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Thursday, 16 May 1968

Mr FAIRBAIRN (Farrer) (Minister for National Development) - If has been said by many distinguished people and distinguished geologists that if cheap oil is wanted the world's cheapest should He bought, that it should be obtained from the Middle East where there are tremendous fields, and that a country should not try to find its own oil. I hope that honourable members soon will take the opportunity to read a book by a most distinguished geologist who probably has- had more to do with the discovery of oil in Australia than has any other person. I refer to Sir Harold Raggatt who, until comparatively recently, was the head of my Department. Let me quote a few sentences from his book. He said:

We must recognise, however, that unless we find large high-yielding fields -similar to those in Die Middle East the Australian community must continue to pay a premium for the attainment of self sufficiency in oil supplies. If all we want is cheap fuel we should rely on imports. That, however, we cannot do without undue risks to our security and the payment of large sums in foreign exchange. The finding of large quantities of oil will, therefore, add greatly to our trading solvency and our security but will not result in an industrial revolution.

Those words are well worth marking because I do not think anyone has contributed more to the discovery of oil in Australia than has Sir Harold Raggatt. The Government decided that it did want local oil. It was not prepared to have the constant worry of getting oil from overseas. For security reasons we have had constant worry and apprehension. We hold only about 9 weeks supply of petrol on hand. This quantity varies, of course, but there have been times when flare-ups in the Middle East have been of vital concern to us and every day we have had to see how much oil has been on the sea. So for security reasons it is urgent for Australia to have its own oil. The balance of payments situation is another factor. At present we are paying $340m per annum for imported crude oil. Surely it is worth any sort of incentive to try to see that crude oil is produced locally. The Government has provided a great many incentives and encouragements to. see that it secures local oil, and the Government is under criticism today because its efforts have been successful. Had the Government failed to get oil nothing would have been said. When incentive payments were introduced there was no word from the Opposition but now that we have been successful and the incentives have encouraged people to find oil we are under criticism.

The search for oil has been long and arduous. After all, there are only about five commercial fields in Australia at present. As I have said, I hope that honourable members will take the opportunity to read Sir Harold Raggatt's book 'Mountain's of Ore' because in it he points out that originally Sir William Walkeley tried to interest overseas companies in coming here to assist him to discover oil. At one stage he thought that he had gained the interest of a Californian company but proposals at that time for the nationalisation of banking and the nationalisation of airlines caused that company to get cold feet and withdraw. It was not until the LiberalAustralian Country Party Government came into office and offered some stability and incentive that the Rough Range discovery was made. Unfortunately this field did not last for very long. Shares slumped and in 1957 it looked as though the search for oil in Australia would cease. That is when the Government made its decision to do everything possible to encourage the discovery of oil in Australia. Its first action was to step up expenditure, by the Bureau of Mineral Resources on geophysical and seismic work as well as on the delineation of basins. It then provided the oil search subsidy.

I think I am correct in saying that Australia is the only country which provides a subsidy for drilling, but we insist that cores be returned. From an inspection of those cores we have been able to do a lot of geological mapping. In fact, the discovery of phosphate in Queensland was due directly to the rinding of phosphate in one of the returned cores. We have given favourable tax concessions. We have decided - I think it is one of the most vital decisions that the Government has made - that all indigenous crude oil produced here must be taken before there is a free by-law entry of overseas crude oil. This is the sort of thing we need if we are to encourage people to find and produce oil locally: I am sure that all honourable members will recall that for more than 12 months oil produced, at Moonie was hawked around Australia without one buyer being found. The Commonwealth Government had to step in, knock heads together, and say that the Moonie oil had to be taken. Now as a result of Tariff Board decisions and a Government decision we have a system under which we assure producers that Australian indigenous crude will be taken before the overseas oil will be allowed in.

We have the incentive price, which has been mentioned today. This is another incentive for people to discover oil. They know that over a 5-year period they will be guaranteed sufficient to meet the extraordinary costs which have been imposed upon them. We have the off-shore oil agreement. Australia is the only federation in the world where it has been possible to obtain agreement between State governments and the Federal government under which there will be no litigation. There is no need for me to repeat whatI have said before about other federations which are involved in litigation. In the United States of America, for example, vast sums are held in escrow because no-one knows whether the Federal government or the State governments own them. The courts have tried to decide the matter, but they have not succeeded. I do not think they will decide in my lifetime what actually is the position. We have been able to avoid this situation. This has given more encouragement and incentive to people to come here and invest vast sums. Lastly, we have a favourable economic climate and stability of government. The present Government has been in office for 19 years and from the way the Opposition is going at present it seems that we will be here for a lot longer. But who can say which one of all the incentives was the one that really encouraged people to come to Australia to look for oil? We have been told that if we did not have incentives they still would have done so. This reminds me of a remark I once heard made by a famous British businessman, Lord Leverhulme, who used to sell a lot of soap and who spent a tremendous amount of money on advertising. He said he was quite certain that 90% of the money spent on advertising was wasted but he did not know which 90% it was. This is also our situation. We have various forms of incentives and we do not know whether people would still be induced to search for oil if we abolished one form of incentive.

