Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
 Download Current HansardDownload Current Hansard   

Previous Fragment    Next Fragment
Tuesday, 14 May 1985
Page: 1930


Senator PARER(9.32) —The Senate has before it a Bill to amend the Petroleum (Submerged Lands) Act 1967 to provide for a cash bidding system for the award of petroleum exploration permits in certain off-shore areas. The Opposition is opposing the legislation, as is the Australian Petroleum Exploration Association-APEA-which represents over 100 companies engaged in oil and gas exploration. Also in opposition are most State governments, including the Premier of Western Australia, Mr Burke, who for his trouble was described in this chamber by one of his colleagues as being 'conceptually ignorant'. So much for consensus and accord. It seems that consensus applies to this Government only when the wishes of the unions are at stake.

The Minister for Resources and Energy (Senator Gareth Evans) has taken the view that all the troops are out of step except himself. So much for the comments made by the Minister in his second reading speech that 'the Bill was introduced following extensive consultation with the industry'. If he continues in this vein, I fear he may achieve a reputation as notorious as that of a Minerals and Energy Minister in a previous Labor government who was more affectionately known as the Strangler or the Minister Against Minerals and Energy.

The existing situation as it has applied throughout Australia is that prospective areas are advertised and proposals are made by interested parties, detailing the work program to be carried out. The whole thrust of such proposals is to maximise the size of the exploration dollar. The current work program bidding system in general works well and is strongly supported by all exploration companies.

Let me take the Senate through the process so that it is fully understood. Generally, proposals are made by a number of consortia and will highlight the following: First, technical ability with a proven track record. It is usual for the curriculum vitae of key people to be provided in detail. Second, financial capability of the consortium not only to carry out the exploration but also the ability to go into production should the exploration be successful. Third, a proposed level of Australian control and equity at each stage. Fourth, a detailed work program which shows, among other things, an understanding of the geology of the area, gleaned from nearby work or work carried out previously; a program of exploration including required seismic surveys, the type of drilling and the pattern of proposed work; and a preliminary development program should viable reserves be discovered.

A decision is then made on the proposal considered most likely to provide the best exploration program and ultimately development. While I have provided this resume in precis form, it will be appreciated that each applicant is required to do a substantial amount of initial research and groundwork prior to making a submission. That in itself can be an expensive process. Similarly, departmental evaluation can also be a difficult process, and as is the case in any competitive situation, there can be only one winner. This is not a sufficient reason, however, for changing a system which has evolved over many years and which has been clearly accepted by the industry as the best method of allocating prospective areas. If Commonwealth departmental personnel are unable to implement a system which has been used successfully by the States for many years, they should not be there. If they are unwilling because they believe it is too difficult, they are simply reinforcing a community view of their work habits. Knowing many of the public servants involved in this case, I do not believe those conclusions to be correct. There has to be some other purpose.

The work program bidding system, like any system, is not perfect. However, arguments that the present system is difficult to administer are greatly overstated. There are administrative solutions to these problems-for example, the imposition of penalties on consortia which fail to meet their work program commitments. Such solutions are supported, even suggested, by companies involved in exploration as a means of achieving greater accountability. Moreover, at this stage, cash bonus bidding is said to be introduced for certain selected off-shore areas. The majority of exploration areas will apparently continue to be subject to the present arrangements. How can the Minister argue for the introduction of a new system because the old system is rotten when that supposedly rotten system will continue to operate in most other areas. The argument that the change is required because of the inadequacies of the present system is simply a red herring. The real reason, I suggest, is not hard to find, and I will come to it presently.

A system of cash bidding is now proposed against a background of declining exploration in off-shore areas, particularly in wildcat wells, despite recent attempts by the Government to juggle the figures to support the Minister's arguments. This is serious because off-shore areas are assessed as being the most prospective for finding large oilfields in Australia. As most people will recognise, we are not, and have not been for many years, recognised as an easy place to find oil. More importantly, these more prospective off-shore areas provide the greatest opportunity to maintain our status as a net exporter of petroleum. At the moment domestic oil production provides a saving of over $5 billion in foreign exchange, and is a source of enormous revenue to both State and Federal governments. However, the future is by no means so secure. Experts in the industry widely recognise that future domestic oil production can be guaranteed only if governments show a determination to support exploration in this country-otherwise we will, by as soon as 1990, become a net importer of oil.

