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"Opportunities for Australian Companies"



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AUSTRALIAN PETROLEUM EXPLORATION ASSOCIATION

1991 CONFERENCE, MELBOURNE

9 APRIL 1991

PRINCIPAL ADDRESS

THE HON ALAN GRIFFITHS M P

MINISTER FOR RESOURCES

"OPPORTUNITIES FOR AUSTRALIAN COMPANIES'

COMMONWEALTH PARLIAMENTARY LIBRARY MICAH

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MR CHAIRMAN, LADIES AND GENTLEMEN

I WELCOME THIS OPPORTUNITY TO ADDRESS THE 1991 AUSTRALIAN PETROLEUM EXPLORATION ASSOCIATION CONFERENCE.

LAST SUNDAY, I HAD THE PLEASURE OF LAUNCHING RICK WILKINSON'S EXCELLENT NEW BOOK "WHERE GOD NEVER TROD - AUSTRALIA'S OIL EXPLORERS ACROSS TWO CENTURIES".

I MENTION RICK'S BOOK BECAUSE THE STORY OF APEA IS AN IMPORTANT PART OF AUSTRALIA'S OIL EXPLORATION STORY. APEA WAS FOUNDED IN 1959 AND, AS MIGHT BE EXPECTED, THERE HAVE BEEN OCCASIONS WHEN GOVERNMENTS AND APEA HAVE NOT SEEN EYE-TO- EYE.

THE FEDERAL GOVERNMENT OF THE DAY HAD A VERY JAUNDICED VIEW OF THE ORGANISATION, EVEN TO THE EXTENT OF BANNING GOVERNMENT INVOLVEMENT IN THE FIRST APEA CONFERENCE IN 1961.

YOU WERE SEEN BY THE THEN MENZIES GOVERNMENT AS A BUNCH OF REBELS AND INDEED APEA WAS DESCRIBED BY ONE MENZIES MINISTER AS A "MOB OF BASTARDS".

APEA HAS CONTINUED TO EVOLVE AND DEVELOP SINCE THAT TIME, AND GOVERNMENT ATTITUDES, THANKFULLY, HAVE CHANGED. THE PRESENT RELATIONSHIP BETWEEN GOVERNMENT AND APEA IS CONSTRUCTIVE AND FRUITFUL, AND ONE WHICH I AM CONFIDENT WILL CONTINUE IN THE FUTURE.

THIS CONFERENCE IS A MAJOR EVENT IN THE INDUSTRY YEAR AND APEA IS TO BE CONGRATULATED ON ITS ORGANISATION.

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THE THEME FOR TODAYS SESSION IS "OPPORTUNITIES FOR AUSTRALIAN COMPANIES". IN THIS CONTEXT, I WILL ADDRESS THE CHALLENGES THAT FACE US, AND THE OPPORTUNITIES TO MEET THESE

CHALLENGES. IN PARTICULAR, I WILL REFER TO

. INTERNATIONAL DEVELOPMENTS RELEVANT TO THE INDUSTRY;

. THE OPPORTUNITIES THAT EXIST;

. THE OUTLOOK FOR THE INDUSTRY; AND

. THE ROLE OF GOVERNMENT IN CREATING AN ENVIRONMENT TO ALLOW THE INDUSTRY TO MEET THESE CHALLENGES AND OPPORTUNITIES.

IN HIS ECONOMIC STATEMENT TO PARLIAMENT ON MARCH 12th THE PRIME MINISTER IDENTIFIED THE CRITICAL IMPORTANCE TO AUSTRALIA OF MEETING INTERNATIONAL COMPETITION. HIS FUNDAMENTAL MESSAGE WAS THAT AUSTRALIA MUST BE COMPETITIVE - THAT THE DAYS WHEN WE COULD HITCH A FREE RIDE ON THE REST OF THE WORLD ARE GONE.

FOR THE PETROLEUM INDUSTRY, THE GOVERNMENT'S POLICIES SPECIFICALLY CREATE AN ENVIRONMENT THAT WILL ENCOURAGE EFFICIENT EXPLORATION AND DEVELOPMENT. THEY ALSO AIM TO ENCOURAGE THE OPTIMAL USE OF OUR PETROLEUM RESOURCES AND MAXIMISE THE INDUSTRY'S CONTRIBUTION TO AUSTRALIA’S ECONOMIC PERFORMANCE.

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INTERNATIONAL ISSUES

LET ME BEGIN WITH A FEW COMMENTS ON THE INTERNATIONAL SITUATION.

THE RECENT GULF WAR PROVIDES AN ILLUSTRATION OF THE INFLUENCE OF INTERNATIONAL DEVELOPMENTS ON THE AUSTRALIAN PETROLEUM SECTOR.

SINCE THE GOVERNMENT DEREGULATED THE AUSTRALIAN CRUDE OIL INDUSTRY, THE PRICE PAID FOR OIL IN THE INTERNATIONAL MARKET HAS BEEN REFLECTED CLOSELY IN OUR DOMESTIC MARKET. CONSEQUENTLY, FOLLOWING THE IRAQI INVASION OF KUWAIT, AUSTRALIAN CONSUMERS FACED PETROL PRICES THAT REFLECTED THE VOLATILITY OF THE INTERNATIONAL MARKET.

THE POLICY OF EXPOSING CONSUMERS TO MOVEMENTS IN INTERNATIONAL OIL PRICES MEANT THAT REDUCTIONS IN PETROLEUM DEMAND WERE ACHIEVED THROUGH CONSUMER RESPONSE, AT LEAST IN THE SHORT TERM. FOR INSTANCE, WHEN COMPARED WITH YEAR EARLIER FIGURES, SALES OF PETROL IN OCTOBER 1990 WERE DOWN BY NEARLY 5 PER CENT, IN NOVEMBER BY 7 PER CENT AND DECEMBER 5 PER CENT. WE HAD NO SUPPLY SHORTFALL.

