A map of New Zealand with all the basins marked, both onshore and offshore. (Courtesy of IHS)

New Zealand has made a giant step towards keeping its natural resources thriving. Through the continuation of the tax exemption implemented five years ago, the New Zealand government is encouraging offshore operators to go to the country and explore for hydrocarbons.

In 2004 the government introduced a tax exemption for non-resident offshore rig operators. Prior to this exemption, if operators were non-resident from a country that had a double tax agreement with New Zealand, they had no tax payments for up to 183 days (roughly half of a year), but as the background information on the tax explains, “If they stay for more than 183 days, all income will result from the first day of presence in New Zealand and will be subject to New Zealand tax.” Due to this rule, many operators would skedaddle before the 183 days were up to avoid this tax. As an incentive for them to stay, the government instated the tax exemption, which was a success. In fact, it was so much of a success that the government is extending the originally proposed expiration date of Dec. 31, 2009, to Dec. 31, 2014.

Of course the tax exemption was not a random act of kindness to non-resident offshore operators. According to a statement issued by Energy and Resources Minister Gerry Brownlee and Revenue Minister Peter Dunne, “The international exploration industry is showing increasing interest in New Zealand following recent government initiatives. To build on this interest, the government will be extending the exemption … to further encourage exploration of New Zealand’s offshore hydrocarbon basins.” In the end, it’s a win-win situation: the operators don’t pay taxes, New Zealand is getting the world’s attention, and its offshore natural resources are being developed.

In the period between 1999 and 2007 there were 190 onshore wells but only 47 offshore wells drilled. There were two years (2001 and 2005) during which there were no offshore wells drilled at all. While 2001 had one of the lowest numbers of onshore wells, 2005 had the largest number of onshore wells out of this nine-year period.

In 2005, there were a total of 34 onshore wells drilled. The difference between these two years shows the increase in interest that the oil and gas industry had in New Zealand.

It is easy to see the slow growth that has happened over the past 35 years for New Zealand’s industry. The total production of oil has changed drastically from 1970 to 2007, ramping up from 0.42 MMbbl to 14.87 MMbbl. The number of offshore wells drilled in 2007 more than doubled from the previous year, increasing from eight to 17 and showing the interest that the tax exemption sparked.

In the media statement that Brownlee and Dunne released, they said that New Zealand is far from other countries with petroleum programs, and the cost of mobilizing rigs and seismic vessels is high. But with the continuation of this tax exemption these issues will be minimized, making New Zealand more competitive with other countries’ petroleum programs. Along with the tax exemption, the New Zealand government is dividing US $13.1 million over three years into government-funded seismic data acquisition, continuing the exemption further. The ministers’ Web site states that the amount “will be enough to give an initial indication of the prospectivity of some areas and give industry useful data to work with.”

With the help of Crown Minerals, The Ministry of Economic Development, operators can gather data about the offshore surveys, aiding them in their search for natural resources. All this new action is possible through the renewal of the tax exemption, which will be included in a tax bill to be introduced near the end of the year. It isn’t a sure thing yet, but the benefits of the existing exemption are tipping the scales toward it being continued. And if these next five years see even more growth, who knows what will happen in December 2014?