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Wednesday, 27 February 1985
Page: 247

Senator COOK —Has the Minister for Resources and Energy seen the article by the political commentator Maximilian Walsh published in the Sydney Morning Herald last Monday, 25 February, which criticised the proposal to introduce a system of cash bidding for the allocation of petroleum exploration rights? Of the off-shore petroleum exploration areas released recently, how many are for work program bidding and how many will be awarded on the new cash bidding system? What are some of the difficulties encountered with the existing program bidding system? Will the introduction of the cash bidding system result in a reduction of funds available for petroleum exploration?

Senator GARETH EVANS —Of the 14 exploration areas in the north-west Australia off-shore region that were released in February nine are for work program bidding and five are for cash bidding when the legislation is in place. The nine areas available for work program bidding are spread around the adjacent areas of Western Australia, the Northern Territory and the Ashmore and Cartier Islands. All of the remaining five areas released for cash bidding are in the adjacent territory of Ashmore and Cartier Islands and as such are solely within the Commonwealth's responsibility.

The five cash bidding areas are those which have been identified as the most highly prospective of the new areas. It is the Government's view that cash bidding is a more economically efficient method than any work bidding system for allocating exploration rights, particularly when, as is likely to be the case here, competition is high. In applying the existing work program bidding system there are very real difficulties for highly prospective exploration areas. Some recent experience in the Gippsland Basin illustrates that difficulty. Three permits were offered recently in that area and a total of 29 applications were received. Those applications represented a whole variety of exploration philosophies, and it became necessary in making the allocation decision to consider factors that went beyond those which the normal best bid approach would have taken into account. Of the three permits that were actually granted in the Gippsland Basin releases one was in fact surrendered after completion of only one-third of the work program proposed; we understand another permittee is now looking for a farm-in partner to assist in further drilling and the third applied to reduce its overall program. Therefore, there can be no guarantee that even with the most careful attention to the criteria appropriate to work program bidding we can get it right.

The central question in the criticism advanced against cash bidding, which no doubt we will hear again in this chamber when the legislation is debated later this session, is whether the introduction of this system will reduce the overall funds available for exploration. There are two important points to consider in responding to that criticism. I acknowledge the very great policy interest that this matter properly generates. I will put it as quickly as I can. The first point in regard to the cash bid permits themselves is that the permittee is free to undertake the most commercially viable exploration program he can devise. In deciding to bid for a permit a company will design an exploration program which will adequately assess the petroleum potential of that permit and the company will estimate the expected returns from that program. If the company also happens to hold a permit in a less prospective area it may well be that the payment of a cash bid for the good acreage will reduce funds, at least in the short run, for the exploration in the other area. While it thus may be necessary for some companies temporarily to divert funds in this way or divert them from other company activity this does not mean that the company will neglect petroleum prospects which are less prospective but still attractive. One other point which is constantly neglected is that a decision to pay cash for a permit is identical to a decision to farm in to a permit, as Senator Durack, when he masters this aspect of his shadow portfolio, will no doubt appreciate.

The PRESIDENT —Order! I ask the Minister, who has made a particularly long answer, to wind up his answer.

Senator GARETH EVANS —Mr President, in both cases the company pays a premium, be it in cash or in exploration commitment. A decision to pay such a premium is a normal and common commercial decision. It is interesting to note again--

Senator Durack —Will that be done in Australia?

The PRESIDENT —Order! I ask the Minister to bring his answer to a conclusion.

Senator GARETH EVANS —Mr President, I find it interesting to note-I hope Senator Durack will also-that since 1980 in the 100 or so off-shore permit areas released there have been at least 50 such farm-in agreements. The funds for these farm-in arrangements obviously form part of a company's exploration budget. Again it may result in some short term diversion from exploration activity elsewhere. But if prospects are expected to be profitable they will not go undrilled. Cash bidding systems of various kinds are extremely common overseas. It is a system which allows for certain very sensitive and difficult decisions to be made by the operation of market forces. I conclude, Mr President--

Senator Chaney —Mr President, I raise a point of order. You have asked the Minister several times to draw his answer to a conclusion. He seems to be deliberately trying to talk out Question Time. I ask you to sit him down and enable an Opposition senator to ask a question.

The PRESIDENT —The Leader of the Opposition would know that I am not in a position to shorten the Minister's answer. But I have made a request to the Minister and I would ask him to see whether he can comply with the request.

Senator GARETH EVANS —I conclude, as I said I would, as Senator Chaney was getting to his feet, by expressing the hope that journalists like Mr Walsh and those companies whose views he advances-not to mention those of members of the Opposition-would have just a little more confidence in the operation of those market forces whose virtues elsewhere they so routinely espouse.

Senator Chaney —Would the Minister table the paper?

Senator GARETH EVANS —Of course.