DESPITE INTENSE POLITICAL PRESSURE AT THE TIME FROM VARIOUS OPPOSITION MPS, MOTORING ORGANISATIONS AND OTHERS, THE GOVERNMENT MAINTAINED ITS POLICY OF INTERNATIONAL PRICING. THERE WAS NO "BILLION DOLLAR GOVERNMENT WINDFALL" AS

CLAIMED BY SOME, AND I WILL CONTINUE TO BE VIGILANT IN DEFENDING SOUNDLY BASED LONGER TERM POLICIES AGAINST THOSE WHOSE INTERESTS ARE SHORTSIGHTED AND PAROCHIAL.

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OUTLOOK FOR ΟΠ, SUPPLIES AND PRICES

THE RESTORATION OF PEACE IN THE GULF WILL ALLOW THE OIL MARKET TO REVERT TO A MORE STABLE, BUT STILL POTENTIALLY VOLATILE PATTERN.

WHERE OIL PRICES WILL SETTLE WILL LARGELY DEPEND ON THE EXTENT TO WHICH OPEC IS ABLE TO IMPLEMENT AND ADHERE TO REVISED PRODUCTION QUOTAS.

OPEC OIL MINISTERS ON 11-12 MARCH 1991 AGREED TO AN INFORMAL PACKAGE OF PRODUCTION CUTS AIMED AT REDUCING OVERALL PRODUCTION TO JUST UNDER 22.3 MILLION BARRELS A DAY FOR THE

SECOND QUARTER OF 1991. SAUDI ARABIA IS REPORTED AS REDUCING ITS OUTPUT IN THE JUNE QUARTER TO JUST OVER 8 MILLION BARRELS A DAY FROM A BASE OF BETWEEN 8.4 - 8.5 MILLION BARRELS A DAY.

OTHER FACTORS, HOWEVER, ARE LIKELY TO EXERT DOWNWARD PRESSURE ON PRICES. IN THE SHORT TERM, THE ONSET OF THE NORTHERN HEMISPHERE SPRING NORMALLY SIGNALS A SEASONAL DOWNTURN IN DEMAND FOR OIL. IN THE MEDIUM TERM, DOWNWARD PRESSURE ON PRICE IS LIKELY TO CONTINUE TO BE EXERTED AS IRAQI AND KUWAITI OUTPUT GRADUALLY RETURN TO FORMER LEVELS. ANALYSTS ARE PREDICTING THAT OIL PRICES WILL RANGE BETWEEN $US15 AND $US20 A BARREL THROUGH 1992.

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OPPORTUNITIES FOR AUSTRALIA

I WILL NOW TURN TO MORE SPECIFIC MATTERS.

ASIA PACIFIC REGION

THE ASIA PACIFIC REGION HAS EXPERIENCED RAPID ECONOMIC GROWTH OVER RECENT YEARS, WITH A RATE OF GROWTH IN OIL CONSUMPTION AROUND TWICE THAT OF THE WORLD AVERAGE. IT IS AN AREA OF GREAT OPPORTUNITY FOR AUSTRALIAN COMPANIES.

THE GULF CRISIS SERVED TO UNDERLINE THE VULNERABILITY OF OUR REGION TO OIL DISRUPTIONS. OVER 80 PER CENT OF SUPPLY COMES FROM THE MIDDLE EAST. WE HAVE A CRUCIAL INTEREST IN THE ASIA PACIFIC REGION GIVEN ITS LOW LEVEL OF OIL SELF-SUFFICIENCY AND THE IMPORTANCE OF AUSTRALIA AS A SUPPLIER OF ENERGY.

THUS, IT IS IMPORTANT FOR US TO DEVELOP A BETTER UNDERSTANDING OF HOW THE REGIONAL MARKET IS OPERATING.

THE RECENT ESTABLISHMENT OF THE ASIA PACIFIC ECONOMIC CO­ OPERATION (APEC) INITIATIVE PROVIDES AN IMPORTANT FORUM FOR AUSTRALIA TO EXPRESS ITS VIEWS ON REGIONAL ENERGY ISSUES.

ONE OF THE FIRST STEPS IN APEC WILL BE THE DEVELOPMENT OF A REGIONAL DATA BASE. MY DEPARTMENT IS PLAYING A LEADING ROLE IN THIS. WE WILL NEED TO THINK CAREFULLY IN THE APEC CONTEXT

OF HOW REGIONAL CO-OPERATION IN ENERGY, INCLUDING OIL AND GAS, CAN BE ENHANCED.

6.

TIMOR GAP TREATY

CLOSER TO HOME, OPPORTUNITIES HAVE RECENTLY EXPANDED. SIX WEEKS AGO I ATTENDED THE INAUGURAL MEETING OF THE TIMOR GAP ZONE OF COOPERATION TREATY MINISTERIAL COUNCIL. THE MEETING COINCIDED WITH THE TIMOR GAP TREATY ENTERING INTO FORCE, AND HERALDED A BILATERAL PROGRAM WITH INDONESIA TO DEVELOP PETROLEUM RESOURCES IN THE TIMOR GAP.

THIS IS ONE OF THE MOST SIGNIFICANT ACHIEVEMENTS IN THE FORTY YEAR HISTORY OF BILATERAL RELATIONS BETWEEN AUSTRALIA AND INDONESIA. IT IS A FIRST IN INTERNATIONAL RELATIONS IN THAT TWO COUNTRIES HAVE SHARED A RESOURCE RATHER THAN SIMPLY DIVIDE IT INTO COMPONENTS.

THE JOINT AUTHORITY WILL HAVE ITS TECHNICAL DIRECTORATE IN DARWIN, AND WILL BE RESPONSIBLE FOR THE DAY TO DAY MANAGEMENT OF PETROLEUM OPERATIONS IN AREA "A".

MUCH OF THE EARLY WORK OF THE AUTHORITY WILL INVOLVE DIVIDING AREA "A" INTO CONTRACT AREAS.

AWARD OF PRODUCTION SHARING CONTRACTS CAN BE EXPECTED BY DECEMBER 1991. EXPLORATION DRILLING MIGHT THEN COMMENCE IN 1992 OR 1993.

NOW THAT THE TREATY HAS ENTERED INTO FORCE, I ALSO PROPOSE TO RELEASE EXPLORATION ACREAGE IN THE AUSTRALIAN-CONTROLLED AREA OF THE ZONE - AREA "B".

I LOOK FORWARD TO SPIRITED ROUNDS OF BIDDING FOR RELEASES IN BOTH OF THESE AREAS.

