According to Martin, a bright young chap who should know better, the oil industry is “on notice”.
Under his management, explorers will risk losing leases unless they develop (or make an effort to develop) any petroleum discovery.
“Use it, or lose it”, is the simplistic catch-cry from Martin – or, more likely, from some idealistic, socialist, staff member who reckons that all corporations are run by crooks – or Americans, which is much the same thing according to some people.
In theory, the demand that companies develop a discovery seems fair. After all, what’s in the ground is the property of the country (or, the Queen as the head of government in Australia, to be more precise).
The problem, as The Slug will demonstrate, is that invoking the name of Elizabeth Windsor is about as valid as trying to apply the “use it, or lose it” principle.
In the first instance, Elizabeth’s reign as Queen of Australia is in name only – just as the use it, or lose it principle totally overlooks the commercial aspect of an oil discovery.
Testing the first example is easy. No one known to The Slug gives a toss about Elizabeth’s title even though she is named as “the boss” in every Australian passport.
Testing the second example about retention leases is almost as easy – how does a government determine the commercial viability of an oil or gas discovery?
Put it this way. People who believe in conspiracies (such as staff in the offices of a newly elected government) have all sorts of wild ideas about mega-corporations warehousing discoveries which will be developed when it suits them.
At times, this might be true. Shell Oil’s infamous gas-project “sequencing” plan was a possible example of using it, when it best suited Shell.
But the management of most oil companies is not interested in that sort of business practice. The shareholders, who want profit above everything else, would quickly boot out managers who sat on undeveloped assets.
And that, in a nutshell, takes us to the commercial issues in the retention debate, and the fact that if an oil (or gas) discovery is genuinely profitable it will be developed as quickly as possible.
The problem for Martin and his mates in government is that they come from an anti-business background.
They simply do not understand that for a project to be commercially viable it must clear many hurdles, starting with the reserves (and can they actually be extracted), the cost of capital, the availability of expert management, and the availability of infrastructure.
One region at the front of Martin’s mind is the gas sitting in the Browse and Bonaparte Basins off the north-west coast of Australia.
These remarkable remote discoveries would be commercial if close to a big market.
The fact is, they’re not.
There is no market the size of Sydney or Melbourne within 5000km of the Browse Basin. If you believe the environmental lobby, there isn’t even an acceptable landing site on mainland Australia to process the gas.
The Slug will not bore readers with a long-winded explanation about the difference between an oil/gas discovery and a commercial oil/gas discovery – rather he’ll point to what happens when a government enforces the use it, or lose it rules.
In the WA mining industry there is a similar clause covering iron ore mining. In fact, that clause goes as far as a requirement to make steel in WA.
Over the past 40 years countless investigations have been made into the commercial viability of steel production in the west, and all have found it just ain’t commercially viable.
Well, said the government, why not partially process the iron ore – effectively forcing companies into making iron pellets, and or hot briquetted iron.
The result, several billion dollars wasted because either costs were too high or the technology didn’t work.
Rather than practice cracking the whip he inherited with his new job, Minister Martin would be well advised to look at the damage caused in the name of use it, or lose it – and find the time for a night-school class on what the word commercial actually means.
