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Thursday, 2 November 1967

Dr MACKAY (Evans) - I would like to try to give some explanation in answer to the questions that have been asked by the honourable member for Melbourne Ports (Mr Crean) and no doubt by manyother people throughout Australia. The situation is that the potential exploration area offshore, in the 1 million square miles that the honourable member has mentioned, has virtually been taken up already, before this legislation comes into effect. The permit areas that he has quoted of upwards of 50,000 square miles are the areas that have already been granted by the States. The honourable member used the word 'illegal' in referring to these grants because he knew there had been no determination made of the ownership of the areas outside the territorial 3-mile limit, or of the question as to who should administer these areas. But I would ask this question: Has not this exercise by the States been eminently worthwhile from the point of view of Australia's interests? Has not the whole economy of the nation been changed because of the discoveries already made in the areas that have been taken up under high risk conditions by the companies who have been carrying out the search?

One of the factors that attracted them to commence their explorations was the very size of the areas they have been able to explore. Now we have reached the stage at which the nation is contemplating legislation in the various Parliaments which will bring together the legal systems of the Commonwealth and of the States. We are contemplating a very definite limitation of the size of areas to be covered by exploration permits. I hope the honourable member for Melbourne Ports is listening, because this is a serious answer to what I understood to be a serious question on his part, and I hope to be able to convince him, the Parliament and the people.

If an oil exploration company takes up a marine area of 10,000 square mites the honourable member contends that this is an unreasonably large area for a preliminary examination. I say preliminary because there is a series of well denned steps which are taken to determine whether an area has any potentiality. Almost certainly the first operation is an aeromagnetic cover, and this may be completed within a week or so over an area of 10,000 square miles. It is not, by oil exploration standards, a very expensive manoeuvre, but it gives a broad definition of the contours of the basement rock within the area. It shows whether there are broad outlines of conditions which might make it possible to expect the existence of the trap conditions necessary for the accumulation of deposits of oil or gas. When the aeromagnetic survey has been conducted and opinions and interpretations have been obtained on it, the next phase is a marine seismic operation. An explosive device is towed behind a ship and the percussion waves of the explosion are interpreted electronically as they are transmitted through the various rock layers beneath the bed of the ocean. This is a highly technical process but it may be completed at sea very much more rapidly under favourable weather conditions than on land, where obstructions of all kinds exist. It is easier and cheaper to do it at sea. So having completed those two methods it can generally be stated with a fair degree of accuracy whether trap conditions exist which would make it possible for worthwhile accumulations of oil and gas to exist in the area.

After this has taken place and it is suspected that large structures worth drilling are to be found in the area the marine seismic is then carried out on a highly reduced scale to make a total examination of particular areas with a view to finding a drilling target. Up to this point the possible expenditure over the area of the size I have mentioned might be of the order of $250,000. In my estimation that would be a reasonable figure to take as a point of argument in a reasonably accessible area. But when it comes to drilling one of these targets it is a different matter. The economics change dramatically. Then expenditure of between $2m and $4m on one hole would not be out of the ordinary.

So what the legislation has done has been to limit the maximum size of the area; of the exploration permit that may be granted to a company. I have already pointed out that a reasonable assessment of its potential can be made within the financial resources of most companies, including Australian exploration companies, but when it comes to drilling holes in the area to search for oil a larger and rather different proportion of finance is required. So the very wise precaution has been taken in this legislation of providing that after this initial period - this period of geophysical assessment of the area - has been undertaken, within 6 years half of the area must be surrendered to enable other people to have a go at it so that people cannot just sit on areas and prevent them being exploited to the full extent of their potential. When this surrender at the end of 6 years at the latest takes place, half the area remains to the company that originally carried out the exercise. Then it must move on to the next phase of its expenditure. Nothing more worthwhile can be determined without drilling and if it is to fulfil the functions of its shareholders and justify the expenditure it has already made of $250,000; if it is to fulfil its reason for existence it must proceed to the drilling phase. In other words, the finance must be found to drill a well. Then there is another period of 5 years during which this next phase of examination of the area must take place before another half of that half is surrendered. So at the end of 1 1 years 25% of that area or 2,500 square miles remains, and so it goes on, with 5 yearly surrenders.

I believe that the whole of this picture is reasonable, sensible and absolutely in keeping with the financial possibilities of Australian as well as overseas companies and that it means that there will be a reasonably good examination of the petroleum potential of the area, which has been described as fantastically large because it is 10,000 square miles. This is not a very large area by land standards of authorities to prospect that have already been granted in Australia. Admittedly some of them are much too large in my estimation. Nevertheless, phenomenally good jobs have been done by overseas and Australian companies in partnership. I think of the Surat Basin, for instance, where authorities to prospect of this magnitude are not out of this world and where they have been rather thoroughly examined, at least seismically, if not by a concentrated drilling programme.

I have maintained that the contention that these blocks are too large is not true. It is not in keeping with the facts. While it is true that the blocks in the North Sea may be smaller - 100 square miles - it is also true that in that area overseas companies as well as British companies may hold multitudes of permits. It may be possible for Esso or Shell to hold 10, 12 or more of these areas. So once again we sec that the whole thing is on a different scale of magnitude. In the North Sea you have one area in close proximity to a market of 500 million people. The whole point, as the shadow Treasurer should realise from first principles, is that if you have a market of that magnitude the economics of spending money on a cheap fuel source are different from exploring in the wide open spaces of Austraia where the assessment of your product meets a whole new economic structure, a whole series of burdens of charges of transportation when a discovery has been made. So I maintain that this legislation provides for a fair, reasonable and equitable distribution of the exploration areas.

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