We have had success, and very great success, in the search for oil. I congratulate the companies on the excellent work they have done under great difficulties. Some of their wells are drilled to a greater depth under the sea than is done anywhere else in the world. But the Gippsland field is not really large by world standards. Certainly it is a good field, but the reserves of fields in Saudi Arabia and other countries are fifty times larger than the reserves in the

Gippsland field. Gippsland will provide Australia with only a small part of the crude oil it requires. In the next 20 years we will need about four times the reserves that have already been discovered, even to be selfsufficient. After all, why should we not aim at something more than just self-sufficiency? Of course, the sin that Esso-BHP has committed is to be successful. With the Australian Labor Party, a company is perfectly all right if it is unsuccessful, but the moment it is successful and starts to make a profit, it has committed a sin and is in error. That is the sin that has been committed by Esso-BHP.

Let us examine the incentive price. The matter was put to the Tariff Board, which heard evidence from many people. Some of these, of course, as one would expect, sought a much larger incentive loading of $1. 50 a barrel. Twenty-eight other companies and the New South Wales Chamber of Manufactures also sought a loading of $1.50. The Associated group sought a loading of $2.22 to $2.40. The Tariff Board recommended that there should be an incentive payment - this was based on a similar situation in California - but said that the incentive payment should be only 25c a barrel. The Government believed that this was not a sufficient incentive and raised it to 75c a barrel.

Mr Peters - What did Fitzpatrick say?

Mr FAIRBAIRN - I know what he would say, because he imports oil and does not want it to be found locally. Expenditure by companies so far is of a vast order. All told, since the search for oil commenced in Australia, companies have spent $44 2m, which is close to $450m. Until now they have received virtually no return of any kind. Two very minor fields at Moonie and Barrow have been discovered and a small sum in royalties has been returned on them. Over and above the $450 already spent, BHP and Esso between them may have to put up another$3 00m to bring the field into production. All I can say to the House at the present moment is that the Government is looking at the position in the light of the altered circumstances. Production may reach 60% of our requirements, but this will be 60% for 1 year or at the most 2 years. After that, field flow will decrease and consumption will increase. and so the percentage of local requirements met by the fields will decrease. However, the position has altered since the Government made its decision. At the moment an inter-departmental committee is examining the situation as it will be both before and after the end of the 5 year period suggested by the Tariff Board. It is considering whether an incentive price will still be required after the end of that 5 year period. Some time ago we engaged Dr Frankel from London. He is a world authority on petroleum prices.

Let me refer to one point made by the honourable member for Cunningham (Mr Connor). He claimed that by abandoning the graticular system we had made a great gift to BHP. I am perfectly certain that the governments are now doing better than they would have done if they had kept to the old system of relinquishing, which meant that out of the nine blocks in an area a permit holder could keep five but would have to relinquish four. Under the present system, the companies will pay an override of 21% on every barrel produced from those nine blocks. If we take the value of oil at $2,400m - actually it would be more than that - we find that the total payment by override royalty to the State will be at least $60m and will certainly be more. No one can tell me that the system of relinquishing blocks would have returned $60m. I am certain it would not have brought anything like that.

Every one of the State Ministers agreed to the system we have adopted. It was accepted by the then Labor Government of South Australia and the Labor Government of Tasmania. The big advantage of the system is that we do not have to overdrill the structures. A tremendous amount of waste has occurred in the United States because everyone has a small area and must drill his own area to get a royalty from it. We believe that we are getting an adequate royalty. We are getting a very adequate tax return. It should never be forgotten that probably half the profits made from this oil field will revert either to the State Government or to the Federal Government through royalties, taxes and other means. Esso-BHP claim the return to the governments is slightly more than half, but I do not think that is correct. Undoubtedly the return to the Government will be considerable. There is also the return of security and we will not have to import vast quantities of expensive crude oil from other countries.

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