Scoop Election 08: edited by Gordon Campbell

On the oil lobby’s claims about the Petrobras protests

April 21st, 2011

tim denee illustration – NZ and oil – the easiest drink in town
Illustration by Tim Denee –

Nice of petroleum industry lobbyist John Pfahlert to offer to correct “the number of media inaccuracies” that he feels have crept into coverage of the Petrobras protests. Here’s an example of what Pfahlert offers as evidence of media “errors”.

New Zealand only gets a 5 percent royalty return from oil and gas exploration: Incorrect — the tax law requires the payment of the greater of a 5 percent ad valorem royalty (5 percent of the value of the oil or gas sold) or 20 percent of the accounting profits made by the producer — which for offshore oil and gas discoveries will mean a 20 percent accounting profit royalty in every case. This does not include the explorer paying corporate tax, GST and ETS costs. In addition, all employees pay PAYE, and all companies associated with oil and gas developments and servicing the industry pay taxes on their profits. To say it’s only 5 percent is grossly misleading.

Well, what would be REALLY gross and misleading is any suggestion that this royalty and tax package constitutes a fair return for the exploitation of New Zealand’s oil and gas resources. Not to mention the risk to its coastline fishing and tourism activities that the activities of oil and gas companies such as Petrobras represent. The 5% headline royalty rate is in effect the baseline – since “20 per cent of the accounting profits made by the producer” opens the door to creative accounting of the kind perfected in Hollywood, where films amassing hundreds of millions of dollars can somehow languish in perpetual deficit. It also impresses oil and gas companies.

It is not because of media inaccuracies that the public thinks Petrobras are being virtually gifted our resources, at considerable risk to New Zealand. In 2007, then-Energy Minister Harry Duynhoeven was boasting in the media that New Zealand had one of the lowest royalty regimes in the world – and last year, there were indications those rates were to be lowered even further amid multimillion dollar sweeteners on seismic research.

But let us for a moment, take Pfahlert on his own terms. Within the industry, the combined package of royalties, corporate tax, GST etc to which he is referring above is called the “take.” According to this report – citing an oil industry executive – the average rate of the take for oil and gas exploration within the OECD during 2010 was 44%. What is it in New Zealand? Well, in 2007, the US Government Accountability Office calculated that the New Zealand “take” for oil and gas exploration was 37.5%. Below the OECD average, and well below what Norway and Angola demand and headed downwards. It may be that New Zealand’s deepwater fields and remoteness make some inducements to exploration companies appear essential – but face it, is there any sign that the government is willing or able to negotiate a good deal with the hardknuckle operators from the oil multinationals ?

In recent weeks, Greenpeace has done a brilliant job of exposing how New Zealand is carrying almost all the risks in the Raukumara Basin exploration by Petrobras, for negligible returns. When the issue first arose last year, the government assured the public that industry best practice would be followed. This week, Pfahlert’s Petroleum Exploration and Production Association blew that message by maintaining it would be ‘absurd’ for New Zealand to require Petrobras to have the best post-Deepwater Horizon oil spill technology on standby in New Zealand before its deepwater drilling began. (Keep in mind that Petrobras will be operating at depths comparable to the Gulf of Mexico conditions in which BP was operating the Deepwater Horizon rig, and then proceeding to twice that depth.) Only a beach cleanup afterwards would be practical, Pfahlert maintained.

On RNZ this morning, Pfahlert’s spokesperson was asked if Petrobras would be operating with blow out preventers (BOPs) Wrong question. BP had BOPs in place in the Gulf, and the problem was they didn’t work. Arguably, because the slack US regulatory authorities carried over from the Bush administration had allowed BP and others to operate without the $500,000 acoustic shutdown switch on their BOPs that other countries such as Norway regard as mandatory. Do we demand such switches on the BOPs in use here? The spokesperson also assured RNZ’s Geoff Robinson that the companies had every incentive to avoid oil spills. This is patently untrue. Liability for spills is capped – in New Zealand, the maximum punitive penalty tops out at a paltry $200,000 – and any cleanup costs faced by the companies are tax deductible.

