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Tuesday, 14 May 1985
Page: 1936


Senator Sir JOHN CARRICK(10.14) —The Senate is debating the Petroleum (Submerged Lands) (Cash Bidding) Amendment Bill 1985 which seeks to introduce a new system of allocation of oil exploration leases off-shore. It seeks to replace the present system of allocating the leases, a system known as the work program. If this legislation is to succeed those who support it here and in another place must argue and show, first of all, that the present system has been a significant failure and that the new system would, of necessity, be an improvement. They have not advanced such arguments. They could not advance the present system as a failure because the Fraser Government's program of oil exploration has been and remains an outstanding success. If it is to be altered one must look at the world scene and the Australian scene and argue why it should be altered.

Senator Cook mentioned that the International Energy Agency-on which for a number of years I was the Australian representative and for part of that time chairman-has indicated that in a very short time the world will once again experience a shortage of oil. I thoroughly agree with that. This will happen not only as the world moves out of recession but also as the developing countries seek more energy. Primarily they have no source of energy other than oil energy and it will be the developing countries that will be making big demands. It has been pointed out by the IEA that every 10 to 15 years it will be necessary to find another oil field the size of Alaska or the North Sea just to keep pace with demand. In the past 10 years no such field has been found. Around the world the recession has demonstrably driven people to conserve oil and to move towards alternative fuels, and this, of course, has kept demand down. In future oil will again become scarce and its price will go up.

What of Australia? Let me take the performance of the past Labor Government as a starting point. When the Whitlam Government came to office in 1972 there were some 23 oil drilling rigs in Australia. When it went out of office there were two, and only one was working. In 1975 only 25 holes were drilled in Australia. In other words, in those three years the Labor Government had managed, very successfully, to cease all significant oil exploration in Australia.

Let us look at what has happened to the projections. The experts said that in 1977 our oil self-sufficiency would be 67 per cent-that is, we would have to import some 33 per cent-and that if we did not find significantly more oil by 1985 our self-sufficiency would be 50 per cent, by 1990, 40 per cent and by the turn of the century 10 or 20 per cent; and every 10 per cent fall would mean more than $1 billion in valuable foreign currency to import oil into Australia. Quite clearly, if that fall had occurred we would not have been capable of finding the foreign exchange to pay for the oil, nor would we be able to do so now due to our precarious balance of payments.

What happened? Against the abject failure of the Labor era, oil exploration in Australia became a conspicuous success and was commented on throughout the world. The International Energy Agency said that the methods of energy search in Australia could not be bettered. That was its comment, which I paraphrased from memory. In 1982-83 some 230 holes were drilled in Australia. The figure had moved to record proportions and was inherited by the Hawke Government. Not only had we then surpassed the 67 per cent self-sufficiency level but we had moved up to about 77 per cent and were capable of exporting oil. Because the only indigenous oil is what we call the lighter end of the barrel, the lighter fraction, we must import something like 20 to 25 per cent of the heavier fraction-the bitumens, the tars and so on. At this moment in the lighter fractions we are fully self-sufficient, but the advice from the Bureau of Mineral Resources, Geology and Geophysics and from the experts is that within a lead time of five years Australia's self-sufficiency will fall, and will fall significantly, unless we keep up a very significant successful oil search program. There is no indication at all that this will be so. Therefore whatever we do must be done with the best advice and the best intention to find more oil.

In the extraordinary period of the Fraser Government the work program was used and was part of a mechanism which provided the allocation of leases to lessees who in their work were conspicuously successful. Australia is recognised throughout the world as perhaps the most difficult country for oil exploration-most difficult in terrain, most difficult in size and in cost, and doubly so because the prospectivity, where it does look more real, is often off-shore and an off-shore well can cost $10m, $20m or more. Australia has these enormous difficulties and yet in the seven to eight years of the Fraser Government we were able to overcome a great peril in terms of a potential shortage of oil and to put into place a program of great success. It is now proposed, for whatever reason, that we change that program.

