26 May 2015

Drop in mining royalties

9:52 am on 26 May 2015

Falling oil prices have slashed the royalties New Zealand receives from mining companies.

oil drilling rig

Photo: 123RF

In 2011, New Zealand made more than $360 million in royalties from the oil, gas and mineral industries. That is forecast in Budget documents to drop to about $228 million next year.

Petroleum takes the biggest hit - from $357 million in 2011 to $220 million in 2016.

Petroleum Exploration and Production Association (PEPANZ) chief executive Cameron Madgwick said the drop reflected falling oil prices.

He said the Brent Crude oil price had dropped from around $120 a barrel last year to $67 today.

"There's an oversupply, so there's more products coming out of particular markets especially the United States which used to be a big net importer but now they are self sufficient.

"OPEC has retained current production levels so there is more available and in a commodity market when there more of it than buyers then the price comes down."

Other parts of the mining industry were also affected in the wake of falling demand.

Over that same six year period, mineral companies will contribute $3 million less and coal just under $1 million less.

Mining industry umbrella group Straterra said the industry downturn was clear, with job losses, most recently at Solid Energy.

But chief executive Chris Baker said there was also hope, citing the recent sale of Newmont Waihi's gold mine to Oceanagold.

And he said royalties were just one measure of the benefits mining delivers to the economy.

"When you are looking at mining you are looking at jobs, regional development and investment and taxes and PAYE, not royalties as a measure of contribution to NZ INC."

But Green Party energy spokesperson Gareth Hughes said the drop in royalties showed it was an industry that was not worth backing, despite government efforts to encourage investment.

"It shows that National's 'drill it, mine it, frack it' economic agenda isn't working. It's running out of gas. It shows that backing oil and gas isn't a winner."

Mr Madgwick said petroleum companies paid about 12 percent of their profits in royalties, which was very low by world standards.

But this was not the only reason mining companies invested in New Zealand and he believed lifting royalties to boost government revenues would not make much difference to overall investment here.

"It's not just the straight number to number comparison when people look at investing in a country like New Zealand. They take into account number of factors a stable and understood fiscal regime, including a royalty and tax regime is one fact, a stable regulated regime is another and a stable government is another."

Energy Minister Simon Bridges told Morning Report exploration needed to continue as demand would bounce back. Stronger oil prices were expected in the 2020s which would lift royalties.

He has ruled out making any changes to the royalty structure, saying the regime needs to be stable in order to drive more investment.

Breakdown of royalties

Petroleum royalties

  • 2011 - $357,058,000
  • 2012 - $333,760,000
  • 2013 - $381,322,000
  • 2014 - $343,567,000
  • 2015 - $278,000,000
  • 2016 - $220,900,000

Minerals royalties

  • 2011 - $9,227,000
  • 2012 - $10,722,000
  • 2013 - $7,524,000
  • 2014 - $7,658,000
  • 2015 - $6,000,000
  • 2016 - $6,000,000

Coal royalties

  • 2011 - $2,259,000
  • 2012 - $2,757,000
  • 2013 - $1,250,000
  • 2014 - $2,066,000
  • 2015 - $1,500,000
  • 2016 - $1,500,000

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