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Tuesday, 12 November 1985
Page: 2005


Senator COOK(8.51) —The Senate is debating the Petroleum (Submerged Lands) (Cash Bidding) Amendment Bill 1985 [No. 2]. The Bill arises because the Government, on behalf of the people of Australia, owns all of the off-shore acreage that is prospective. The issue that this Bill contemplates is: What is the best way of licensing various exploration companies to explore in those areas? It proposes to amend the existing system of work program bidding by introducing a system of auctioning those leases under a sealed tender system so that an amount of money is paid up front for the right to explore and later the right to develop those areas. This Bill was first introduced in March this year. It was defeated at that time. Since then the Government has examined the various suggestions put forward by the industry as to how the work program system can be improved. After that examination it has decided to reintroduce this legislation once more in the belief that what this legislation proposes, after an exhaustive canvass of the options, is the best course for Australia.

In regard to the response to this legislation from the organised industry associations, there has been some criticism of the Government continuing to follow its original intentions. But I believe there is evidence to show that while, of course, at the industry association level a unified voice has been put forward, players in the industry are not necessarily as united as their association's voice might indicate and that there is support in industry for what the Government is doing. A number of exploration companies and those interested in pursuing exploration realise that cash bonus bidding is an attractive, intelligent, efficient, fair and simple system for determining the right to explore in various areas. The area to which this legislation would apply in the first instance is the Timor Sea area around the Ashmore and Cartier Islands. It is an area that is regarded as prospective. Although some speakers in this debate have said that it is a wildcat area, I think that by and large the industry regards it as being an area of eminent prospectivity in terms of what is available in Australia.

Since I spoke in the last debate in March and mentioned in that debate most of the things that I would want to say now in support of this legislation, I propose this evening to content myself with dealing with a number of assertions that have been made by the industry since the Government tabled its legislation. I think one of the key starting points is that in the last debate the Opposition tried to rely upon the fact that not all State governments supported the Commonwealth in regard to this legislation. It referred specifically to the Western Australian Government. It was not true at the time at which the debate was held that the Western Australian Government did not support the Commonwealth, because it did. But earlier remarks by the Premier had indicated an opposition to the legislation.


Senator Crichton-Browne —Where does he stand now?


Senator COOK —The Western Australian Government, in a statement by the Minister for Minerals and Energy, the Hon. David Parker, on 7 November, stands truly in support of the Commonwealth's cash bidding legislation.


Senator Durack —That is a change of heart. When did they change their tune?


Senator COOK —That matter is known by anyone who has followed the debate. Senator Durack, as a Western Australian, ought to have done so. He would then know that that is the Western Australian Government's position. It was reported in the West Australian on 7 November. I commend to Senator Durack a reading of the daily newspaper in Western Australia to bring his lamentably poor knowledge on this subject up to scratch. So the criticism that all State governments, or in this case the relevant State Government, do not support it is not a criticism that can be made on this occasion. It was not a criticism that could be made on the last occasion. But a number of industry spokesmen have concentrated on picking up a few points which I think require some reply. Anyone who consults the second reading speech of the Minister for Resources and Energy, Senator Gareth Evans, will see that most of these points were answered when the legislation was introduced last week. But most recently an industry spokesman has said that this legislation is inappropriate because world oil prices are unstable. If prices fell, there would be less chance that an exploration industry would want to be very active in Australia and thus any extra imposition would be a burden to it. It is said as well that off-shore exploration in Australia has fallen over the last year.

I will deal with those two arguments. The first concerned oil prices and it is certainly true that oil prices at this stage are volatile. The possibility is that after the meeting of the Organisation of Petroleum Exporting Countries early in October that OPEC may not be able to contain the aspirations of its member countries and some will start producing over quota. That may lead to a fall in oil prices world-wide. If that occurs, of course, the impetus for exploration world-wide will be less. That will apply irrespective of what this Government does and whether or not this legislation is passed. But if one looks at the Forward Estimates, even in expectation of the problems that OPEC is facing, one will see that over the span of at least the next decade, the prognosis is that the price of oil will remain about constant in terms of current prices and that with a fall in prospect in the near future that will provide a significant stimulus to the world economy. Because of that stimulus, world production will pick up and with that the demand for oil and other energy sources will pick up as well.

In regard to the prognosis, despite what is a very interesting scenario with OPEC at present, the longer term suggests an increasing demand for oil at least by 1995 or beyond. Those exploration companies starting out to prospect are not putting their money on something that would be a failure in the longer or medium term. I do not say, therefore, that it is inappropriate in view of the OPEC situation for this legislation to come forward. That is not a factor. In the longer term it is a factor that makes this legislation more appropriate. The second leg of the argument concerns exploration. The argument is that exploration activity in Australia is declining and therefore it is an inappropriate time to introduce cash bidding. In fact, that is not true. Activity in 1984-85 maintained the momentum of the past two years. In 1984-85 a record level of exploration was achieved. Three hundred exploration wells were drilled in that period, 261 of them on-shore and 39 off-shore. That compares with 222 wells drilled in 1983 and 1984. Seismic activity showed some improvement over the 12 months to 30 June 1985 with a total of 78,800 kilometres of seismic surveying being undertaken, compared to 54,155 kilometres in 1983-84.