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PORTUGAL

RECENTLY, PORTUGAL FILED AN APPLICATION IN THE INTERNATIONAL COURT OF JUSTICE, INSTITUTING PROCEEDINGS AGAINST AUSTRALIA, IN AN ALLEGED DISPUTE WITH RESPECT TO AUSTRALIA’S CONCLUSION OF THE TREATY WITH INDONESIA.

THE PRIME MINISTER HAS PUBLICLY REITERATED THE GOVERNMENT'S VIEW THAT PORTUGAL'S ACTION HAS NO BASIS IN INTERNATIONAL LAW AND THAT THE ACTION IS REGRETTABLE.

AUSTRALIA WILL FIGHT THE CASE WITH VIGOUR AND DETERMINATION, CONFIDENT AS TO OUR LEGAL POSITION.

AUSTRALIAN OUTLOOK

GREATER OPPORTUNITIES FOR AUSTRALIA AND AUSTRALIAN COMPANIES DO NOT EXIST SOLELY IN THE TIMOR GAP. ESTIMATES OF AUSTRALIA'S PRODUCTION, PROSPECTIVITY, AND EXPLORATION ACTIVITY HAVE BEEN REVISED AND PRESENT A MORE OPTIMISTIC OUTLOOK

THE BUREAU OF MINERAL RESOURCES (BMR) HAS ESTIMATED THAT AUSTRALIAN CRUDE OIL AND CONDENSATE PRODUCTION COULD BE SUBSTANTIALLY MAINTAINED WELL INTO THE NEXT DECADE. ESTIMATED PRODUCTION IN 2004/05 IS ONLY 5% BELOW THE FORECAST RECORD LEVEL OF 202 MILLION BARRELS IN 1990/91. TOTAL PRODUCTION

IS NOW EXPECTED TO SATISFY AROUND 65% OF TOTAL REQUIREMENTS BY 1999/2000, COMPARED TO PREVIOUS PROJECTIONS OF AROUND 40%.

BY 2004/05, DOMESTIC PRODUCTION IS PROJECTED TO ACCOUNT FOR OVER HALF OF DOMESTIC DEMAND.

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THE AUSTRALIAN BUREAU OF AGRICULTURE AND RESOURCE ECONOMICS FORECASTS SUGGEST THAT:

. DEMAND FOR AUTOMOTIVE GASOLINE COULD PLATEAU IN THE EARLY YEARS OF THE NEXT CENTURY, WHILE DEMAND FOR AUTOMOTIVE DIESEL OIL AND AVIATION FUELS COULD INCREASE.

. THE SHARE OF NATURAL GAS IN WORLD TOTAL PRIMARY ENERGY REQUIREMENTS COULD INCREASE FROM 20% IN 1987 TO 25% IN 2005, WHILE ITS SHARE OF AUSTRALIAN REQUIREMENTS COULD INCREASE FROM 17% TO 20% IN THE SAME PERIOD. UNDER SCENARIOS INCORPORATING MORE STRINGENT GLOBAL

'GREENHOUSE' TARGETS, THE SHARE OF NATURAL GAS MIGHT BE CONSIDERABLY HIGHER.

. ’ AUSTRALIAN LIQUEFIED NATURAL GAS EXPORTS COULD INCREASE FROM 3.3 MILLION TONNES IN 1990/91 TO 8.5 MILLION TONNES BY 2004/05.

THESE FORECASTS INDICATE SIGNIFICANT OPPORTUNITIES FOR AUSTRALIAN COMPANIES.

EXPLORATION ACTIVITY

THE INDUSTRY IS ALREADY RESPONDING TO NEW OPPORTUNITIES.

A RECORD 64 EXPLORATION WELLS WERE DRILLED OFFSHORE IN 1990. THIS IS THE HIGHEST NUMBER OF EXPLORATION WELLS DRILLED IN ANY ONE YEAR IN AUSTRALIA’S OFFSHORE HISTORY. THIS HIGH LEVEL OF ACTIVITY IS EXPECTED TO CONTINUE IN 1991 AND PROVIDES

OPPORTUNITIES FOR SERVICE COMPANIES TO THE INDUSTRY.

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I AM PLEASED TO ADVISE TODAY THAT UP TO 21 AREAS HAVE BEEN IDENTIFIED FOR INCLUSION IN THE MAY 1991 RELEASE OF OFFSHORE EXPLORATION.

INFORMATION CONCERNING THESE AREAS, WHICH ARE OFF WESTERN AUSTRALIA, SOUTH AUSTRALIA, VICTORIA, TASMANIA AND THE NORTHERN TERRITORY AND INCLUDE AREA B OF THE TIMOR GAP ZONE

OF CO-OPERATION, IS AVAILABLE FROM MY DEPARTMENT'S SEMINAR PRESENTATION BEING HELD THIS AFTERNOON.

THE POLICY FRAMEWORK

LET ME NOW TURN TO THE BROADER POLICY FRAMEWORK.

SINCE THE GOVERNMENT WAS ELECTED IN 1983, IT HAS UNDERTAKEN A BROAD RANGE OF REFORMS TO PRODUCE A MORE PRODUCTIVE AND MARKET-BASED ECONOMY IN AUSTRALIA. THE GOVERNMENT HAS REFORMED THE FINANCIAL SYSTEM, REDUCED TARIFFS, DEREGULATED AVIATION AND TELECOMMUNICATIONS, IMPROVED THE TAXATION

STRUCTURE, AND RESHAPED ITS OWN BUSINESS ENTERPRISES. WE NOW HAVE A DE-REGULATED EXCHANGE RATE; THE FOURTH LOWEST LEVEL OF TAXATION IN THE OECD; A MASSIVELY REDUCED LEVEL OF

INDUSTRIAL DISPUTATION; AND AN UNDERLYING RATE OF INFLATION BELOW THE OECD AVERAGE. THE PETROLEUM INDUSTRY HAS BENEFITED FROM THESE GENERAL INITIATIVES.