Finally, if we are ever to find the right balance between risk and return when it comes to oil and gas exploration, we will need to upgrade our systems for monitoring extraction. How do we propose to monitor what amounts Petrobras is really taking out of this remote field, and ensure they reporting honestly and accurately? Apparently, not even the US government has the resources to do this job accurately. Also, check this out.

How do we propose to keep tabs on Petrobras?


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    1. 16 Responses to “On the oil lobby’s claims about the Petrobras protests”

    2. By factchecker on Apr 21, 2011 | Reply

      Oil companies operating in NZ are required to submit accounts to the government to calculate the accounting profits royalty; they also have companies office and NZX operations as well. Royalties from petroleum production are regularly in the hundreds of millions of dollars for the Crown; a tidy earner in this age of massive deficits. Plus there’s tax and GST and PAYE and everything else as well.

      The reality is that NZ is isolated from the rest of the world and has risky geology (in the sense that is massively underexplored); essentially our royalty rates are lower than average in order to compensate explorers for that risk. However, if a massive discovery was made; that’s not to say NZ couldn’t ramp up the royalty rates to profit from it, that’s within the sovereign control of the NZ government.

      You make some interesting points in the rest of your post, however your basic problem is a massive over distrust of a) oil companies b) regulation, c) multinationals generally, and a massive overreliance on what Greenpeace says.

    3. By Chris on Apr 21, 2011 | Reply

      Gordon, I was the person commenting on the radio this morning. I am not John Pfahlert’s spokesperson (John is the sole employee of PEPANZ). I am corporate affairs manager for New Zealand Oil & Gas Ltd. We have been operating safely in NZ for 30 years. NZOG discovered the Kupe gas field in 1986 and the Tui oil field in 2003. Those two fields are currently in production and have already contributed billions of dollars to the NZ economy. Many New Zealanders – maybe even you -would have had their shower this morning heated by gas from Kupe.
      I stand by my argument that the companies themselves have the greatest incentive to act safely and responsibly. The best protection against a spill is doing things right. BP, one of the largest companies in the world, was almost destroyed because it didn’t do things right.
      Almost 8000 people in Taranaki have jobs in the industry and it contributes $2.5 billion a year to the economy (Those are not the industry’s figures, they come from independent research). The people of Taranaki know that there are enormous benefits to be gained from exploring for oil and gas, and we are all commited to doing this safely and responsibly.

    4. By lyndon on Apr 21, 2011 | Reply

      Maritime NZ: Equipment used for marine oil spills.

      Note an ‘oil recovery vessel’ looks like this and we have three of them.

    5. By Wimpie on Apr 21, 2011 | Reply

      @ Chris

      Your comments are appreciated, but miss the point entirely.

      Gordon Campbell’s ‘analyses’ follow a very predictable formula. When he ‘analyses’ and comments on an initiative or an action involving the National Government,his inevitable conclusion is that they are wrong.

      This is an armchair commentator who has the luxury of never having to make decisions. All he has to do is criticise those of others.

      And the curious thing? He has many followers who hang on his every word. He is their Messiah.

    6. By donna on Apr 21, 2011 | Reply

      Uh, I have to say I’m struggling with some of the comments. I heard both the interviews Gordon refers to, and as an ordinary citizen trying to eat my breakfast without choking, the interview with Pfahlert sounded very much in the mode of “Get stuffed. We’re not bringing technology down here and you can’t make us.” (Actually, if we had a government that gave a shit we could, but we don’t).I have listened to a number of programmes about the Louisiana coastline a year on from the Deepwater explosion, and the comment that a beach clean up will have to do is frankly alarming.
      And oil company reps moaning that it’s in the best interests of oil companies to be responsible sound, oh how can I put this? Hollow? Perhaps if the industry had taken the Deepwater disaster seriously instead of campaigning against greater federal oversight; perhaps if they hadn’t been so blase about dumping the equivalent of several Deepwaters in the Nigerian delta; and perhaps if they didn’t spend so much funding phony thinktanks that specialise in climate change denial some of this might seem believable.
      And yes, some people might have jobs today, but their grandchildren won’t, plus they’ll have to live with the consequences of us being too lazy to think of a way out of our fossil fuel addiction.