The Minister has claimed in public forums that cash bonus bidding is not a fund raising exercise for the Government. This claim which he has made on various occasions, including the second reading speech, is not in accordance with the Governor-General's Speech on the opening of this Parliament in which it was said:

The Government will introduce a cash bidding system for highly prospective petroleum areas in the Territory of the Ashmore and Cartier Islands and will hold discussions with the States with a view to introducing the new tax regime in other offshore areas.

Senator Jack Evans was searching for a reason why the Minister was persisting with this, irrespective of the so-called negotiations with APEA. I suppose APEA would have to look back and say that it wasted a great deal of time and money because it got nowhere. I refer Senator Evans to the 'Australian Labor Party Platform Constitution and Rules', which under the sub-heading 'Taxation' on page 168, states:

The development of Australia's resources requires a government tax regime which ensures the benefits of resources are shared equitably between producers and the Australian community.

It goes on that Labor will:

Replace existing taxes on petroleum production with a resources rent tax, in conjunction with front end payments by tender for the right to explore highly prospective areas.

The point I make is that the Minister was unable to come to any other conclusion. He was following his Party platform. He had no choice and yet he carried on with the charade of negotiations that went on for weeks and weeks.

I think it is clear to everyone that cash bonus bidding is simply an up-front payment. It is a tax on exploration. It is a tax before discovery and must reduce funds available for genuine exploration. A portion of money which would have been spent on drilling holes will go into the bottomless pit of government revenue to join a lot of other money from an already overtaxed community. If it follows the path of other government expenditure it will almost surely be non-productive. Cash bidding will also tend to disadvantage Australian companies-certainly small Australian companies-whose shareholders will provide money for exploring a prospective area but will be very reticent to provide an up-front payment to government. The Minister argues that it is an untenable assumption that there is a limited pool of funds available for exploration in Australia. That observation points to a total misunderstanding not only of exploration in Australia but also of our precarious economy. This is the sort of argument which will make the greatest risk takers in the country more than ever convinced that we may be in for a new period of Connorism.

It is patently obvious that the Minister at this stage-I say 'at this stage' because he has held the portfolio for only a short time-has little understanding of exploration. Even though he is obviously inexperienced, I would have thought that with his past experiences he would have had the wisdom to listen to those people engaged in the industry. Judging from his second reading speech he has apparently convinced himself that the oil is there, that the volume is known and that all that has to be done is to feed this information into a computer which, in turn, will tell a consortium how much it will earn over a known period and thus the amount that can be offered up front. That is absolute nonsense. Anyone who has had anything to do with exploration will be able to attest to that.

Exploration in general is risky and oil exploration is the most risky of all. For example, of 697 new field wells drilled between 1972 and 1976, only 19, or 3 per cent, were successful. The Minister in his second reading speech drew attention to the Foreign Investment Review Board requirements of over 50 per cent local equity during the development phase. This is not the time to debate the FIRB, except to say that if ever we had a time when the rules should be relaxed in this area so that we can have equity participation rather than debt involvement, I think it is now. I just make the comment that it is a mistake to bring in the FIRB at the development phase. This has not been thought through. Why should those equity requirements come into play at the end. An Australian consortium is in a much stronger position to negotiate financial support and project control at all stages if it is known that the level of Australian ownership and control is a factor in the decision-making process.

Cash bidding detracts from the very thing in which we as a nation have a vital interest. It diverts attention away from the maximum use of the exploration dollar to some sort of guessing competition as to the minimum figure paid to government up front. It can develop into a speculative money game instead of a serious exploration program. As a nation and with the gap of future demands and known supply widening, we cannot afford to create such a climate.