MEASURES HAVE ALSO BEEN INTRODUCED TO ENCOURAGE EFFICIENT PETROLEUM EXPLORATION AND DEVELOPMENT. THEY INCLUDE:

. THE DEREGULATION OF THE CRUDE OIL MARKET, AND REMOVAL OF EXPORT RESTRICTIONS ON CRUDE OIL ON 1 JANUARY 1988;

THE OFFSHORE EXPLORATION STRATEGY RELEASED IN JUNE 1990;

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. THE PACKAGE OF REFORMS TO SECONDARY TAXATION APPLYING TO PETROLEUM PRODUCTION ANNOUNCED IN THE AUGUST 1990 BUDGET, INCLUDING COMPANY WIDE DEDUCTABILITY;

. INTRODUCTION OF INCOME TAX DEDUCTIBILITY FOR PETROLEUM PLATFORM REMOVAL EXPENDITURES; AND

. DEREGULATION OF THE LIQUEFIED PETROLEUM (LPG) MARKET AND LPG EXPORTS.

THE OFFSHORE EXPLORATION STRATEGY I ANNOUNCED AT THE LAST APEA CONFERENCE HAS PROVIDED A MORE CERTAIN FRAMEWORK FOR LONG-TERM PLANNING BY THE INDUSTRY. THE STRATEGY CONSISTS OF AN EIGHTEEN-MONTH FORWARD PROGRAM AS WELL AS A LONG TERM

REGIONAL RELEASE PROGRAM.

THE RECENT BOOM IN OFFSHORE EXPLORATION HAS BROUGHT ABOUT RENEWED INTEREST IN AUSTRALIA, WITH 16 OF THE 36 COMPANIES INVOLVED IN THE LAST OFFSHORE BIDDING ROUND BEING NEW OR

RETURNING TO THE AUSTRALIAN OFFSHORE AREA.

TO FURTHER STIMULATE EXPLORATION INTEREST - BOTH LOCALLY AND OVERSEAS - 1 HAVE INVITED MY STATE AND TERRITORY COLLEAGUES TO DEVELOP A SIMILAR STRATEGY TO PROMOTE THE RELEASE OF ONSHORE AREAS.

THE INITIATIVES ANNOUNCED IN THE AUGUST 1990 BUDGET ALSO PROVIDE A FRAMEWORK FOR MORE EFFICIENT DEVELOPMENT OF THE PETROLEUM INDUSTRY.

THE RESOURCE RENT TAX (RRT) WAS EXTENDED TO BASS STRAIT PRODUCTION, REPLACING THE EXCISE AND ROYALTY REGIME.

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THIS REFORM WILL ENCOURAGE THE FULL DEVELOPMENT OF BASS STRAIT RESOURCES. IT WILL REMOVE THE UNCERTAINTIES CAUSED BY THE FREQUENT AD HOC CHANGES MADE TO THE EXCISE AND ROYALTY ARRANGEMENTS AND PREVENT SHUT-INS OF PRODUCTION DURING PERIODS OF LOW OIL PRICES.

THE RRT ARRANGEMENTS ALSO ARE BEING AMENDED TO PROVIDE FOR COMPANY-WIDE DEDUCTIBILITY OF EXPLORATION EXPENDITURE IN RRT AREAS. ECONOMIC EFFICIENCY WILL THEREFORE BE IMPROVED. THE DISINCENTIVE TO EXPLORE IN FRONTIER AREAS HAS BEEN REMOVED.

THE LEGISLATION PUTTING EFFECT TO THE BUDGET REFORMS IS EXPECTED TO BE INTRODUCED INTO THE PARLIAMENT ON 9 MAY AND BE IMPLEMENTED BEFORE THE END OF THE FINANCIAL YEAR.

THE INCOME TAX ASSESSMENT ACT WILL ALSO BE AMENDED TO ALLOW DEDUCTIONS OF EXPENDITURES ASSOCIATED WITH THE REMOVAL OF PETROLEUM PRODUCTION INSTALLATIONS. THIS IS CONSISTENT WITH THE GOVERNMENT'S GOALS ON THE ENVIRONMENT.

THE REFORMS TO RRT ARE VITAL FOR THE EFFICIENT DEVELOPMENT OF AUSTRALIA'S PETROLEUM RESOURCES. WITHOUT THEM AUSTRALIANS WOULD FACE LESS THAN OPTIMAL INCENTIVES TO ARREST THE DECLINE IN SELF SUFFICIENCY. THERE ALSO WOULD BE A LESS THAN

FULLY ECONOMIC EXPLOITATION OF THE REMAINING RESERVES IN BASS STRAIT.

THE REPLACEMENT OF THE EXCISE AND ROYALTY ARRANGEMENTS FOR BASS STRAIT WITH THE MORE EFFICIENT RRT WILL COST THE GOVERNMENT $755 MILLION IN REVENUE FOREGONE IN THE FIRST TWO

YEARS. THIS IS A CONSIDERABLE SACRIFICE IN THE CURRENT FISCAL ENVIRONMENT. IT IS INDICATIVE OF THE PREMIUM THE GOVERNMENT

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PLACES ON THE EFFICIENT LONG TERM DEVELOPMENT OF THE NATION'S PETROLEUM RESOURCES OVER THE REMAINDER OF THE DECADE AND BEYOND.

I NOTE THAT THE REFORMS TO RRT AND THE EXTENSION TO BASS STRAIT HAVE BEEN PRAISED IN A RECENT ARTICLE IN THE B U SIN E SS R E V IE W WEEKLY. THE ARTICLE NOTES THAT THE REFORMS TO RRT WILL ENABLE ESSO TO RENEW THE DEVELOPMENT PHASE IN BASS

STRAIT AND WILL SPARK A NEW BOOM IN OIL EXPLORATION. BHP PETROLEUM'S MANAGEMENT IS QUOTED ENDORSING THE REFORMS, SAYING "THE CHANGES TO RRT MAKE IT POSSIBLE TO FINISH THE WORK IN BASS STRAIT" AND "BEGIN THE TASK OF EXPLORING THE OTHER MORE PROSPECTIVE BASINS IN THE SOUTHERN OCEANS". I AM HAPPY THE REFORMS HAVE BEEN SO WELL RECEIVED.

LEGISLATION IMPLEMENTING THE NEW RRT ARRANGEMENTS IS EXPECTED TO BE INTRODUCED INTO THE PARLIAMENT ON 9 MAY. IF THE AMENDMENTS RECEIVE A SMOOTH PASSAGE, THEY WILL BE LAW

BEFORE THE END OF THIS FINANCIAL YEAR.