Why are we changing the program? The proposition is virtually that we take away a program of allocation by a work program and we put in its place that the lease goes to the highest bidder. That is the test-the fellow with the highest amount of money to put forward gets the lease. How strange is this? Let us look at the works program which has been criticised by the Labor Party. In nearly four years as Minister it was never seriously suggested to me by anybody that the work program was significantly defective. Let me make that perfectly clear. Some people suggested to me that if one wanted to raise money for tax purposes, one would look at front end bonuses. It has never been suggested that the front end bonus was other than a money raiser. What else could it be?

I wish to look at this matter because Senator Parer explained something of the details of the approach to this work program. This is what happened: The responsible Department and the responsible Minister had before them information on all of the various bidders-information upon the integrity of the bidder, the commercial and industrial reputation of the bidder; the financial solvency of the bidder; the capacity of that bidder to bring forward the finances that were necessary; the technical capacity of the bidder; the skills and nature of the expertise of the bidder; the background experience of the bidder and the knowledge of the bidder of the geological and seismic nature of the area; all these things. In addition, they had before them the existing commitments of the bidder. Would the bidder be free to give full attention to the program and would the bidder therefore be free to carry out the program in the time that was allotted. What better method could there be?

Is it suggested that instead of that method, when we say that we will give it to the highest bidder, that is a more scientific and more objective arrangement than going through tenders, just as a tender board does, to decide the highest tender? If it is wrong for the work program to be in place, why do we in everything we do as a Commonwealth government or as a State government use exactly the same considerations as boards that consider tenders? They are exactly the same considerations. We look at the quality and nature of the people coming forward and we do not necessarily say that those who submit the highest tender-the highest bid-will get the lease. That would be a nonsense situation.

It was said by Senator Cook that he could demolish this argument about work programs because in 1980 in the Bass Strait there were some 29 bidders for some three leases, and the history was that in particular cases some of the work programs were not discharged. How can he say that those three bidders might not have been the highest cash bidders? How can he say that a higher cash bidder put in place of another bidder would have any other experience? The thing becomes a nonsense anyway. During my time as Minister I had occasion repeatedly to say to my Department: 'Let me know where there are instances of work programs which are not being carried out and which are not being kept up to date because it is absolutely necessary that we keep the integrity of the programs'. It was always competent upon the Minister to call for the surrender of the lease if in fact the program was not being discharged.

We had an extraordinary situation. We had and still have in place in Australia the most successful oil exploration program that one could devise; a program internationally recognised as such, changing the face of Australia from a perilous shortage to current self-sufficiency, and with the knowledge that, backed by import parity and with the system of integrity that was in place, it would go on again with a tail wind, in very difficult circumstances, to produce self-sufficiency into the 1990s. We knew that in the 1990s Australia would once again face a major challenge in terms of oil shortage. But suddenly the Government has come in and said: 'We are going to change this-we are going to change what was a first class, successful program and we are going to take away a method that is universally recognised in tendering considerations throughout the world, a program that is recognised for its efficiency and its integrity, and we are going to put in its place a program whereby we will give the tender to the highest bidder'. Yet there is no proof at all that the highest bidder would not have the highest failure rate. Nothing has been said to justify it.

I think it is nonsense for the Government to come forward and say that this is not a program it is putting in place to raise money. Why would it put it in place otherwise? Does anybody really believe that the highest bidder is necessarily the most experienced, the most reputable, the best qualified, the best equipped and the most knowledgeable? How can simply putting the highest amount of cash on the table supplant all the other qualifications that are necessary in this situation? It seems to me a nonsense of some magnitude that this should be so. In any case, what a silly situation it is. What the Government is doing is in fact putting a tax on high risk investment in Australia. Even the most prospective oil fields and the most prospective leases have very high opportunities for failure. We are in fact taxing a person who is very likely to fail.

If the Government wants to raise revenue, let it give the maximum stimulus that can be given so that when an explorer finds oil, by all means look to the national interest. It is the duty of government under those circumstances to ensure that a fair return comes back to government once an explorer finds oil. But let us in fact say that in those cases where there is reasonable prospectivity-those very rare cases in Australia-we are going to have a system that makes decisions based on proper considerations. We say that as they are the right ones for tendering in all other commercial and industrial processes we are going to decide by those methods and not by in fact calling in a speculative state for the highest bidder. There is ample evidence that the highest bidder is often also the most committed-committed elsewhere-who simply wants to reserve his bets and hang on to a particular lease for a while.

Debate interrupted.