October 14, 2014

An opinion piece by Nev Power (“Cobra regulation restricting conventional gas supply”, Australian Financial Review, 13 October) is right to point out the need to develop our gas resources, including onshore resources in eastern Australia, as a key way to ensure more gas flows into the domestic market.

However, in arguing for a more rigorous application of the existing retention lease system, Mr Power is, in reality, arguing that the current system should be allowed to operate as it is intended.

Retention leases are not granted or renewed automatically and governments have an interest (in the form of taxation revenue and job creation) in accelerating the development of Australia’s gas resources.

The current retention lease framework already incorporates a rigorous approach to testing commerciality and titleholders are required to undertake a work program, field work or commercial studies to address the barriers to commercialisation for the duration of the title. If a resource is found to be commercial, Government can require development. The test of commerciality is rigorously applied.

Importantly, the system also recognises that companies incur significant costs up-front in exploration. With the average cost of drilling an offshore well now more than $130 million, exploration is a high commercial risk activity with no guarantee of success. The industry’s history in Australia shows that only one in 14 wells drilled has led to production.

The retention lease framework is an important part of the Government’s overall acreage management system that is designed to provide the incentives for identifying and developing Australia’s oil and gas resources. We should be wary about calls to fix something that isn’t broken.

Published as a letter to the editor in the Australian Financial Review, 15 October.