AFTER THE REFORMS TO RRT WERE ANNOUNCED IN THE AUGUST 1990 BUDGET, THE GOVERNMENT RECEIVED A NUMBER OF SUBMISSIONS FROM THE INDUSTRY ARGUING FOR FURTHER CHANGES TO THE RRT ARRANGEMENTS. IN PARTICULAR, SOME IN THE INDUSTRY WANTED THE CARRY FORWARD RATES FOR UNDEDUCTED EXPLORATION AND GENERAL EXPENDITURES ALTERED FROM THE ANNOUNCED 15/5 SCHEDULE TO A UNIFORM LONG TERM BOND RATE PLUS 10.

THE GOVERNMENT HAS CAREFULLY CONSIDERED THE PROPOSALS BUT CAN SEE NO COMPELLING REASON FOR CHANGING THE RATES. AS EXPLAINED IN THE BUDGET ANNOUNCEMENT, THE 15/5 TWO TIER RATE RECOGNISES THE CHARACTERISTICS OF DIFFERENT STAGES OF A PETROLEUM PROJECT AND THE SIGNIFICANT BENEFITS TO INDUSTRY OF COMPANY WIDE DEDUCTIBILITY FOR EXPLORATION EXPENDITURES.

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IN THE INTERESTS OF A STABLE TAX REGIME, FURTHER CHANGES WILL NOT BE CONSIDERED. THE INDUSTRY CAN PLAN AHEAD FOR THE LONG TERM CONFIDENT THAT THE NEXUS BETWEEN PETROLEUM PRODUCTION TAXATION AND CONSTANT CHANGES TO THE RULES HAS BEEN BROKEN. WE NOW HAVE A STABLE, SIMPLE AND CERTAIN SET OF GUIDELINES FOR OFFSHORE PETROLEUM PRODUCTION TAXATION.

THE GOVERNMENT ALSO HAS BEEN CONSULTING VERY WIDELY ON THE ISSUE OF POTENTIAL EFFECTS OF RRT ON GAS COSTS IN VICTORIA. THE CONSULTATIONS ARE NEARING CONCLUSION. THE FINAL ARRANGEMENTS ON NATURAL GAS PRICING ARE PRIMARILY A MATTER FOR THE VICTORIAN GOVERNMENT AND THE GAS AND FUEL

CORPORATION OF VICTORIA. HOWEVER, AS A RESULT OF THESE CONSULTATIONS, I AM CONFIDENT THAT ANY IMPACT ON GAS PRICES FROM RRT WILL BE MINIMAL AND THAT VICTORIAN INDUSTRY WILL NOT BE DISRUPTED BY THE RRT INITIATIVE.

THE DEREGULATION OF THE LPG MARKET WAS ANOTHER IMPORTANT DEVELOPMENT. IT WILL ENABLE AUSTRALIA'S LPG RESERVES TO BE DEVELOPED EFFICIENTLY, AND FACILITATE INVESTMENT IN INFRASTRUCTURE NECESSARY TO MEET CONSUMER NEEDS.

THE PETROLEUM INDUSTRY, AND THE RESOURCES SECTOR GENERALLY, WILL ALSO BENEFIT FROM THE INITIATIVES ANNOUNCED IN MARCH. LOWER TARIFFS ACROSS THE BOARD, MUCH WIDER WHOLESALE SALES TAX EXEMPTIONS, DUTY EXEMPTIONS FOR MINERAL PROCESSING EQUIPMENT, AND A MORE FAVOURABLE DEPRECIATION REGIME, WILL ALL MEAN LOWER INPUT COSTS AND GREATER COMPETITIVENESS FOR

THE RESOURCES SECTOR. THE NEW ARRANGEMENTS ALSO PROVIDE FOR TAX DEDUCTIBILITY FOR ENVIRONMENTAL IMPACT STATEMENTS.

ADVICE PROVIDED BY ABARE AND THE BIE INDICATES THAT THESE REFORMS ALONE WILL DRIVE AN INCREASE IN PRODUCTION VOLUMES IN THE RESOURCES SECTOR OF 5% - OR AROUND $1 BILLION PER ANNUM IN 1988 PRICES.

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IT IS NOT COINCIDENTAL THEREFORE THAT AUSTRALIA'S FAVOURABLE CIRCUMSTANCES ARE INCREASINGLY BEING RECOGNISED INTERNATIONALLY. THE 1991 INTERNATIONAL NEW VENTURES SURVEY OF 66 INTERNATIONAL OIL COMPANIES CONDUCTED BY THE ROBERTSON RESEARCH GROUP RANKED AUSTRALIA AS THE FOURTH MOST FAVOURED HOST COUNTRY AND FOURTH IN TERMS OF EXPLORATION EXPENDITURE - A JUMP FROM 20TH IN THE 1990 SURVEY.

FUTURE ISSUES

ENVIRONMENT

I WANT TO TURN NOW TO A NUMBER OF ISSUES WHICH PRESENT SIGNIFICANT CHALLENGES FOR BOTH GOVERNMENT AND THE INDUSTRY. FIRST IS THE QUESTION OF ENVIRONMENTAL PROTECTION.

THERE IS A NEED TO DEVELOP A PROCESS THAT EFFECTIVELY INTEGRATES DEVELOPMENT AND ENVIRONMENTAL CONCERNS IN A WAY WHICH SENSIBLY RESOLVES THE COMPETING DEMANDS ON AUSTRALIA'S NATURAL RESOURCES. WE MUST SHIFT ATTITUDES SO THAT ALL IN THE COMMUNITY ACCEPT A CONSULTATIVE APPROACH TO MINING AND ENERGY DEVELOPMENT THAT RECOGNISES THE IMPORTANCE OF BOTH DEVELOPMENT AND THE ENVIRONMENT. THIS IS THE CENTRAL AIM OF THE ECOLOGICALLY SUSTAINABLE DEVELOPMENT PROCESS.