The outlook for 1985 is pleasing. In January this year the Australian Petroleum Exploration Association released its survey of industry expectations for the year ahead. The survey indicated that the expectation is that 238 exploration wells would be drilled, 201 on-shore and 37 off-shore. More recent estimates by the Bureau of Mineral Resources suggest that drilling activity will be 10 per cent to 15 per cent higher than the APEA suggested would occur this year. That would mean that more wells than predicted would be drilled and more surveying would be undertaken. It is also estimated that exploration expenditure this year will be $791m, $378m on-shore and $413m off-shore. Whilst it is being asserted by the industry that exploration will decline, the activities of the financial year show that that is not true. The suggested prognosis for the rest of 1985 also shows that that is not true. In the climate of a stong and continuing commitment to exploration, despite the records that have been achieved over the last years, it is an appropriate time now to introduce this sort of legislation.

The other major argument that has been put forward by the Opposition is that this legislation is merely a revenue raising device by this Government. Of course, that is not true. If it were true, we would fail in terms of the argument constructed by the Opposition. If Opposition senators believe what the industry says-they have relied upon industry forecasts to sustain their arguments so far-there will be less activity and, as a money raiser, the legislation will not be an effective device. We would, in fact, be backing a loser. I do not think it can be sustained in those terms that this legislation is purely a money raising exercise. It is not. What it will do though-this exposes the humbug of the Opposition-is allow the market to decide, in place of government regulation, which parties are to be allocated exploration permits. The Opposition, since the ascendancy of John Howard to the leadership of the Liberal Party, has stumped the country arguing for deregulation. However, it committed itself in the debate in this chamber a few minutes ago to voting for regulation and against deregulation in the terms that this Bill envisages. It has done that in direct and stark contradiction of the ideological commitment made by its leadership. I join with Senator Sanders in saying that one must well and truly speculate on the reasons why that is the case. Since the ideology of the Opposition is variable according to the circumstances, it is clear that on this occasion it prefers a cumbersome red tape machinery of government bureaucracy to determine the allocation of prospective areas and not to allow the market to decide.

The arguments that have been put up, particularly by Senator Parer in his contribution to the debate, suggest that there are problems and, therefore, the legislation will not work and cannot work. If all the problems that Senator Parer has identified exist the value of the bids will be less than otherwise anticipated. The market mechanism will have worked because the bidders themselves will have assessed the risks involved and made an adjustment to the financial commitment they are prepared to venture in order to win the bid to prospect. That would be a direct and proper operation of the market mechanism.

I contrast that operation to one in which the joint authority is put into a situation of having to differentiate between work value bids that have been submitted. On the experience of the Gippsland Basin, referred to by the Minister in his second reading speech and by Senator Sanders tonight, if we were in a position of having to assess work value bids, we would not be at all sure that the bids put in for work programs would ever be fulfilled and that they were not over-inflated in order to win the contract so that an application for them to be amended could be made later. The judgment we would have to bring to the different exploration philosophies, technology and approaches of the various bidders would be directly subjective. It would be unable to be defended if the assertion were made that some unfair assessments were being made. This Government is concerned that a potentially valuable exploration permit should be allocated on a basis on which it can never be alleged that it was not fairly done. With the degree of subjectivity involved in the work value bids, given the recent record of Gippsland, that would be a hard assertion to defend were it to be made in any future allocation of licences. The market defends the Government absolutely from that assertion by making the determination. I believe, as I have said, that that is proper and responsible.


Senator Crichton-Browne —Has Mr Parker any reservations at all about cash bidding?


Senator COOK —Let me deal with Mr Parker in a minute. Since Senator Crichton-Browne is very interested in what Mr Parker might think about cash bidding, on behalf of his Government he has put forward views which have been taken into account by this Government and which are reflected in the Bill before the Parliament. Since they are reflected in the legislation, the answer to Senator Crichton-Browne's question is that he is quite happy and the Western Australian Government supports the legislation.


Senator Crichton-Browne —Does he have no reservations?


Senator COOK —He has expressed reservations and they have been taken into account. The legislation before the Parliament reflects those reservations. That is the end of the story.


Senator Crichton-Browne —So he has no reservations about the present legislation.


Senator Gareth Evans —He has considerable reservations.


Senator Crichton-Browne —That is not what Senator Cook said.


Senator COOK —If Senator Crichton-Browne wants to speak on this legislation I suggest that he put his name on the list of speakers. The point I made in answer to his interjection, which he wants to turn into a speech, is that Mr Parker has expressed reservations and those reservations have been taken into account. They are now reflected in the legislation and the Government of Western Australia is not opposed to it. That is the case. If Senator Crichton-Browne wants to pretend that fairy stories are reality he can do so. That has been typical of his contribution in this chamber in the past and I guess it will be in the future.

The final point I make is that the Senate Standing Committee for the Scrutiny of Bills has constantly drawn attention in this chamber to delegating authority down the line in unspecified ways. In this legislation there is a considerable element of delegation of responsibility to a statutory body to make a decision. I suggest that in view of that the reasonable question to meet the standards required of us by the Senate Committee for the Scrutiny of Bills is: Is there a fair alternative method of making an allocation? This legislation says that there is and it reflects that method by providing for cash bidding. I could talk about a number of other aspects, all of which have been dealt with. I conclude by saying that this method has been proven as successful in the United States. It enables a fair value to be decided by the market for the privilege of exploring various areas off-shore in Australia. It enables small Australian companies to participate in the form of consortia. It enables proper decisions to be made about degrees of prospectivity because seismic surveys will show what are the chances of finding oil. The method will be of benefit to the Australian community as a whole. Therefore, I commend the legislation.