NEED SEEN FOR COMPETITIVENESS IN AUSSIE PETROLEUM LICENSING, TERMS

Competition is the new watchword in Australian exploration circles.

South Australia's government may be considering injecting more competition into the process of wararding petroleum exploration licenses.

At the same time, industry officials strss, Australia must find ways to remain competitive in petroleum licensing as governments around the world scramble to sweeten the pot in trying to attract upstream investment.

That is the main theme sounded at the latest meeting of the Australian Petroleum Exploration Association (APEA), held in Adelaide last month.

Among other topices focused on at APEA:

• Australia's upstream industry managed to show a healthy profit in the last fiscal year, even though it was outstripped by government revenues.

• Australia's huge natural gas reserves could soon find a ready market in Asia.

• BHP Petroleum Pty. Ltd. is pressing major gas pipeline projects at home and abroad.

• Australia has invited applicaitons for 13 offshore exploration areas (see story, this page).

SOUTH AUSTRALIA'S REFOCUS

South Australian Premier Dean Brown, inthe opening speach at APEA, signaled his government's rethinking on the tradition of allowing one company or group of companies long tenure over large areas of alnd for exploration in his state.

Brown said there is a need for greater levels of competition in all areas of economic endeavor, including the award of petroleum exploration licenses.

Specifically, he referred to the Cooper basin, where a group led by Santos Ltd., Adelaide, has held large permits covering the whole northeast corner of the state for more that 40 years.

The current 20 year exploraiton licenses in the region expire in 1999, and at that time the government will allow all companies to compete in acquiring new exploration rights. This won't affect existing production licenses and gas marketing arrangements in the Cooper basin, but it will provide an avenue for infusing fresh ideas into South Australia's main petroleum province.

Brown also cried the need for development of model legislation and processes to promote a cooperative approach to native (aboriginal) title claims and determination of rights to explore or mine land affected by aboriginal title in all of Australia.

Brown confirmeed that South Australia will attract about 50% of the money spent for onshore exploraiton in Australia in 1995. The South Australian government alone is committed to spending $7.5 million (Australian) the next 3 year to gather more geological and geophysical information for its database.

AUSTRALIAN COMPETITIVENESS

Australia faces increasing competition for petroleum exploration and development funds in a world in which companies may choose to operate in any of about 180 countries, said Peter Power, managing director of Ampolex Ltd., Sydney, and APEA chairman.

Power pointed out the global petroleum industry could invest about $1.5 trillion (Australian) to meet rising demand estimated at 75 million b/d by 2000.

However for the fifth year in a row, Australian government taxes have exceeded industry profit. He contends this can't go on if Australia wishes to maintain a robust exploration and production industry.

Power reminded the Australian government that it is in competition for exploration dollars just as much as companies are in competition for prospective acreage. Australia must remain competitive in terms of its regulatory, fiscal, and land access regimes, or the money will be spent elsewhere.

All countries are fine tuning therms to attract explorationists, and Australia must do likewise, he said.

Power sees a danger the government is content with its current petroleum resource rent tax regime (RRT), when in reality, the RRT tends to squeeze the economics of long term gas developments.

In addition, uncertainty over native titles and environmental barriers to access to onshore and offshore aeras are telling factors against petroleum exploration spending in Australia that msut be dealt with.

Power said the industry in Australia has an $8 billion effect on the balance of trade. Petroleum is the most valuable commodity produced in the country and has a 53% share of Australia's energy mix. So it is vital for Australia's energy security that an equitable partnership be struck between private and public sectors in developing oil and gas reserves, Power said.

PROFITS

Australia's upstream petroleum industry posted a net after tax profit of $1.95 billion in fiscal 1993-94.

Government revenues from this sector in the same period totaled $2,417 billion. Both figures are from the annual APEA financial survey. Results are relatively unchanged from the previous fiscal year.

Continued weakness in oil proces led to an 8.5% drop in gross operating revenues to $7.803 billion in fiscal 1993-94 and 303 million BOE in fiscal 1993-93.

This is based on production of 302 million bbl of oil equivalent (BOE) in fiscal 1993-94 and 303 million BOE in fiscal 1992-93.

However, a reduction in payments to government and an 8% decline in operating costs, from $5.856 billion in fiscal 1993-93 to $5.386 billion in fiscal 1993-94, led to the improved net profit performance.

APEA found that capital spending in Australia of $2.831 billion in the past fiscal year was 1.3% more than the leve seen in fiscal 1992-93. Overseas capital spending by Australian companies and theri subsidiaries totaled $875 million in fiscal 1993-94.

APEA said that after tax returns on funds invested of 13.4% and returns on assets of 10.2% are well below returns desirable for such a high risk industry.

GAS POWER

Australian natural gas producers and exporters are banking on an Asian market that is likely to double its use of natural gas as a fuel for poer generation within a decade.

James Crump, chairman of Price Waterhouse's world petroleum industry group, told APEA the use of natural gas is poised to outstrip all other fuels.

Worldwide, the market share of gas in power generation is expected to grow at an annual rate of as much as triple that for any otehr fuel.

Crump cited International Energy Agency forecasts taht gas fired power generation will more than double in the developed nations of the Pacific, notably Australia, new Zealand, and Japan, by 2010.

Crump said an increasing number of companies inthe petroleum industry now view power as a core business, and they are investing heavily in gas fired electric power generation.

Continuing discovery of huge gas reserves on Australia's Northwest Shelf will allow the nation's exporters to supply these emerging markets, he said.

BHP PIPELINE PLANS

Plans by BHP and partner West-coast Energy Inc., Vancouver, B.C., to lay a $450 million gas pipeline in Southeast Australia will make a more significant contribution to establishing a national gas grid in Australia than any other option, BHP said.

The 700 km pipeline would carry Bass Strait/Grippsland basin gas from Southeast Victoria to the Sydney area (see map, OGJ, APr. 10, p. 28) and is expected to be on stream in 1997.

Plans call for the pipeline to first carry about 65-74 bcf/year to supply industrial customers in Sydney. Volumesa re expected to grow to almost 84 bcf/year with added supplies to customers along the route and in Canberra. Sydney's gas currently comes from Cooper basin producers led by Santos.

Meantime, a group of companies including BHP has signed an agreement to undertake a major gas distribution study in Viet Nam.

The proposal includes a $1 billion development covering supply of gas from offshore fields to feed power generation and fertilizer complexes in Viet Nam.

A key element in the plan is a feasibility study of a pipeline linking two recent BP Exploration Operating Co. Ltd. discoveries in the Nam Con Son basin, Lam Tay and Lan Do, to the mainland. The line as envisioned would not be confined to carrying gas from a single field or group of fields but would serve the entire region (see map, OGJ, Nov. 28, 1994, p. 25). The study will focus on offshore and onshore pipelines, a processing terminal, and connections to customers.

The BP fields, about 370 km south of the coastal town of Vung Tau, are conservatively estimated to hold gas reserves of 2 tcf. The pipeline also could pick up gas currently being flared in Dai Hung oil field and possible other gas supplies near or in Bach Ho oil field.

Group interest are state owned Petrovietnam 38%, BP 24.8%, and BHP, Mobile Corp., and Norway's state owned Den norske stats oljeselsjap AS 12.4% each.

Separetly, BHP is renegotiating its production sharing contract in Viet Nam because of the significant cut in its estimate of Dai Hung oil reserves. Originally estimated at 800 million bbl, BHP now places the figure at closer to 100 million bll recoverable.

Dai Hung produces 20,000 b/d.

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