THE ACTIVITIES OF THE NINE WORKING GROUPS ESTABLISHED BY THE GOVERNMENT TO EXAMINE AND DEVELOP OPTIONS AND RECOMMENDATIONS ON ECOLOGICALLY SUSTAINABLE DEVELOPMENT ARE AN IMPORTANT PART OF THE PROCESS. ALL MEMBERS OF APEA NEED TO BE AWARE OF THE IMPORTANCE OF THIS PROCESS AND BE PREPARED TO CONTRIBUTE ON AN ONGOING BASIS.

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EXPLORATION AND PRODUCTION SEEMS TO BE REGARDED AS SYNONYMOUS IN SOME QUARTERS WITH ENVIRONMENTAL DAMAGE. THE EXCELLENT ENVIRONMENTAL RECORD OF EXPLORATION ACTIVITY IS UNJUSTLY TAINTED BY THE MEDIA COVERAGE OF SHIPPING

ACCIDENTS.

IT IS IN THE PETROLEUM INDUSTRY'S LONG TERM INTERESTS TO COUNTERACT THESE PERCEPTIONS BY MORE FULLY INFORMING THE PUBLIC OF ITS COMMITMENT TO ENVIRONMENTAL PROTECTION AND THE INDUSTRY'S GOOD RECORD IN THIS AREA.

GREENPEACE

IN LIGHT OF RECENT EVENTS, IT’S APPROPRIATE THAT I COMMENT BRIEFLY ON THE RECENT CAMPAIGN BY GREENPEACE TO DISCREDIT THE AUSTRALIAN OIL AND GAS EXPLORATION AND DEVELOPMENT

INDUSTRY.

THROUGH THE DISSEMINATION OF LITERATURE, MEDIA COMMENT AND VARIOUS PUBLIC ACTIVITIES, GREENPEACE HAS NOW MADE IT EXPLICIT THAT THE INTENT OF THEIR CAMPAIGN IS A CESSATION OF

ALL OFFSHORE OIL AND GAS EXPLORATION IN AUSTRALIA.

GREENPEACE HAS CLAIMED THAT THE GOVERNMENT'S OFFSHORE OIL EXPLORATION STRATEGY POSES "A MAJOR THREAT TO THE NATIONS MARINE ENVIRONMENT"; IT HAS MISCHIEVOUSLY LINKED OIL SPILLS FROM CARGO VESSELS WITH THE OIL AND GAS EXPLORATION

INDUSTRY; AND IT HAS DESCRIBED THE LONG TERM IMPACT OF OFFSHORE OIL DRILLING AS "INSIDIOUS". IN A RESOLUTION TO THE IUCN GENERAL ASSEMBLY IN PERTH LATE LAST YEAR, GREENPEACE CALLED ON THE GOVERNMENT TO IMMEDIATELY WITHDRAW ITS CURRENT OFFSHORE OIL EXPLORATION PROPOSAL.

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I HAVE NO OBJECTION TO A PROPER DEBATE ABOUT THESE ISSUES BUT THE STARTING POINT IS THAT IT MUST BE A DEBATE BASED ON FACT, AND NOT JUST MERE ASSERTION.

IN THE INTERESTS OF ALL AUSTRALIANS IT IS IMPORTANT TO GET ALL THE FACTS IN THE TABLE.

OVER THE PAST 25 YEARS THERE HAVE BEEN MORE THAN 1000 WELLS DRILLED OFFSHORE. IN THE SAME PERIOD THERE HAVE BEEN OVER 2,600 MILLION BARRELS OF OIL PRODUCED AND A TOTAL OF AROUND 350 BARRELS SPILT.

OIL SPILT AS A PERCENTAGE OF OIL PRODUCED IS 0.00001%.

THE MAGNITUDE OF THESE ACCIDENTAL SPILLS FROM INDUSTRY OPERATIONS SHOULD ALSO BE PLACED IN PERSPECTIVE AGAINST WHAT OCCURS THROUGH NATURAL LEAKAGE OF CRUDE OIL FROM THE SEA BED.

SOME AREAS "LEAK" MORE THAN OTHERS. THE OTWAY BASIN, WHICH ENCOMPASSES SEVERAL OF THE AREAS OFFERED IN THE MAY 1990 RELEASE INCLUDING THOSE ADJACENT TO THE BREEDING GROUNDS OF THE SOUTHERN RIGHT WHALE, IS ESPECIALLY "LEAKY". FOR EXAMPLE, IN DECEMBER 1986 IN ONE INCIDENT OF NATURAL LEAKAGE IN THE OTWAY BASIN, AN ESTIMATED 7,300 BARRELS OF CRUDE OIL WERE STRANDED ON THE BEACHES OF KANGAROO ISLAND.

IN MY VIEW, THE EVIDENCE IS THAT ENVIRONMENTAL DAMAGE TO AUSTRALIAN MARINE ENVIRONS BECAUSE OF OIL SPILLS FROM OFFSHORE EXPLORATION AND PRODUCTION HAS BEEN MINIMAL AND INSIGNIFICANT IN BOTH ABSOLUTE TERMS AND WHEN COMPARED TO

BASELINE DATA IN PARTICULAR REGIONS.

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I CONSIDER THE GENERALISATIONS MADE BY GREENPEACE PUBLICLY IN RELATION TO THE RELEASE OF EXPLORATION AREAS TO BE GROSSLY MISLEADING. THEY DO NOT PROMOTE RATIONAL DEBATE OF THIS ISSUE OF NATIONAL IMPORTANCE.

LET US HYPOTHESISE AND ASK OURSELVES WHAT WOULD BE THE IMPLICATIONS FOR AUSTRALIA IF EXPLORATION WAS TO CEASE TODAY.

THE OIL AND GAS INDUSTRY, USING SOUND ENVIRONMENTAL AND SAFETY PRACTICES, IS VITAL TO THIS COUNTRY. IT DIRECTLY EMPLOYS OVER 9,500 PEOPLE, CONTRIBUTES OVER $7 BILLION TO OUR INCOME THROUGH EXPORTS AND IMPORT REPLACEMENT EACH YEAR, AND PROVIDES GOVERNMENT REVENUE OF MORE THAN $1.5 BILLION WHICH IS SPENT ON PROVIDING SERVICES TO THE COMMUNITY. THIS WOULD BE LOST.