    7. By richarquis on Apr 21, 2011 | Reply

      Wimpie, is the irony so lost on you? Your comments all follow the same formula of saying that GC just sits and criticises National, etc. Meanwhile, you yourself offer no actual argument, either against his analysis, or in favour of yours, whatever that may be. I see more facts, logic, and analysis in a single sentence by GC, than I have yet to see from any of your comments. Back it up, or give it up, please.

    8. By Scot on Apr 21, 2011 | Reply

      Hey, hang on. You all seem to be ignoring the positive effect on GDP a major crisis would provide us. An Exon calamity USD5b, Gulf of Mexico 50b. That’s about NZD60b by my calcs. Might be only NZD30b by the time it happens, but that’s still 15% of GDP.

      We could become the fastest growth country in the OECD. Overtake China, yeah.

      We should be encouraging these guys to drill to their hearts content and hope they stuff up.

      Think of all the jobs! Forget the bike track, lets clean the beaches and the birds and the barnicles.

      John Key, I always knew it. You’re a genius!

    9. By Draco T Bastard on Apr 22, 2011 | Reply

      “How do we propose to keep tabs on Petrobras?”

      You’re talking a National government here – they have no intention of such oversight.

    10. By Wimpie on Apr 23, 2011 | Reply

      @ richarquis

      Are you trying to tell me the contributors to this forum are seriously interested in arguments?

      Just look at the latest ‘argument’ made by this Draco T Bastard. A telling example of the caliber of the ‘arguments’ advanced here.

      The contributions are ‘reflexive’ at best. They all amount to one conclusion: National is wrong; Campbell is right.

      Join the groupthink! Adelante guerrilleros!

    11. By richarquis on Apr 23, 2011 | Reply

      Well, clearly, the contributor Wimpie is not interested in debate. You talk on and on about others, but when asked for your opinion, you say “I only talk to open minded people.” You say the opinions of others here are “reflexive at best” yet all I’ve seen from you is reflex against the people here, whether GC or responders. This reeks of hypocrisy. It’s like the kid at school who says “I’ve got a really amazing bike.” Another kid asks, “Can we see it?” and the kid responds “No, sorry, I don’t show it to anyone.” If you’re going to berate the arguments of others, and infer that you’re better, then put your money where your mouth is, and elaborate on your supposed clarity and reasoning. Otherwise it’s just hot air. Yes, the people here support the views of GC. But that doesn’t make them incapable or uninterested in debating. You’re just making accusations of their characters based on your perceptions of what anyone who supports something different to you should be. I’ve seen several people ask for your opinion, when you challenge theirs, and you’ve consistently sidestepped the issue. You’re doing a fine job of living up to your username. It’s up to you to prove yourself better. Using your words, “I only have conversations with open minded people” seems awfully at odds with your contemptuous “Join the groupthink!” The only thing that makes you “individual” in this stance is the fact that none of your group followed you here. Try having a conversation with us, we are Kiwis who care about our country, which I assume is the same as you. We don’t have to agree with each other for a conversation to be worthwhile. But we do have to put forth a validated perspective for it to be.

    12. By Joe Blow on Apr 23, 2011 | Reply

      Hear! Hear!

    13. By Wimpie on Apr 24, 2011 | Reply

      Wow! A voice against the ‘establishment’!

    14. By Joe Blow on Apr 24, 2011 | Reply

      Only one word left to describe you with = “puerile”.

    15. By Elyse on Apr 25, 2011 | Reply

      If you could take your head out of your own prejudice and dogma you’d realize that Gordon is the most intelligent commentator in New Zealand and a world class journalist.
      Why do you read him, then, if he’s so lazy (“This is an armchair commentator who has the luxury of never having to make decisions. All he has to do is criticise those of others”)?. Even journalists have to make a living and whether or not they do is dependent on writing something worthwhile reading. I wonder how you make yours?

      you say NZ has “risky geology (in the sense that is massively underexplored)”. We have risky geology all right and it’s nothing to do with uncertain profits for oil companies.

    16. By Miserable Old Bastard on Apr 27, 2011 | Reply

      your basic problem is a massive over distrust of a) oil companies b) regulation, c) multinationals generally

      Hmm, my basic problem too. I wonder why that could be?

    17. By ben on Apr 28, 2011 | Reply

      wow! what a flotilla! nothing to worry about if they is a large scale spill. now i can sleep easy….tui anyone?

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