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NZ tries to tempt oil and gas giants

It’s no secret that Australia is positioned to earn billions of dollars over the next decade as oil and gas projects come into production and the output is exported to major international buyers.

Forecasts from the Q2 2013 Australia Oil and Gas Report estimate Australia will be the biggest LNG exporter by 2022, topping even Qatar. Now New Zealand is upping its efforts for a slice of the action, opening up the country for exploration.

The NZ government is tendering permits covering 189,000 square km of offshore acreage covering the country’s north, south, east and west, as well as 1500 square km of onshore area. The country is better known for its milk than its oil production, but the significant coastline has been only sparsely explored. Current production is isolated to one area on the North Island’s west coast, operated by New Zealand Oil and Gas (ASX: NZO).

Shell (NYSE: RDS.A) is currently undertaking exploration of a block in the Great South Basin and is reportedly weighing up a NZ$200 million drilling programme. However the latest tender offer could represent a good opportunity for Australia’s energy giants like Santos (ASX: STO), Woodside Petroleum (ASX: WPL) and Oil Search Limited (ASX: OSH).

All three companies would be able to leverage their substantial experience as well as potentially locking in much lower production costs through lower labour costs and the lower NZ dollar. That alone is a huge selling point. Salaries for oil and gas workers in Australia are the world’s highest, averaging $163,000 according to recruitment agency Hays Plc.

The high costs have forced many companies to change production methods to maintain viability. Shell, Exxon Mobil and now Woodside are all considering developing floating LNG (FLNG) production options, avoiding pipeline and port facilities. Estimates put the savings from offshore production at nearly 20% over land based production.

Foolish takeaway

The announcement coincided with a proposal to impose big fines to groups and individuals who interfere with mining structures or their activities, a measure taken to reduce the prospect of companies being put off by the country’s active anti-oil activists. It may just be enough to tempt Australia’s gas giants to explore across the ditch.

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More reading

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Regan Pearson doesn’t own shares in any companies mentioned in this article.

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