THERE WOULD BE A SERIOUS DROP IN FOREIGN INVESTMENT IN ALL AREAS OF AUSTRALIAN BUSINESS ACTIVITIES BECAUSE OF A PERCEIVED INCREASE IN SOVEREIGN RISK

AUSTRALIA IS WELL PLACED TO TAKE ADVANTAGE OF SUPPLYING THE INCREASING ENERGY NEEDS OF DEVELOPING COUNTRIES IN OUR REGION, SUCH AS JAPAN AND KOREA. AN INABILITY TO GUARANTEE LONG-TERM SUPPLIES OF LNG TO THEIR UTILITY COMPANIES COULD, AND IN ALL LIKELIHOOD WOULD, PRECLUDE US FROM CONSIDERATION.

PERVERSELY ALSO, ENVIRONMENTAL RISKS WOULD BE EXACERBATED IF GREENPEACE WAS SUCCESSFUL IN ITS CAMPAIGN.

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WITH REDUCED SELF SUFFICIENCY, AUSTRALIA WOULD NEED TO BUILD STORAGE RESERVOIRS FOR CRUDE OIL AND REFINED PRODUCT TO GUARANTEE CONTINUED SUPPLY AND THE INTEGRITY OF OUR NATIONAL SECURITY. THESE RESERVOIRS WOULD PRESENT A SIGNIFICANT ENVIRONMENTAL RISK THROUGH ACCIDENTAL SPILLAGE.

MOREOVER, WITH A GREATER RELIANCE ON IMPORTS, THE QUANTITY OF OIL BEING TRANSPORTED BY LARGE TANKERS PASSING AT LEAST ONE WORLD HERITAGE LISTED AREA IN AUSTRALIA WOULD INCREASE BY UP TO 200 MILLION BARRELS. THE CRUDE OIL BEING TRANSPORTED WOULD BE A MUCH HEAVIER CRUDE THAN THE AUSTRALIAN CRUDE AND THEREFORE POTENTIALLY MORE POLLUTING IF AN ACCIDENT OCCURED.

FOR THESE REASONS, AND MANY MORE, THE AUSTRALIAN GOVERNMENT WILL NOT BE SUSPENDING OR TERMINATING ITS OIL AND GAS EXPLORATION AND DEVELOPMENT POLICIES. THE POLICY SETTINGS ARE UNQUESTIONABLY CORRECT. WE WILL CONTINUE TO PROMOTE POLICIES THAT CREATE AN EFFICIENT FRAMEWORK FOR PETROLEUM INVESTMENT IN AUSTRALIA, CONSISTENT WITH ENVIRONMENTAL, NATIONAL AND SOCIAL GOALS.

HAVING SAID THAT, I MUST IMPRESS UPON YOU THAT DESPITE THE INDUSTRYS GOOD ENVIRONMENTAL RECORD THERE IS NO ROOM FOR COMPLACENCY. COMPANIES NEED TO PLACE A GREATER EMPHASIS ON THE ENVIRONMENT IN THEIR ACTIVITIES. THIS CAN BE ACHIEVED THROUGH:

. EMPLOYEE AWARENESS TRAINING

. THE ESTABLISHMENT OF ENVIRONMENTAL PROTECTION PROCEDURES

PUBLIC EDUCATION PROGRAMS

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. RESEARCH INTO TECHNOLOGY THAT BETTER PROTECTS THE ENVIRONMENT

. BETTER NETWORKING WITH ENVIRONMENTAL GROUPS

. EXPANSION OF THE "APEA ENVIRONMENTAL CODES OF PRACTICE" TO INCLUDE OFFSHORE AREAS

. THE APPOINTMENT OF SPECIALISED ENVIRONMENTAL MANAGERS

. COMMITMENT TO ENVIRONMENTAL PROTECTION FROM TOP COMPANY MANAGEMENT.

A MORE PRO-ACTIVE CAMPAIGN ON ENVIRONMENTAL ISSUES BY THE PETROLEUM INDUSTRY WILL PRODUCE LONG-TERM BENEFITS.

THE ROLE OF NATURAL GAS

THIS DECADE WE FACE THE CHALLENGE OF ENSURING THE OPTIMAL DEVELOPMENT OF OUR EXTENSIVE NATURAL GAS RESOURCES.

THE NATURAL GAS INDUSTRY HAS GROWN OVER THE LAST 20 YEARS FROM A RELATIVELY SMALL BASE TO BEING OUR THIRD MAJOR PRIMARY ENERGY SOURCE, ACCOUNTING FOR 17 PER CENT OF NET CONSUMPTION OF ENERGY IN AUSTRALIA. THE EARLY YEARS OF THE

NATURAL GAS INDUSTRY IN AUSTRALIA SAW DRAMATIC INCREASES IN THE GROWTH OF SALES, UP TO 20 PER CENT PER ANNUM. THIS HAS NOW STABILISED WITH EXPECTED GROWTH FOR THE NEXT DECADE AT ABOUT 2 PER CENT PER ANNUM.

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A NUMBER OF FACTORS ARE LIKELY TO SEE NATURAL GAS PLAYING AN INCREASINGLY IMPORTANT ROLE IN OUR ECONOMY.

OVER TIME, BASE LOAD GAS FIRED POWER GENERATION AND MORE GAS FIRED COGENERATION SYSTEMS ARE LIKELY. THE AUSTRALIAN GAS ASSOCIATION'S (AGA) SPECIAL REPORT ON "OPPORTUNITIES FOR GAS IN ELECTRICITY GENERATION" HAS SUGGESTED A COAL/GAS MIX WHICH WOULD RESULT IN A BUILD UP IN GAS QUANTITIES REQUIRED TO BETWEEN 350 AND 400 PETAJOULES (PJ) BY 2010. THIS COMPARES TO AN ESTIMATED 700 P J THAT WOULD BE REQUIRED FOR USES OTHER THAN

GAS FIRED ELECTRICITY GENERATION BY THAT TIME.

