling muds. The muds are recirculated inside the drill stem. These muds contain various substances to assist in the transportation of cuttings to the surface and to cool a and lubricate the drill bit. It is claimed that the common constituents of drilling muds have low toxicity to marine organisms. However, chrome and ferrochrome lignosulfonates and sodium hydroxide contained in the mud, are known to be toxic. Diesel fuel and surfactants are also used at times and traces of various metals have been found in some drilling muds. Some companies use oil based drilling muds and these muds should be either reused, sold or taken onshore for disposal. Onshore drilling mud is generally confined to mud pits. For example, on Barrow Island at the completion of drilling, fluids released into the pit are allowed to evaporate and eventually the pit is back-filled and recontoured. 9.1.7 Sacred Land Sites In some situations, areas which are targeted for exploration may contain Aboriginal sacred land sites. In those cases, intrusion and obstruction/destruction of the sites can be problematic for the Aborigines concerned. Steps to implement legislation covering Aboriginal land rights can help to protect these sites from exploration. 9.2 environmental Safeguards The preparation of environmental impact statements are seen as an added expense by the petroleum exploration industry. So too, is the meeting of regulatory controls and the training of personnel on environmental safeguards and issues. On the equipment side, all drilling rigs must be fitted with blowout preventer stacks at the wellhead. Regulatory requirements are set out in the Schedule of Requirements of the Petroleum (Submerged Lands) Acts and it onshore equivalent. Oil spills are seen as one of the biggest potential problems and both Government and the petroleum industry have facilities and contingency plans to tackle oil spills. They are outlined below: 9.2.1 National Plan to Combat Pollution of the Sea by Oil (NATPLAN) NATPLAN was set up in 1973 and is a joint plan of the Commonwealth and State Governments. Funding is provided by a levy on all ships carrying more than 10 tonnes of oil around Australia's Coast. The levy is between 1.7c to 2.c per tonne. For 1990/91, an estimated $1.5 will be spent on equipment and training to industry and government employees. 9.2.2 Narine Oil Spills Action Plan (MOSAP) Set up in 1971, MOSAP is the oil industry s own voluntary mutual aid plan. It allows an individual company to obtain assistance in combating marine oil spills larger than can be handled by its own resources. Recently, $1.6 million was spent on equipment which has been distributed around the coastal oil ports of Australia. These facilities have the capacity to deal with small spills of up to 200 tonnes (usually in-port spills). MOSAP is supervised and funded by the oil industry through the Division of Manufacturing, Production and Environment of the AIP. 9.2.3 Marine Oil-Spills Response Centre An Australian Marine Oil SpilIs Response Centre is being set up in Melbourne at an estimated cost of $10 million and an annual operating cost of approximately $750,000. The Centre is being funded by several of the major oil companies. The Centre is to be in operation sometime during 1991 and will house a stockpile of equipment capable of dealing with spills up to 10,000 tonnes. The Centre will also provide training to industry and government employees. [] TL: AN AUDIT OF PETROLEUM EXPLORATION IN AUSTRALIA (GP) SO: GREENPEACE AUSTRALIA (GP) DT: May 1991 Keywords: oceans offshore oil exploration greenpeace reports australia australasia gp / [part 4 of 5] 9.3 The Legislations The petroleum industry is highly regulated. The legislations governing exploration including general aspects of well testing, flaring and prevention of wastage of hydrocarbons are: Offshore - Petroleum (Submerged Lands) Acts, Schedule of requirements as to Offshore Petroleum Exploration and Production - 1990. (please see copy provided) Onshore - Petroleum Regulations 1979. These regulations are under review and when remade will encompass all the offshore procedures. Before any drilling or testing can commence, permission to do so must be sought from Government. Very detailed plans must be submitted with the application to do a drill stem test or a production test. In these submissions information about the pressure of the reservoir, the permeability of the formation, volumes as well as the nature of hydrocarbons to be encountered must be included. In addition to these details a Preliminary Environmental Report must be submitted. If it is considered that the proposal will have a significant impact on the environment, then an Environmental impacts Statement or a Public Environment Report will be called for. Other legislation which provides for the protection of the environment include: - Environment Protection (impacts of Proposals) Act 1974; Australian Heritage Commission Act 1975; - National Parks and Wildlife Conservation Act 1975; and Whale Protection Act 1980. (The APEA Code of Practice for Onshore and Offshore activities, has a comprehensive list of legislation pertaining to the environment.) 10.0 CONCLUSION For most countries, oil can be classified as a strategic mineral. This couldn't be more true than now. Whilst the information and data contained herein relating to projected exploration and production activity, are the most recent, continued unrest in the Middle East could change the situation substantially. From Government and industry's viewpoint, higher oil prices provide an economic justification to explore locally. However. high levels of taxation, expenditure on environmental impact statements and safeguards, plus restrictions of prospective areas (created by various environmental legislations being enforced), all contribute to making exploration less attractive. As the petroleum exploration industry is a highly complex one involving high expenditure and high risks, and in view of the Government's promotion of petroleum exploration, the following statement from a Government department is an interesting one: "Indeed, in view of Australia's apparent oil prospectivity, it would seem unwise to place too much reliance on fostering exploration activity as the centrepiece of energy policy."* * Energy 2000: A National Energy Policy Paper, Dept. of Primary Industries and Energy, 1988, p.124.