Australia's cash bidding proposal draws industry criticism

The Australian federal government proposes to reintroduce cash bidding as a basis for awarding offshore exploration acreage in some areas around the country.

In announcing the move, Resources and Energy Minister Martin Ferguson said cash bidding would only apply to “mature areas, or those known to contain petroleum accumulations.”

Ferguson maintained that the system would prevent what he called “over-exploration” and ensure permit releases were “equitable, economic, and efficient.”

The minister added that the government will consult with industry on the details of a cash bidding regime to ensure there was confidence in the arrangements.

He said revenue raised through cash bidding for mature areas will be directly returned to the budget “for the benefit of all Australians.”

While the Queensland government introduced a similar scheme in October for premium potential onshore areas in that state, the idea isn’t entirely new in the federal sphere either. It first appeared as a federal government permit award option in December 1983, introduced by then Energy Minister Senator Peter Walsh as part of the discussions surrounding the introduction of the Petroleum Resource Rent Tax regime.

After 2 years of spirited opposition by the industry led by the Australian Petroleum Exploration Association (APEA, now APPEA) it was finally legislated in 1985, hosted by Walsh’s successor to the Energy portfolio Senator Gareth Evans. Five permits in the then-hot areas of the Timor Sea around the Jabiru, Challis, and Puffin oil fields were offered under this scheme. In the event only three permits received bids satisfactory to the government. Although remaining on “the government’s option list,” cash bidding has not been revived until now.

APPEA (the Australian Petroleum Production & Exploration Association) is predictably against the revival saying it risks introducing a method for awarding permits that is more costly than the existing work program-based system, which has been in place for many years.

APPEA Chief Executive David Byers pointed out that cash bid payments reduce the overall pool of funds available for companies to undertake exploration because they divert funds from drilling to the payment of government access charges.

While the larger companies can accommodate this, there is an impact on the junior explorers that often have limited funds available. Many of these companies, Byers said, have been responsible for identifying the resource potential of regions and basins that are now Australia’s mainstay for oil and gas production.

Byers called for industry and government to work together to ensure cash bidding is not introduced in a way that impairs Australia’s overall attractiveness to exploration activity.

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