NATURAL GAS AS A FEEDSTOCK IN THE PRODUCTION OF CHEMICALS SUCH AS METHANOL, AMMONIA AND UREA IS ALREADY A SIGNIFICANT USE FOR AUSTRALIAN GAS PRODUCTION. OVER TIME, NEW PETROCHEMICAL PLANTS COULD PROVIDE SIGNIFICANT NEW MARKETS FOR NATURAL GAS. GAS FOR TRANSPORT USE, EITHER AS A DIRECT TRANSPORT FUEL OR FOR CONVERSION INTO LIQUID TRANSPORT FUELS, MAY ALSO PROVIDE NEW MARKETS, ALTHOUGH MUCH WELL DEPEND ON FURTHER TECHNOLOGICAL DEVELOPMENTS.

POTENTIAL NEW DEVELOPMENTS IN THE AUSTRALIAN GAS PIPELINE INDUSTRY, SUCH AS OPEN ACCESS TO PIPELINE NETWORKS, CAPACITY BROKERAGE FOR GAS PIPELINES AND THE USE OF GAS PIPELINES AS MECHANISMS FOR ENERGY STORAGE PRESENT FURTHER SCOPE FOR AN EXPANDED ROLE FOR GAS.

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1989 SAW THE BEGINNING OF EXPORTS OF LIQUEFIED NATURAL GAS FROM THE NORTH WEST SHELF TO JAPAN. BY 1993 IT IS EXPECTED THAT THESE EXPORTS WILL TOTAL SOME 6 MILLION TONNES PER YEAR AND GENERATE SOME $1.5 BILLION PER YEAR IN GROSS EXPORT RECEIPTS.

AS THE DECADE PROGRESSES DEMAND FOR NATURAL GAS IN JAPAN ALONE IS EXPECTED TO EXCEED SUPPLY FROM EXISTING PROJECTS, POSSIBLY BY AS MUCH AS 8 MILLION TONNES BY 2000. FURTHER

DEMAND FOR LNG CAN BE EXPECTED FROM MARKETS IN THE REPUBLIC OF KOREA, TAIWAN AND THAILAND.

OVERALL IT IS LIKELY THAT MAJOR BUYERS WILL FAVOUR THE DEVELOPMENT OF NEW LNG PROJECTS IN COUNTRIES THAT CAN PROVIDE A GREATER DEGREE OF SECURITY OF SUPPLY. AUSTRALIA IS WELL PLACED IN THIS REGARD.

AUSTRALIA HAS SUFFICIENT KNOWN NATURAL GAS RESERVES TO MEET EXISTING LEVELS OF DEMAND FOR MANY DECADES. WE ARE ALSO RELATIVELY UNDEREXPLORED AND IT CAN REASONABLY BE EXPECTED

THAT SIGNIFICANT NEW DISCOVERIES WILL BE MADE.

THESE FACTORS MAKE IT PARAMOUNT THAT THE GAS INDUSTRY CONTRIBUTES TO AUSTRALIA'S FUTURE ENERGY NEEDS IN AN EFFICIENT MANNER. THE INDUSTRY COMMISSION IS CURRENTLY CONDUCTING AN INQUIRY INTO ENERGY GENERATION AND DISTRIBUTION AND ITS FINDINGS WILL BE TAKEN INTO CONSIDERATION BY THE GOVERNMENT IN THE DEVELOPMENT OF A

"GAS STRATEGY' FOR THE REMAINDER OF THE DECADE.

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THE ROLE OF GOVERNMENT IN THIS REGARD WILL BE TO CREATE AN ENVIRONMENT THAT FACILITATES THE OPTIMAL DEVELOPMENT OF GAS RESOURCES BY THE INDUSTRY. A PARTICULAR CONCERN OF THE GOVERNMENT WILL BE THAT THE NECESSARY INFRASTRUCTURE IS DEVELOPED UNFETTERED BY PAROCHIAL INTERESTS. WITHIN THE AUSTRALIAN MINERALS AND ENERGY COUNCIL, A WORKING PARTY OF

OFFICIALS HAS ALREADY BEEN FORMED TO REPORT ON REGULATION OF INTERSTATE GAS PIPELINES. THE WORKING PARTY WILL BE SEEKING THE VIEWS OF INDUSTRY IN ITS REVIEW.

CONCLUSION

TO CONCLUDE I WILL DRAW TOGETHER THE THREADS OF THIS ADDRESS.

THE CONTRIBUTION MADE TO AUSTRALIA'S PROSPERITY AND DEVELOPMENT BY THE PETROLEUM INDUSTRY IS SIGNIFICANT.

THE GOVERNMENT IS SEEKING TO MAXIMISE THIS CONTRIBUTION BY PUTTING IN PLACE THE MOST EFFICIENT FRAMEWORK FOR PETROLEUM INVESTMENT IN AUSTRALIA:

. WE HAVE PROGRESSIVELY REMOVED IMPEDIMENTS TO THE EFFICIENT DEVELOPMENT OF THE PETROLEUM INDUSTRY

. WE HAVE INITIATED POLICIES THAT FURTHER ENCOURAGE EFFICIENT PETROLEUM EXPLORATION AND DEVELOPMENT, CONSISTENT WITH ENVIRONMENTAL, NATIONAL AND SOCIAL GOALS.

PETROLEUM COMPANIES SEEKING TO PLACE VALUABLE INVESTMENT DOLLARS CAN BE CONFIDENT THAT AUSTRALIA OFFERS A COMPETITIVE, RELIABLE AND RESOURCE-RICH BASE FOR THEIR OPERATIONS.

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I HAVE OUTLINED TODAY SIGNIFICANT OPPORTUNITIES FOR THE DEVELOPMENT OF AUSTRALIA'S PETROLEUM RESOURCES AND THE POTENTIAL FOR AUSTRALIAN COMPANIES.

THE THEME OF THIS YEAR’S APEA CONFERENCE IS "NEW CONCEPTS FOR OLD AREAS". THE GOVERNMENT HAS APPLIED NEW POLICIES TO SUBSTANTIALLY IMPROVE THE OPERATING ENVIRONMENT FOR THE PETROLEUM SECTOR.

WITH AUSTRALIA'S GOOD PROSPECTIVITY AND AN INDUSTRY LESS RESTRICTED BY REGULATORY BARRIERS, I AM CONFIDENT THAT AUSTRALIA WILL FIND BOTH MORE OIL, IN OLD AREAS, WITH NEW IDEAS; AND OIL IN NEW AREAS WITH BOTH OLD AND NEW IDEAS.